Green Finance in Africa: The role of Private Investment in Sustainable Development

More than 80% of the global population that are without access to electricity live in sub-Saharan Africa. Reliable and affordable energy is critical to economic development and lifting Africa out of poverty according to the International Energy Agency and the United Nations. The region has the world’s youngest and fastest-growing population and naturally, the demand for available and affordable energy is high.

The seventh UN Sustainable Development Goal (SDG) is dedicated to the accessibility of ‘affordable, reliable, sustainable and modern energy for all’ by 2030. To meet this target, an estimated USD 1.3 to 1.4 trillion is required annually to meet this goal (1). The opportunity speaks for itself, and yet seven years after the SDGs were launched, international public financing is in decline. While in 2017, financing for clean energy in developing countries, including Africa, amounted to USD 28.4 billion, by 2021 this figure had fallen to just USD 10.8 billion (2). A far cry from the amount required. Yet, these facts are well known and have been circulating for years, along with the investment opportunities that energy projects can bring.

How to propel progress

With future demand a given, Africa remains an attractive opportunity for renewable solutions. What’s more, with wind and solar at its fingertips, it has one of the largest supplies of natural clean resources in the world, making it a key player in the global energy transition.

Notwithstanding the shortfalls, there has been notable progress across sub-Saharan Africa and many projects have the financial backing to address electrification. The issue lies in identifying the right projects. While projects that reach financial close can result in compelling internal rates of return, only 10 per cent of projects reach that stage (3). How do you increase that percentage and attract more focused and successful investment? If you take a closer look into where projects are failing, a staggering 80 per cent do not make it past the feasibility and planning stages. This is the result of the length of time it takes to begin the project and resulting attrition. Combining private sector investment and expertise with public sector support can help to address this issue.

It is remarkable that of those projects that are realised, default rates in Africa are far lower than in Europe and North America. In Africa, project structures often benefit from direct government or state-owned enterprise support, as well as rigorous credit enhancements. With infrastructure investors and lenders involved, their stringent investment frameworks produce high quality projects that are well structured and have lower default rates. Private investors will help to improve the rate of clean energy projects coming to fruition.

Where to go from here

Looking ahead, sub-Saharan Africa needs to grow enough to provide job and food security for its populations. To enable this, the region needs to see a rise in viable energy projects to secure access to affordable and renewable electricity.

A trailblazer in this space is Milele Energy, a clean energy company that owns a significant stake in Lake Turkana Wind Power, the largest wind farm in Africa. Since 2019, the project has supplied up to 30 per cent of Kenya’s power at times, employing over 320 employees, of which 99 per cent are from Kenya. Milele is now actively working on a plan to expand the project in co-operation with relevant partners spanning both the private and public sector. Milele is backed by Gemcorp Capital, a London-headquartered emerging markets-focused investor that over the past decade has delivered billions of dollars in financing to both the public and private sectors to serve essential needs in host countries.