Financing Hurdles Stunt Africa’s Renewable Energy Growth
Efforts to expand clean energy in Africa face significant challenges due to financing models not suited to smaller renewable projects. Investors and developers point to outdated lending systems as a major obstacle.
Current financing frameworks are tailored for large-scale infrastructure, leaving mid-sized projects in a difficult position. At the Africa Investment Forum held on November 27 in Rabat, Morocco, stakeholders highlighted that development finance institutions impose large-project criteria on smaller ventures, causing delays that hinder electricity access in the region.
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During discussions focused on energy resilience investments, experts expressed concerns over rigid lending conditions that escalate costs and prolong project timelines, leading many promising initiatives to falter.
“You cannot apply the same conditions for a 1,000-megawatt project to a 30 or 40-megawatt project. The procedures drag on, the costs soar, and at the end of the day, the country suffers. There is this project where lender advisory fees alone accounted for nearly 40 per cent of the total cost, demonstrating how rigid rules can undermine project viability,” explained Hashim Ghabashi, President of ACWA Power’s operations in the Middle East, Africa, and South Asia.
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Investors emphasized the importance of aligning regulation, financing, and execution to unlock Africa’s energy potential. They advocated for standardized power purchase agreements (PPAs), enhanced credit tools, and greater regional integration to boost market size and reduce perceived investment risks.
Nkemjika Onwuamaegbu, Regional Head for Africa at the Multilateral Investment Guarantee Agency (MIGA), emphasized the role of multilateral guarantees in mitigating investor risks.
“Our mandate is to address non-commercial risks, such as regulatory uncertainty or off-taker credit risks. With the right de-risking tools, projects become bankable and investors confident. Initiatives like the World Bank Group Guarantee Platform aim to consolidate and streamline these instruments to accelerate private-sector investment in clean energy,” she stated.
The creditworthiness of the off-taker remains a central concern for investors.
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Tom Longmuir, a Partner at Ashurst LLP, remarked that even the best-structured project is at risk if the off-taker cannot fulfill payment obligations. He advocated for partial risk guarantees and multilateral support to unlock private capital.
Experts also called for local banks’ involvement and the expansion of local currency financing to attract more investors. They noted a tendency to rely on hard currency loans, which many governments find challenging to support.
“There’s an automatic tendency to rely on hard currency loans, but many governments lack the reserves to support these payments. To scale projects sustainably, we need a balance between hard and local currency financing, and we must involve local banks and developers. Without their participation, we risk limiting ourselves to demonstration projects rather than building a truly sustainable energy sector,” an expert said.
Despite Africa’s vast renewable resources, the continent accounts for only 2% of global green investment, underscoring the need for regulatory reform and local involvement to drive growth.
Experts concluded that overcoming these barriers through standardized regulation, regional integration, effective de-risking tools, and increased local financial participation could transform Africa into a leader in the global energy transition.
Original Story at allafrica.com