Bridging the gap: unleashing Africa’s renewable potential

Africa’s vast renewable energy potential raises a major question: What is preventing the necessary investments? With just 2% of global funding reaching the continent, identifying obstacles raising capital for projects that drive development and sustainability is paramount.

Last year, the world took a giant leap toward a sustainable future, building 510 gigawatts (GW) of solar and wind capacity - an impressive 50% jump from the previous year. In 2024, global renewable investments are expected to double those in fossil fuels. However, this does not tell the full story: While China, the EU, and the U.S. soak up most of these investments, only 15% goes to emerging and developing economies, where the impact of green energy could be transformational. Despite holding 40% of the world’s solar potential, Africa attracts just 2% of global renewable investments. It is a continent where 600 million people still lack access to electricity, while energy demands surge with the fastest-growing population on the planet. So, how do we bridge this gap between unrealised potential and projects on the ground?

Powering Africa’s energy future with dispatchable renewables

The business case for renewables is unassailable. Solar and wind have become the cheapest energy sources worldwide, particularly in Africa’s emerging markets. Thanks to advancements in energy storage and hybrid solutions, renewables can now serve as stable baseload power. The evolution of dispatchable renewable energy is a gamechanger for the green transition.

Scatec’s Kenhardt project in South Africa is a prime example of this shift. The largest solar and battery project across Africa, Europe, and South America, Kenhardt is not only a feat of engineering—with 9,000 km of cabling and a site the size of 1,600 football fields—but also a testament to the competitiveness of renewable energy. Won in a technology-agnostic public tender as a response to the national electricity crisis, Kenhardt was the only fully renewable bid to outcompete fossil fuel alternatives – and the only project already built and operational, delivering stable electricity access to the people of South Africa today.

Flagship projects like Kenhardt also provide opportunities to drive the energy transition and development at the regional level through the liberalisation of regional markets, e.g., the Southern African Power Pool (SEPP), where more developed countries like South Africa and Botswana can help strengthen energy access in the broader region. To enable functional, regional markets, we need to strengthen transmission and grid capacity. This is where government and institutions can come in to ensure the infrastructure needed to enable the deployment of the significant amount of renewable power required for the green transition.

Geopolitics fuelling the green energy shift

Recent geopolitical shifts have further tipped the scales in favour of renewables. Despite increased costs and protectionist tendencies, the geopolitical inflection point has accelerated the green shift with international partnerships at the core.

In response to war and crises, the EU has prioritised building new energy partnerships to achieve energy security, drive development, and solve the climate crisis. Europe has made it clear: the path to a sustainable Europe runs through emerging markets. For example, the EU has set ambitious targets to import ten million tonnes of green hydrogen by 2030, creating enormous opportunities for future hotspot production countries of green hydrogen.

Take Egypt as a case in point. Scatec and partners recently won the first H2 Global auction, securing a contract to export green ammonia from Egypt to Europe. Why Egypt? It has cheap, abundant renewable resources (80% of the production cost of green hydrogen is the cost of renewable energy), plenty of land, and a strategic location that offers easy access to European and Asian markets. Egypt is home to hard-to-abate industries eager to decarbonise. This opportunity could fuel green industrial growth and economic development across emerging markets.

Barriers to scaling renewables in emerging markets

The path to a renewable future is fraught with challenges, particularly for emerging markets. The Inflation Reduction Act (IRA) in the U.S. sparked a global subsidy race, prompting Europe to respond with its own industrial policies. While competition has driven innovation and speed, it has also revealed a concerning trend: wealthier countries with deeper pockets dominate the race, leaving emerging markets at risk of losing out because they lack the balance sheet to compete despite their superior renewable energy potential. This is a significant risk, reinforcing the long-standing challenge for the green shift: the direction of capital flows.

The single most important reason for the gap between renewable energy potential and projects on the ground is the cost of capital and the lack of financing in uncertain investment climates with higher risks but equally higher rewards.

There is much talk and many targets around capital needs to finance the renewable energy transition in developing countries. The challenge, however, is not a lack of capital. There is plenty of willing capital to finance “bankable” projects with risk allocation anchored in firm agreements, secured by state guarantees – but most projects are not bankable or cost too much for host governments to make them viable. The development dimension is prominent; for a developing country, it is relatively more expensive to build out renewables, as state guarantees that could support investment might also be needed to cover other important needs—such as hospitals or schools. As a result, capital is not directed where the development of renewable energy could make the greatest impact from both a climate and development perspective.

Breaking through the barriers

Addressing the guarantee gap: One of the biggest hurdles to accessing financing is the gap in the current guarantee market, especially for smaller distributed projects, which will play a major role in the energy transition of many African economies. Governments, public agencies, and guarantee institutions must fill these gaps by creating new products that cover risks not accounted for by the current market.

Rethinking development finance: Many development finance institutions (DFIs) are characterised by red tape and risk aversion, taking pride in never having lost a penny. However, by avoiding losses, they have also failed to take sufficient risks to bring renewable energy to developing countries.

Reducing development risks: An uncertain investment climate means renewable energy players assume large costs in the development phase without certainty of success. The risk of failure must be weighed against the possibility of success, which leads many developers to back out and projects to fall through. Development agencies and DFIs can help offset these risks by offering support in the early stages of project development and thus enable investments. Governments also have a role to play in improving national frameworks by strengthening institutions, improving market visibility, and developing transparent legal structures.

Solving the grid: A final key to expanding the energy transition globally is to fix the grid. We need to address challenges in grid integration to support the uptake of the new renewable power needed to solve the climate crisis and meet increasing energy needs. We need to both balance the mix of power in the grid and make significant investments in transmission and distribution infrastructure to ensure a robust and efficient grid system.  

A call to action

We are at a pivotal moment in the pursuit of a sustainable future. Emerging markets, particularly in Africa, have the potential to lead the green energy transition. This potential remains untapped due to systemic financial, infrastructural, and political barriers. Governments, businesses, and financial institutions must collaborate to unlock these markets and bring renewable energy to the forefront of development. This is about saving the planet, giving millions of people access to clean, affordable energy, creating jobs, fostering economic growth, and ensuring no country is left behind in the race to a green future. Now is the time to seize this opportunity and transform potential into power.