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The Future for Financing Africa’s Renewable Energy

Wambi Michael interviews Henning Wuester, Director Knowledge, Policy and Finance Centre, International Renewable Energy Agency (IRENA).

Henning Wuester in conversation with Wisdom AhiatakuTogobo, Director Renewable and Alternate Energy, Ghana

Henning Wuester in conversation with Wisdom AhiatakuTogobo, Director Renewable and Alternate Energy, Ghana

ADDIS ABABA, Oct 19 2017 (IPS) - Lack of energy access presents a formidable challenge to Africa and lack of access to financing has been singled out as the biggest reason why over 620 million people living on the continent are stuck in energy poverty.The issue of inadequate financing, especially for renewable energy sources, was among the pressing concerns as leaders, scientists and policy leader met at the Global Green Growth Week conference in Ethiopia.

Governments and their private sector and international development partners say Africa needs to attract financing for renewable energy for it to achieve most of the social development goals –SDGS. But the question is where the financing will come from and when?

Henning Wuester oversees IRENA’s work on knowledge, Policy and Finance, including the production of up-to-date renewable energy data and information and analysis to identify best practice in renewable energy policy and finance.

He spoke with IPS about the potential of renewable energy in unlocking Africa’s green growth potential and why financing is crucial.

IPS: Financing of renewable energy is not penetrating Africa much as it is in Asia. Can you give an overview about what is
happening in Africa in terms attracting financing for renewable energy?

Henning Wuester: I agree that financing is not picking up as much as other countries like for example in Asia where the growth is much more rapid. We are seeing less than USD10 billion investment in renewables in Africa. We need to triple it or increase it to more than USD30 billion to reach the cost effective potential for renewables that Africa has.

IPS: Why are we not seeing that flow in Africa given its vast renewable energy potential and a big population without access
to energy?

We are seeing less than USD10 billion investment in renewables in Africa. We need to triple it or increase it to more than USD30 billion to reach the cost effective potential for renewables that Africa has.
HW: One aspect is that Africa is relying heavily on public finance and of course public finance is limited. And so you can’t scale up using public finance. Budgets are limited and international development finance is limited.

IPS: So what can be done to have the finance flow to Africa’s energy?

HW: What has to happen is a shift in the way public finance is used. Public finance has to be focused on enabling additional finance by mobilising the private investors that are very eager to invest in renewable energy. Then we could scale up more rapidly.

IPS: What is the private sector looking for?

HW: Private sector is looking for markets. I hear from them that they are much interested in Africa. They see great potential, they see a lot of consumers that want to buy energy and they see economic growth in many countries in Africa. What they are not sufficiently comfortable with is the risk profile for investment in renewables in Africa. They are not yet comfortable that
governments are serious about the policy frameworks they are putting in place and that the microeconomic risks are addressed. Currency risk is an issue where you see many currencies depreciating very rapidly in some African countries. That poses a mismatch between the revenue stream from those that buy the energy and investors that often come with hard currency funds.

Overcoming this again requires a more active role of public finance institutions. In some cases public finance institutions are putting in place vehicles that enable public finance to co-finance. They are putting in place some hedging mechanisms to deal with exchange rate risks.

IPS: Is there actually a market for renewable energy in Africa? Some have said the population is big but has no effective
demand.

HW: Yes there is a huge market. We have estimated that you can increase renewable energy by 310 GWh in terms of capacity. Far more than 100 GWh that were are talking about right now. That is by 2030. This is cost effective because renewables [will be] operating competitively against other sources of energy, whether fossil fuel-based or other sources of electricity production. We have private companies that offer business models with very small payments so that consumers can benefit from off grid solar light. Solar home systems are increasingly becoming more attractive. Many of the new offers include more
attractive packages including TV.So it is a complete electricity solution for homes.

IPS: So is there any future for financing of Africa’s renewable energy?

HW: Absolutely. We are taking to investors around the world and they are looking at the African market. They know that this is a market that can be as interesting as Asia if certain conditions fall into place. On the other side we see some African leaders are recognising that they have an opportunity. So they will work towards putting these conditions in place. Then the financing issue will go away. There is enough money. That is not the issue. Money is not at the right place at the moment but it will come.

 
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