Africa, emerging markets require $4.23trn for power by 2030

. Nigeria needs $32.3bn for universal access

Clara Nwachukwu

To achieve universal access to electricity in Africa and all emerging markets by 2030 will require almost $4.23trillion in private investment from generation and transmission.  

A new whitepaper outlining the key considerations in setting the course for Africa’s energy future was released yesterday at the 2021 Sustainable Development Impact Summit.

The report, “Financing the Future of Energy,” outlines Africa’s electricity landscape and financing options in context with the global drive to reduce carbon emissions.

Although the Whitepaper did not give a breakdown of the quoted figure, but Opportunity 2030, a Standard Chartered SDG Investment Map, which was referenced in the report, provided better insights.

The SDG Map showed that Nigeria will require about $32.3 billion, the highest in Africa, out of a total of $71.8billion investment opportunities open for infrastructure development to achieve SDGs 6, 7 and 9. These Goals relate to water and sanitation; access to affordable, reliable and sustainable energy; and infrastructure and industrialisation, respectively. 

It is particularly more challenging for developing regions like sub-Saharan Africa to raise financing because the size of financing is too small for the underwriter, and the cost of issuance is relatively high due to perceived risk for Africa.  

Decarbonisation and cleaner fuels

The Whitepaper follows the World Economic Forum (WEF) Regional Action Group for Africa, in which it noted that the continent’s power sector will play a central role in the transition from fossil fuel-driven power generation to a renewable-strong energy mix.

The global power sector is estimated to currently contribute 30% to the total global carbon dioxide emissions. Given that, traditionally, the power utility has been the main supplier of electricity to consumers, this much-needed move to a carbon-neutral future cannot be successful without the power utility playing a central role in the transition from fossil fuel-driven power generation to a renewable energy-dominated energy mix.

Among the highlights of the report is that Africa’s developing nations need investment in renewable energy solutions to fight climate change. But, emissions reduction strategies must be balanced with vital needs for economic growth and stability.

It noted that many cases will require financing for low carbon energy solutions and transition finance to assist in making the shift, while new analysis outlines financing options and investment for the continent’s energy transition.

According to the whitepaper written in collaboration with Deloitte, the migration to a multi-stakeholder-oriented net-zero power grid is being driven by “the 3Ds:”

  • Decarbonization: moving from fossil fuel sources to renewables;
  • Decentralization: Shifting from centrally managed generation, transmission, and distribution to decentralized systems; and,
  • Digitalization: Leveraging digital technology to advance the transition

The report contends that new coalitions and investments with developed nations and NGOs including the World Economic Forum (WEF), must coordinate and enable countries to leapfrog existing technologies and infrastructure.

“The need for digitally smarter utility platforms and sustainable development programs will guide global leaders in helping to shape equitable and inclusive recovery programs,” said Chido Munyati, Head of Africa at the World Economic Forum. “The entire continent remains vulnerable, but this whitepaper offers a view on what are viable financing options that exist today for clean energy sustainability and equitable recovery for all of Africa.

Funding will be the biggest hurdle to ensuring Africa’s sustainable transition to Renewables at scale; there are many financing solutions available,” said Mario Fernandes, Director, Africa Power Utilities and Renewables, Deloitte. “Africa’s winners will be the ones that are able to leverage what exists while creating an enabling environment for the private sector through a Renewable Energy Investment facility.”

Also, case studies in China and India showed that financing solutions for a clean energy transition often involve long cycles. Economic booms in these countries resulted in a significant shift in carbon emissions. Since similar economic booms are expected across Africa, the report highlights how crucial it is to anchor growth in technologies that can enable lower emissions.

The report noted that while Africa’s contribution to greenhouse gas emissions from fossil fuel significantly lags behind those of other continents, it still carries a huge potential to accelerate the transition to a net-zero future. Currently, half of the continent lives without adequate access to electricity.

As energy demands increase, the energy gap could be bridged through clean energy alternatives, if the financing solutions are employed now.

Financing energy needs

The Whitepaper referenced a recent report by the International Energy Agency (IEA) in collaboration with the WEF and the World Bank, which found that globally clean energy investments in emerging and developing economies need to increase from $150 billion in 2020 to over $1 trillion by 2030 to be on track for a net-zero scenarios by 2050.

It added that the same report found that the average cost of reducing carbon emissions in emerging markets and developing economies (EMDEs) is half the cost in advanced economies.

However, investments in clean energy are held back by costs of capital being up to seven times higher in EMDEs as well as real or perceived risks for investors. Finding ways to de-risk and unlock more investments is critical.

“It is particularly more challenging for developing regions like sub-Saharan Africa to raise financing because the size of financing is too small for the underwriter, and the cost of issuance is relatively high due to perceived risk for Africa.”

It identified green bonds, which are focused on green initiatives as one of the financing instruments that promise to advance the clean energy agenda in Africa.

In 2019, issued global green bonds constituted just over 3% of the total global bonds issued that year and have proven to be a feasible financial instrument. However, it has not been able to grow rapidly.

This is because in Africa, the trend has largely been driven by government and development banks, such as the African Development Bank (AfDB), the Development Bank of South Africa (DBSA) through the support of the World Bank, in Nigeria via the Environment and Finance Ministry, and in Kenya via the central banks.

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