Financing Renewable Energy in Developing Countries - Drivers and barriers for private finance in sub-saharan Africa





Main Geographic Focus: 


RE&EE Category Taxonomy: 

  • Policy and Strategy
  • Financing Mechanisms

File Tag: 

  • Market analysis
  • Awareness



At roughly 30 gigawatts (GW), the entire generation capacity of the 47 countries of sub-Saharan Africa excluding the Republic of South Africa equals that of Argentina (EIA, 2011), and about a quarter of this installed capacity is not currently available for generation due to a variety of causes, particularly aging plants and lack of maintenance. As a result, sub-Saharan Africa has the world’s lowest electricity access rate, at only 24 per cent (Eberhard et al., 2008). The rural electricity access rate is only 8 per cent, with 85 per cent of the population relying on biomass for energy (Ram, 2006). To meet increasing demand and support economic growth, the power sector in Africa needs to install an estimated 7,000 megawatts (MW) of new generation capacity each year. Adequately financing the development of the energy sector in sub-Saharan Africa is expected to require the mobilization of funds in the order of USD 41 billion per year, which represents 6.4 per cent of the region’s GDP. A large financing gap exists because the focus of much of the current spending is on maintenance and operation of the existing power infrastructure, with little remaining to fund long-term investments and to address the power supply gap (AfDB, 2010). Therefore, in order to close this gap, the mobilization of private investment and finance, is crucial. This is a new approach given that, traditionally, the bulk of investments in infrastructure have been made by governments. However, private institutions are becoming increasingly active in a variety of roles across the energy sector in the region. For these private financiers, the risk-return profile of a project is the ultimate determinant of whether to finance or not. Experts estimate that unless stronger commitments and effective policy measures are taken to reverse current trends, half the population in sub-Saharan Africa will still be without electricity by 2030, and the proportion of the population relying on traditional fuels for household energy needs will remain the highest among all world regions (UN-Energy/Africa, 2011).

Document Language: