Approximately 1.2 billion people live outside of electrical grids. Of those people, 621 million are in Sub-Saharan Africa. This population meets their electricity needs by spending approximately U.S. $27 billion annually on kerosene, candles, battery torches, and or other fossil fuels powered by stopgap technologies.
On Tuesday, Dec. 6th, more than 70 people attended in-person and via webinar the CEADIR discussion, “Political and Credit Guarantees to Boost Clean Energy Financing in Africa.” This event featured speakers from the USAID Development Credit Authority (DCA), World Bank’s Multilateral Investment Guarantee Agency (MIGA), and the U.S. Overseas Private Investment Corporation (OPIC).
A $30 Billion Energy Access Gap in Africa
Cost estimates vary widely on the investments needed to provide energy access for Africa. However, it has been a common marketplace assumption that approximately $40 billion per year of new investments would be needed to fill in the energy access gap in Africa. As official development assistance and public funding have historically only been able to provide approximately $10 billion per year, private investments must be sought to fill in this energy demand gap.
The key drivers for private sector investments in energy access are a stable macroeconomic and political environment, a strong energy regulatory and legal framework, technical expertise and a track-record, and access to long-term financing. On the latter, financial institutions in developing countries face key challenges in offering competitive financing for clean energy investments and structuring bankable projects. Bilateral and multilateral development institutions can mitigate certain political and credit risks to scale up private sector investments in clean energy.
Public, Private Sectors Must Collaborate
The CEADIR panel discussion focused on increasing private sector investments in Africa. Each panelist explained the specificities and mechanics of its political and credit guarantees intended to catalyze private sector investments. Such guarantees can be provided for grid-connected projects as well as off-grid projects in case projects can be bundled in a portfolio to reach scalability. Such bilateral and multilateral agencies are a key to providing private investment until local regulatory and legal frameworks have reached strong, proven track-records in designing and enforcing rules and regulations.
Finally, in the long-term objective for Africa – and Sub-Saharan Africa more specifically – is to ensure that governments work cohesively with the private sector and civil society to ensure sustainable energy access through local capital development, as well as developing local energy technology market.