Asmara — Innovative financing solutions could satisfy the growing need for clean and affordable energy in Africa. The new ECA's SDG7 initiative will help towards bridging the financing gap, while structural challenges have to be addressed to attract more private investments.
"Private sector funding represents only 10% of the energy financing structure, explains Yohanes Hailu, energy expert at the Economic Commission for Africa. Most of their investments are concentrated in few countries like Nigeria or South Africa. It seems that the private sector is shy to invest in Africa, which it shouldn't be the case, since African countries have a lower default rate than most other parts of the world." Improving the macro-economic environment and attracting private investments through public-private partnership could be solutions to crowd-in the necessary private money.
Energy experts meeting at the ECA regional conference taking place in Asmara this week have discussed best practices in energy funding, critical to address the pressing funding gap that the continent faces.
Already, the latest global SDG7 tracking report warns that current progress on access will be insufficient to achieve universal access by 2030, and almost 90% of the world's population still lacking access in 2030 will be in Africa. Despite significant progress in terms of access (increasing from 26% to 40% between 2000 and 2018), affordability remains an issue: it's estimated that Africa rural population pays 60 to 80 times more per unit of energy, with electricity costs ranging from 25$ per MWH in Ethiopia to 500$ per MWH in Liberia (while it's 40$ on average in Asia for example). At the same time, economic development and population growth sustain a rapid increase of energy needs: ECA has calculated that those needs will rise from 125 GW in 2010 to 700GW in 2040 on the continent.
Financing energy needs remain the main challenge. The African Development Bank estimates that 90 billion USD are needed every year to meet energy access targets. However, public funding, while critically important, will not be sufficient to bridge the infrastructure financing gap, considering rising debt levels. While public sector currently finances around 30% of the energy spending on the continent, and China investment covering around 20%, the private sector participation represents less than 10% of the current financing structure.
Private sector engagement is limited by constraints faced in the regulatory and business environments These impediments to private-sector investment in infrastructure must be addressed, as recommended in the latest global SDG #7 progress report, especially through the improvement of macro-economic environment, investment and land policies. The support of the public sector is key to generate the confidence of the private sector, through public-private partnerships (PPPs).
Kenya for example has succeeded in structuring public-private partnerships across the energy value chain, including energy transmission infrastructure, which constitute one of the only cases n Africa, and energy access rates have increased to 73% in 2018.
However, insists Beatrice Florah for Africa PPP Network, Public-Private Partnerships must be focus on sustainability, affordability and citizen's participation. "Projects must not only have value for money, but also value for people. Before doing any project, you need to make sure people can afford the energy that will be generated."
To help bridge the funding gap, the Economic Commission for Africa has launched the SDG7 initiative for Africa, aiming at acclerating investments for clean energy and climate action. The project expects to raise 10 billion dollards within the next five years to generate 10 GW of clean energy. The first bond is expected to be launched in 2019, in partnership with global financial institutions and African banks.