KARABO MOKGONYANA: Lack of guarantees leaves Africa at 2% clean energy investment

A key discussion at the 15th session of the International Renewable Energy Agency Assembly in Abu Dhabi, United Arab Emirates, was the need for increased investment in renewable energy in Africa. The Accelerated Partnership for Renewables in Africa ministerial round table on “Accelerating Africa’s Energy Transition and Green Industrialisation Agenda” highlighted guarantees as the central challenge hindering investment in Africa’s renewable energy sector.

Despite the continent’s immense renewable potential, Africa receives about 2% of global energy transition investments, largely due to a lack of risk mitigation mechanisms that private investors demand. Speakers stressed the urgent need for innovative solutions, such as blended finance, green bonds and government-backed guarantees, to unlock capital. Regional co-operation and stronger regulatory frameworks were also identified as critical to building investor confidence and aligning investments with Africa’s green industrialisation goals. 

Understanding the investment gap 

Between 2010 and 2020 Africa secured only 2.4% of global renewable energy investments, amounting to $55bn. This figure highlights a persistent underinvestment in a region with vast solar, wind, hydro and geothermal resources. Despite being home to 60% of the world’s best solar resources, the continent receives less than 5% of global solar investment.

This discrepancy is not due to a lack of need or potential, but rather the structural and financial barriers that deter international investors from committing to large-scale renewable projects. The International Energy Agency emphasises that achieving Africa’s energy and climate goals necessitates more than doubling energy investments by 2030, with nearly two-thirds directed towards clean energy.

The primary roadblock lies in the lack of financial guarantees and risk mitigation measures. Renewable energy projects in Africa often face high perceived risks, ranging from political instability and currency volatility to underdeveloped regulatory frameworks. Without robust guarantees to derisk these investments, many international financiers opt to direct their funds to markets deemed more stable and lucrative. 

Barriers to investment 

Many African nations face challenges in providing the financial assurances investors seek. The absence of robust guarantee mechanisms increases perceived risks, deterring potential financiers. A study by the Climate Policy Initiative that analysed 67 cross-border guarantee mechanisms available to international investors in Africa highlights the complexities and limitations in the current landscape. 

For example, Zimbabwe’s energy sector is in dire need of transformation. Frequent power outages and reliance on ageing coal plants underscore the urgent need for renewable energy. However, the country’s political instability, currency challenges and weak regulatory framework create a high-risk environment for investors. The Gwanda Solar Project, touted as a solution to the country’s energy crisis, has been mired in delays and controversies, further eroding investor confidence. 

Another example is the Democratic Republic of Congo, which is endowed with immense hydropower potential, particularly from the Congo River. The Inga Dam projects could power much of Sub-Saharan Africa. Yet, due to political instability, corruption and a lack of guarantees, these projects have struggled to attract the necessary funding. The Grand Inga project, in particular, has been stalled for decades, despite its potential to transform the region’s energy landscape. 

Clean energy projects in Africa often encounter elevated capital costs, making them less attractive compared with similar projects in other regions. Factors such as currency volatility, political instability and underdeveloped financial markets contribute to these higher costs. Further, many African countries possess inadequate grid infrastructure, such as weak transmission grids, resulting in high electricity losses and low supply quality. These deficiencies hinder the integration and scaling of renewable energy projects.

Nigeria, Africa’s largest economy according to the World Bank, also grapples with significant barriers to renewable energy investment. While the country’s solar potential is enormous, its overreliance on oil revenues has stifled progress in diversifying the energy sector. Additionally, currency volatility and bureaucratic bottlenecks discourage foreign direct investment. Projects such as the planned solar farms in Jigawa State have faced challenges due to insufficient financial backing and regulatory hurdles. 

Mozambique boasts significant renewable energy potential, particularly in hydropower and solar. However, recurrent natural disasters, such as cyclones, combined with political unrest in some regions, increase the perceived risk of investment. The development of projects such as the Mocuba solar plant has been slow, hindered by financing challenges and a lack of adequate risk-sharing mechanisms. 

Success stories and lessons learnt 

Some African countries have, however, managed to attract significant renewable energy investments by addressing these barriers. The Noor Ouarzazate Solar Complex in Morocco, the world’s largest concentrated solar power plant, demonstrates the power of guarantees. The Moroccan government secured funding from international partners, including the World Bank and European Investment Bank, by providing sovereign guarantees and creating a stable regulatory environment. 

The Renewable Energy Independent Power Producer Procurement Programme in SA has attracted more than $20bn in investments. By offering transparent bidding processes and government-backed power purchase agreements, SA has mitigated investor risks.

Kenya’s leadership in geothermal energy showcases how clear policies and government support can unlock funding. Projects such as the Olkaria geothermal plant have benefited from public-private partnerships and international financing. 

These examples show that countries such as Kenya, SA, Morocco and Egypt attract significant clean energy investment because they have established transparent regulatory frameworks, government-backed incentives and clear long-term energy transition goals that provide assurance to investors. With robust public-private partnerships, effective risk-mitigation mechanisms and international collaborations, these countries create a conducive environment for foreign direct investment, making them prime destinations for clean energy funding. 

The way forward 

To bridge the renewable energy investment gap African governments must develop clear, consistent and enforceable renewable energy policies and strengthen the regulatory landscape. Establishing independent regulatory bodies and streamlining approval processes can enhance transparency and investor confidence. Additionally, developing technical and financial expertise within African institutions can reduce reliance on external consultants and improve project implementation through local capacity. 

Other steps could include expanding the use of guarantees, insurance and blended financing to help derisk investments. Regional initiatives such as the Africa GreenCo programme, which facilitates power trade and guarantees offtake agreements, should be scaled up, and new, emerging international Africa-focused guarantees such as the German government’s Green Guarantee Group and the Danish government’s Greening Value Chains in Africa should be utilised. 

In terms of international and regional co-operation, African governments must advocate for increased access to global climate finance mechanisms, such as the Green Climate Fund, to support renewable energy projects. Cross-border energy projects and regional power pools can reduce costs, improve energy access and attract larger investments. The East African Power Pool and West African Power Pool are promising examples.

By addressing the barriers that deter investment and leveraging innovative financing mechanisms, African governments can unlock the resources needed to power a sustainable future. The global community must also recognise that achieving climate goals depends on ensuring that no region is left behind in the energy transition. Without a significant shift in investment flows, the dream of universal energy access and a carbon-neutral future will remain out of reach. 

• Mokgonyana is a renewable energy campaigner at Power Shift Africa.