Clean energy investment landscape: setting the scene


  • The IEA’s Africa Energy Outlook 2022 laid out a new scenario – the Sustainable Africa Scenario (SAS) – which sees the continent achieve by 2030, in full and on time, all of its energy and climate-related goals, including universal energy access and its NDCs.
  • Realising the SAS requires mobilising over USD 200 billion annually by 2030, but energy investment has been declining in Africa and in 2022 was under USD 90 billion. Clean energy spending was a fraction of this at around USD 25 billion – only 2% of the global total despite the recent rise in global clean energy investment. This is far from what is required to meet the growing energy needs of 20% of the global population.
  • Under current financing norms, project developers often struggle to access adequate capital and capital providers to identify investable assets. Resolving this disconnect requires effort on both demand and supply, with African governments, donors, development finance institutions and private companies all playing a role. Increasing the availability of affordable capital can be a key lever to trigger a series of reinforcing positive outcomes, including driving the development of more bankable projects.
  • The cost of capital is an important factor since many clean energy and end-use investments (including energy access projects) require high upfront spending. The cost of capital for utility-scale energy projects in Africa is two to three times higher than in advanced economies and is often higher for smaller projects that have fewer capital providers available. This can act as a major barrier to scaling up investment.
  • Cost of capital largely reflects two sets of risks: those associated with the country, and those associated with the sector or technology. Addressing these requires different country-specific solutions, with country risks generally requiring longer-term structural reforms, and more specific risks addressed with energy policy reforms.
  • At the country risk level, the macroeconomic context has significantly worsened in many African countries, with average external debt on the continent increasing both in absolute terms and as a share of GDP, from 16% in 2011 to 31% in 2021. When combined with currency depreciations and US and EU interest rate hikes, this has driven up debt servicing costs, which are now double the level of clean energy investment across the continent as a whole.
  • Energy sector-specific risks vary significantly by country, technology and financing provider. One of the primary difficulties for utility-scale renewable or grid projects has been offtaker risk, with only about one in three utilities in Africa able to cover their operational and debt servicing costs. This increases transmission risk due to underinvestment in grid infrastructure. Decentralised solutions play a critical role, but advancing them can face regulatory hurdles or finance ill-adapted to supporting them.