Executive summary – Clean Energy Investment for Development in Africa – Analysis - IEA (2024)

Africa’s aspirations for greater economic and social development depend on access to affordable, reliable, modern and sustainable energy. Despite immense energy resources, Africa remains energy poor. Today, around 600million Africans still lack access to electricity and more than 1 billion still cook their meals over open fires and traditional stoves using wood, charcoal, kerosene, coal and animal waste. The consequences are dire in terms of health, education, climate, and economic and social development, with many of these impacts disproportionally affecting women and children. A lack of reliable and affordable energy restrains Africa’s farmers from higher productivity; hinders industry, where energy prices and affordability remain key determinants in competitiveness; and limits the ability of countries to attract and cultivate new sectors of their economies.

Enhancing Africa’s energy systems can address these issues, but mobilising more investment remains challenging. Today, Africa accounts for around 20% of the world’s population but attracts less than 3% of spending on energy. Energy investment on the continent has been falling since its peak in 2014 and is down by 34%. Increasing investment in domestic energy systems faces hurdles, notably a shortage of bankable projects and the high cost of capital, which can be two to three times higher for renewable projects in Africa than in advanced economies. Overlapping crises have also raised the bar for attracting new capital to Africa. Currently, 21 African countries are in or are at high risk of being in debt distress, weighing heavily on public balance sheets and those of state-owned enterprises (SOEs). At the same time, higher interest rates have increased the expectations on returns in commercial markets. For clean energy projects in emerging market and developing economies, this has resulted in an increase in expected returns greater than those in advanced economies.

Meeting growing energy demand from African countries requires a more than doubling of annual energy investment by 2030, of which three-quarters is in clean energy. The IEA’s Sustainable Africa Scenario lays out a pathway in which Africa achieves all its energy-related goals in full and on time, including its pledges on climate and access to electricity and clean cooking, and aligns with the goals of the African Union’s Agenda 2063: The Africa We Want. In this scenario, energy investment in Africa grows to almost USD 240 billion annually by 2030. This report – commissioned by Italy’s G7 Presidency in support of its new initiative: Energy for Growth in Africa – lays out key areas for investment that are consistent with the objectives set by countries in Africa and supports the realisation of the Dubai Consensus’s objectives of tripling renewable capacity and doubling energy efficiency by 2030. The report also highlights financing mechanisms best suited to ensure these investments materialise in a timely manner.

Extending access to electricity and clean cooking remains the most important lever for growth and development, and is central to a just energy transition. From 2023 to 2030, around USD 22 billion per year is required to connect all African homes and businesses to electricity, while USD 4 billion per year is needed to provide them with clean cooking solutions. In total, the needed annual investments in access for Africa equate to less than 1% of current energy investment worldwide. There are also affordability challenges to consider; only half of households without electricity access today would be able to afford basic energy services without additional financial support, and even fewer would be able to afford modern cooking solutions. A number of private companies based in Africa, many of which are small and medium-sized enterprises, are offering innovative solutions beyond traditional public-sector-led approaches but scaling them requires more financing and specialised incentives to reach rural areas. Recent multilateral efforts are attracting greater political attention to energy access and bringing in new concessional and commercial funding, including the USD 2.2billion in new financing mobilised at the Summit for Clean Cooking in Africa.

Around half of the energy investment required in Africa to 2030 is needed in electricity, where policies play a key role in attracting more investment. Total electricity sector investment increases from just under USD 30 billion in 2022 to more than USD 120 billion in 2030 in the Sustainable Africa Scenario, with around 50% going towards renewable generation alone. Africa is home to some of the most cost-competitive renewable resources in the world, with 60% of the best solar resources globally, and many countries are home to high-potential resources for hydropower, geothermal, and wind. Utility-scale renewable power projects, often based on power purchase agreements, have found a foothold in markets with access to commercial finance in Africa, where around 80% of clean power projects by volume have reached investment decisions in the last five years. However, less developed markets, where three-quarters of African people live today, face greater perceived investment risks, especially where utilities are not seen as a credible off-taker. Authorising the use of concessional agreements or other regulatory carve‐outs for private investors can help attract new capital to debt-distressed utilities, as can tariff reform, though such approaches need to guard against the real risks of offering terms that are ultimately costly to consumers and governments.

Developing industry goes hand-in-hand with the expansion of Africa’s energy system. By 2030, Africa is projected to build more floor area than exists in Japan and Korea today. Accordingly, demand for steel and cement is set to grow considerably from today’s levels, alongside rising demand for irrigation pumps, cold chains, data centres and mining. Productive uses – which include industry, agriculture, freight, and public and commercial buildings – make up nearly half of the growth in electricity demand in Africa over the last ten years. These are often large and reliable customers that can financially encourage the development of new energy infrastructure. Based on today’s prices, these uses cover two-thirds of Africa’s electricity expenditure, despite only representing just over half of Africa’s electricity demand. If structured well, development financing support for African industries can play a dual role: creating reliable off-takers for new energy projects, while also providing the right incentives to install the efficient equipment that will underpin the energy systems of the future. This is increasingly important for new steel plants, with some countries currently electing to use coal-based technologies instead of hydrogen-ready, natural gas-based technologies which are cost-competitive for countries with easy access to natural gas.

Critical minerals and the manufacturing of clean energy technologies present practical opportunities to cultivate a growing industrial base. Revenues from the production of copper and key battery metals in Africa are already estimated to be more than USD 20 billion annually. The current pipeline implies a 65% increase in market value is possible by 2030, with significant potential for further growth given that investment in mineral exploration is on the rise again. New manufacturing plants for clean energy technologies and solutions to improve energy access are being developed across the continent as well, including some backed by the development finance institutions of G7 members. Additionally, low-emissions hydrogen production from announced electrolyser projects in Africa could reach 2 Mt by 2030 if all projects come to fruition. Investments in these fast-growing sectors can help diversify global supply chains and reduce import burdens for Africa. If well-designed, these projects could also be powered by energy investments that serve Africa’s wider domestic energy needs, and ensure their development creates jobs, supports local communities, and meets important health, safety, and labour criteria.

Private sector spending needs to grow 2.5 times between 2022 and 2030 to meet Africa’s energy investment needs. In the Sustainable Africa Scenario, USD 190 billion of private capital is required by 2030, growing from around USD75 billion today. Concessional capital from international sources will play a key role in mobilising this increase, with an estimated USD 30 billion per year for clean energy projects required to mobilise commercial funding over the 2023-2030 period.

Blended finance, a proven tool, can attract commercial financing that is up to seven times the level of concessional funding from donors. Blended finance – whereby donors, development finance institutions (DFIs) and philanthropies use their funds to improve the risk-return profile of projects and attract private capital to a project – will be crucial to achieving the level of investment needed in the Sustainable Africa Scenario. The number of deals using blended finance in Africa has grown since 2014, with the volume doubling from 2019 levels to reach more than USD 3 billion in 2021. Other instruments have also demonstrated their ability to improve the risk-return profile of energy investments, including green, social, sustainable and sustainability-linked (GSSS) bonds; carbon credits and voluntary carbon markets; syndication platforms and pooled investment vehicles, and instruments to address currency risk.