With the right support, renewable energy finance in Africa can overcome challenges

SEI researchers Daniel Duma and Miquel Muñoz Cabré presented the preliminary results of their multi-year project on risk mitigation for renewable energy investments in sub-Saharan Africa, at a side event to the UN Finance for Development Forum in New York at the end of April. They highlighted that most countries in these regions, even those affected by severe economic or political crises, have at least one utility-scale renewable energy project in operation or advanced development. These successes confirm the effectiveness of the various risk mitigation instruments that enable lenders and sponsors to invest in projects.

Yet a major barrier remains when it comes to attracting private finance to renewable energy in Africa at scale: commercial viability. This is illustrated by the current state of national utilities, i.e. the main buyers of power from renewable energy projects, which are facing major financial difficulties. They struggle to collect revenues from consumers, to reduce losses, and cover their costs. At the same time, projects have been developed even under these difficult circumstances, thanks to the various programs that involved cooperation between governments, utilities, investors, and development partners. Acknowledging that there are no quick fixes to the structural problems of African markets, the researchers called for the various renewable energy support programs to continue, both at the project level and at institutional and regulatory levels, as they are delivering encouraging results.

The researchers made their comments at the side event organized by SEI in collaboration with the Swedish Permanent Mission to the UN. Focused on renewable energy finance in Africa in the current global context, the session was moderated by Måns Fellesson, deputy director and coordinator of Agenda 2030 and finance for development at the Swedish Ministry of Foreign Affairs. The lineup featured Ulrika Modéer, assistant secretary-general of UNDP, and three distinguished UN diplomats: Agnes Chimbiri-Molande of Malawi, Godfrey Kwoba of Uganda, and Njambi Kinyungu of Kenya.

The event convened representatives from the UNDP, international financial institutions such as the World Bank and the Climate Investment Funds, academic researchers from Columbia University, and others from the non-profit sector, such as the Rockefeller Foundation and the Rocky Mountain Institute. The SEI researchers’ presentation served as the basis for a roundtable discussion, moderated by Rob Watt, SEI’s engagement director, with contributions from renewable energy finance specialists from various institutions, in addition to those listed above, such as the US Agency for International Development (USAID) and the US financial investment company BlackRock, as well as representatives of Senegal, Zambia, Germany and the UK. Among the insights shared on challenges and solutions to financing renewable energy on the continent were the crucial issue of sovereign debt, the role of blended finance in managing risks, especially currency risk, and better use of local capital. Also discussed were a greater focus on the productive use of energy and the importance of clean cooking.

The event concluded with a call to continue the dialogue, with the aim of better using the accumulated experience of investors and evidence from research. The overarching goal should be to improve the interventions that show promise in driving concrete results in the short-term, while acknowledging that longer-term progress on improving institutions remains a crucial objective.