A critical energy transition is underway in Africa, where 33% of the population lacks access to electricity, especially in sub-Saharan Africa.
A critical energy transition is underway in Africa, where 33% of the population lacks access to electricity, especially in sub-Saharan Africa.
In order to facilitate the global energy transition, nations are utilising renewable energy sources and expanding their mineral trade. Countries are putting climate change and the Paris Agreement into practise while also supporting African renewable energy projects with funding, investments, and grants.
Funding and grants
The world’s nations, as well as those in Africa, recently reaffirmed their dedication to strategic, long-term projects that will build impact and aid in Africa’s energy transition as well as its economic stability.
For example:
A Memorandum of Understanding was signed in May 2023 by the Africa Finance Corporation and the Japan Bank for International Cooperation (JBIC) to work together on infrastructure initiatives that quicken Africa’s energy transition.
The Just and Green Recovery Team Europe Initiative for South Africa was introduced by Team Europe (the European Union and its member states) in January 2023 as a part of its Global Gateway programme.
The project includes more than 280 million euros in funding in the form of grants, which will be used to support green recovery policy reforms, unlock green investments, and create a knowledge-based transition in South Africa.
G7 launches $600 billion PGII lending initiative for sustainable infrastructure projects in developing countries, focusing on Africa.
Additionally in 2022, the US declared that as part of the PGII, it would mobilise USD 200 billion for developing nations over the following five years. This money will be provided through grants, loans, and investments from the private sector.
This funding’s “tackling the climate crisis and bolstering global energy security” pillar will be one of its top priorities. Several deals, including a $2 billion solar energy project in Angola, have already been publicised.
The US government’s Power Africa programme, which aims to improve Africa’s access to electricity, has also made a significant contribution to the energy transition. One of Power Africa’s accomplishments, as noted in its 2022 Annual Report, was to provide first-time and improved electricity access to 37.7 million people in Africa in 2022 through 7.6 million new on- and off-grid connections to homes and businesses.
In February 2022, the European Commission announced 150 billion euros in investment funding for Africa, part of the EU Global Gateway Investment Scheme. The funding package includes capital from investment banks, member states, and combined funds from all EU members.
The Comprehensive Strategy with Africa, published in 2020, aims to improve Africa’s relationship with the continent by promoting clean energy access and facilitating the transition to a greener economy.
Recently, China and Africa also decided to collaborate on enhancing Africa’s capacity for eco-friendly, low-carbon, and sustainable development. Green development was one of nine programmes named as a component of the China-Africa Cooperation Vision 2035 at the 2021 Forum on China-Africa Cooperation.
The UAE, Africa’s fourth-largest investor, has contributed significantly to numerous infrastructure and energy projects. This advances the UAE’s development agenda while helping the continent.
With recent investments in LNG projects in Mozambique, Nigeria, Senegal, and Mauritania, the UAE’s experience in the oil and gas industry has also assisted African nations in advancing their plans for using gas as a source of energy.
To increase their non-oil bilateral trade, which totaled USD 2.3 billion last year, the UAE and Kenya have declared their intent to negotiate a Comprehensive Economic Partnership Agreement (CEPA). This action demonstrates their dedication to sustainable trade and decision-making based on policy.
There have recently been many new cross-regional energy transition initiatives announced. The Africa Carbon Markets Initiative (ACMI), which aims to significantly increase Africa’s participation in voluntary carbon markets, was introduced at COP 27.
By 2030 and 1.5 billion credits annually by 2050, respectively, are the targets set by the ACMI for Africa. It was noted that these goals would provide crucial funding for energy transition in Africa. The initiative had the support of many African nations, including Gabon, Kenya, Malawi, Nigeria, and Togo.
Egypt’s COP27 presidency has launched the Africa Just and Affordable Energy Transition Initiative, aiming to identify local strategies and energy mixes to reduce African countries’ reliance on fossil fuels. The initiative aims to meet universal access by 2030 and Agenda 2063 energy demands, focusing on technical and policy support. Egypt also aims to supply 42% of its energy requirements through renewable energy by 2035.
Under the Just Energy Transition Partnership (JETP), the EU, France, Germany, the UK, and the US committed USD 8.5 billion in first-round financing to aid South Africa’s energy transition initiatives .
The Just Energy Transition Investment Plan was introduced by President Cyril Ramaphosa, who identified USD 98 billion in funding needs from the public and private sectors over the following five years. A similar partnership is being discussed for the Sénégal region.
Nigeria wanted the support of a JETP with the G7, according to Nigeria’s Environment Minister Mohammed Abdullahi at COP 27. He noted that the nation needed USD 10 billion in financing each year to reach its 2060 net zero goal when he said that the country needed significant resources to carry out its energy transition.
Recently, Kenya signed a framework agreement to produce 300 MW of green hydrogen as an initial goal, according to the country’s president, William Ruto.
Tanzanian President Samia Suluhu Hassan proposed an 18-billion USD energy transition proposal for 12 southern African countries connected via the Southern African Power Pool. The proposal aims to increase renewable energy generation by 8.4 GW in these countries.
Multilateral and development finance institutions (DFIs) play a crucial role in funding Africa’s renewable energy sector. They provide funding for projects and structured successful programs to address potential risks. The Sustainable Energy Fund for Africa (SEFA) offers catalytic finance to unlock private sector investment in renewable energy and energy efficiency.
Investment
Inadequate funding, a lack of adequate utilities infrastructure, and adapted energy policies have all made it difficult for Africans to access electricity.
However, using mobile technology and current electricity transmission networks, new systems and networks are being developed to address environmental stressors and energy demands. These advancements give African communities an alternative to the conventional centralised model for power access.
To combat climate change and promote economic growth, creative PE and M&A investment opportunities are being developed. With a focus on renewable energy, green hydrogen, battery storage, and smart power technologies, South Africa’s PE funds are supporting independent power producers and clean energy sector businesses in the nation’s energy transition.
According to Bloomberg, the majority of clean energy investments in Africa are made in South Africa, Egypt, Morocco, and Kenya, which have combined to receive 75% of the USD 46 billion in investments made in renewable energy assets since 2010. The remaining 43% of Africans who have not yet benefited from the region’s renewable resources are to be given access to electricity through initiatives aimed at increasing renewable energy access.