2nd Dec 2023

Africa's high green borrowing costs big obstacle, study finds

  • The report was published at the Africa Climate Summit in Nairobi, Kenya (Photo: Demosh)
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Rapid action is needed to improve access to capital and lower financing costs to unlock "a wave" of clean-energy spending in Africa, a new report finds.

Authored by the International Energy Agency (IEA) and the African Development Bank Group (AfDB), the report was launched on Wednesday (6 September) at the inaugural Africa Climate Summit in Nairobi.

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"The African continent has huge clean energy potential, said IEA Executive Director Fatih Birol. "But difficult financing conditions means many projects cannot get off the ground."

Despite accounting for almost 20 percent of the world's population and containing 60 percent of global renewable energy potential, it so far attracts just two percent of the total clean energy spending.

According to the report, Financing Clean Energy in Africa, the cost of capital for utility-scale clean energy projects on the continent is at least two to three times higher than in advanced economies — and often vastly exceeds this average.

According to the most recent World Bank figures, Madagascar and Malawi can borrow against rates of 49 percent and 25.4 percent, respectively, while the Netherlands can borrow for between 2.7 and three percent, depending on bond maturity.

Interest rates are always higher in Africa but have steadily risen in recent years due to the US Federal Reserve and the European Central Bank's steep interest rate hikes.

It explains why the continent has struggled to meet its development goals in recent years and why 31 out of 37 most indebted countries are in Africa.

"It is the most prohibitive obstacle to our progress," Kenyan president William Ruto, who hosted the African Climate Summit, told delegates on Wednesday.

"Yet this report is not simply a catalogue of Africa's challenges," he added, striking an optimistic note. "Instead, it is an inspiring testament to the innovative spirit of our continent, with a vast array of solutions emerging from Africa's entrepreneurial minds."

Over 600m people across Africa live without access to electricity, and nearly one billion live without access to clean cooking, relying instead on solid biomass, kerosene or coal as their primary cooking fuel. The household air pollution this is linked to around 2.5m premature deaths a year, according to the IEA. Delivering modern energy to all Africans would require just $28bn [€26bn] by 2030, a fraction of global clean energy spending, the report finds.

This money could be funded with concessional lending from multilateral development banks, which could serve as "a catalyst" for raising $90bn of private sector investment by 2030—a more than tenfold increase from today.

Lowering the cost of capital has been at the forefront of this week's debates and will again be discussed at the G20 meeting of finance ministers in Delhi scheduled for this weekend.

But IEA's Birol warned that international rifts stoked by Russia's invasion of Ukraine are "becoming more and more pronounced" and cast "a big shadow over international "international collaboration between the major players."

"It is our collective responsibility to draw on the insights from this report," said Ruto. "We cannot approach climate action from a position of adversity. We cannot pursue climate action through isolated policies. Global warming cannot be mitigated by air conditioning our own little pockets of the world."

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