Until relatively recently, African solar projects, such as the 1.8 GW Benban site in Egypt, were partly funded by donor support. This is not a sustainable long-term model due to the limited financing available from donor countries. It would be more effective for donors and multilateral organizations to help encourage greater private sector participation by directly financing PV projects, investing in electricity grid development and encouraging governments to offer attractive investment terms.
About 600 million of the 1.5 billion people on the African continent currently do not have access to electricity at home, meaning that 83% of the people in the world who do not have electricity are in Africa. Africans are being connected to electricity grids and benefiting from residential PV kits, but the number of people connected is growing more slowly than the continent’s population. As a result, many remain dependent on firewood or charcoal for lighting and cooking, and those with electrical appliances must pay to charge them at solar kiosks or rely on friends and family.
The lack of access to electricity is a major brake on economic growth and improving living standards. That is why multilateral agencies, donor agencies and African governments have launched a series of programs to improve the situation. By far the largest is the Mission 300 plan launched by the World Bank Group and the AfDB in April 2024, which aims to halve the number of Africans without access to electricity to 300 million by 2030.
A combination of the continent’s vast untapped solar resource and the falling costs of PV projects mean that solar energy will be key to achieving the Mission 300 goal. There will likely be more funding for both solar developers and additional support, such as grid improvements, under the Mission 300 initiative.
Making connections
Under the programme, the World Bank has taken responsibility for helping to provide access to electricity to 250 million people, and the AfDB 50 million. The organizations recognize that massive private sector investments will be crucial to achieving their goal, so two World Bank entities – the private sector-focused International Finance Corporation (IFC) and the Multilateral Investment Guarantee Agency (MIGA) – are working together to provide better incentives. and guarantees for investors in the sector.
The World Bank’s support is channeled through a range of initiatives such as the Accelerating Sustainable and Clean Energy Access Transformation Program, covering Southern and Eastern Africa. The World Bank’s International Development Agency (IDA) has committed $5 billion to the program and hopes to generate another $10 billion in additional investment.
The AfDB, for its part, has launched its Desert to Power project with the aim of developing a massive electricity grid powered by 10 GW of solar power generation capacity across the 11 countries in North Africa’s Sahel region, although the specific details of the solar project are limited. From 2016 to 2022, the AfDB approved financing of $8.3 billion for energy projects, 87% of which were based on renewable energy sources and 2.6 GW of clean energy capacity had already been installed.
The multilateral organizations help finance PV projects directly, but much of their support is focused on grid investments; guarantees that reduce the risks of buyers, currencies, states and other investments; and advisory services. While advisory services can be useful, advisors brought in by multilaterals can sometimes increase the scope of projects and slow down processes, said Hans Olav Kvalvaag, CEO of project developer Scatec’s Release division.
Fabrizio Bonemazzi, area manager training and capacity building at the RES4Africa foundation, explains pv magazine that multilateral financing can support pilot projects that help unlock specific markets at an early stage of development, making it easier to secure private financing once a market has been opened.
The Central African Republic (CAR) is one of the most difficult markets to enter. The country had only 38 MW of total installed power generation capacity in 2023, the same amount as in 1980, and an electrification rate of only 14% of the population, falling to 2% in rural areas.
In response, the IDA provided a grant in lieu of a loan for the development of the 25 MW Danzi solar project, which was completed in November 2023 by China’s Shanxi Investment Group. The IDA typically provides loans or equity-based financing. The World Bank hopes to bring the Central African Republic’s electrification rate to 50% by 2030 through a series of further PV projects.
Special support
The World Bank Group has directly supported more than 15 GW of solar capacity globally to date, with financing terms based on recipient countries’ indebtedness, gross national income per capita and creditworthiness. Its role is particularly important in more complex African jurisdictions with higher levels of risk, Release’s Kvalvaag said.
“Africa’s energy transformation cannot happen without multilateral organizations – the private sector has neither the financing nor the risk appetite to enter these markets without the risk mitigation that multilateral organizations can provide,” the CEO said. He added that the main reason for the large gap between Africa’s renewable energy potential and the amount of new capacity developed is the cost of capital and the lack of available financing.
The World Bank provides technical assistance to government agencies to address financial bottlenecks. According to RES4Africa’s Bonemazzi, supporting ministries, regulators and utilities in building policy and regulatory frameworks is at least as important as PV financing.
Incentives for the private sector
The IFC provides loans for private sector PV investments in Africa. For example, Release by Scatec has signed a $100 million loan agreement with the IFC to support its projects in Africa with 35 MW of solar and a 20 MW battery in Chad plus 36 MW of solar and a 20 MW battery in Cameroon.
“Multilaterals can help bridge this gap by offering concessional financing where commercial capital is too expensive due to higher risks and by offering guarantee products that can in turn help enable financing,” Release’s Kvalvaag said. They can also soften the impact of global trends, such as European subsidies for renewable energy, that make it difficult for developing countries to compete.
Multilateral organizations should avoid donating power plants on the basis of concessional funds where possible, as “this creates unrealistic expectations among governments and utilities, making it impossible for private companies to compete with ‘free’ power plants,” the CEO said.
Africa’s solar sector has recently started to grow more strongly, with installed non-residential generation capacity set to increase by 3.7 GW to 16 GW by 2023, but more private sector capacity is needed to accelerate the pace of development.
Jan Friedrich Kappen, chief energy specialist at the World Bank, explained pv magazine There are major barriers to scaling up private financing for PV in Africa, including the absence of an enabling environment for private investment, the absence of open and transparent procurement mechanisms, the lack of access to risk-mitigating coverage, grid integration constraints, the high risk of buyers, and allow difficulties.
Concessional financing from multilateral agencies can facilitate institutional capacity building within the Ministries of Energy and Utilities, Kvalvaag said. There is also a need for better coordination between different multilateral agencies and development finance institutions.
Rather than projects being developed solely by non-African companies, it is critical that such financing is used to fuel the growth of African developers and supply chains. In July 2023, Nuru, a solar energy developer in the Democratic Republic of Congo (DRC), benefited from $40 million in equity financing from an IFC-led consortium to accelerate the construction of 13.7 MW of new projects in the east of the country possible.
Guarantees
Guarantees are crucial to allay investor concerns. MIGA houses the World Bank’s platform for political risk insurance, credit enhancement and trade finance guarantees, including for African solar developers. It offers four main insurance products that cover transfer restrictions and currency inconvertibility; war and civil unrest; breach of contract by the government and state-owned enterprises; and expropriation.
“Our guarantees protect investments against non-commercial risks and can help investors access financing sources with better financial terms,” said Jessica Stiefler, acting global head and sector manager for energy and extractive industries at MIGA. pv magazine. MIGA provides coverage for up to 90% of equity investments and 95% of debt investments. Over the past seven years, it has issued guarantees covering $1.1 billion in solar investments worldwide.
In July 2024, MIGA awarded an 18-year, $23.5 million guarantee to Amea Power to support the development of the 120 MW Kairouan solar project in Tunisia. The project, which will be the country’s first large-scale independent solar energy producer, will also benefit from $26 million in financing from the AfDB, including $13 million from the Sustainable Energy Fund for Africa, a multi-donor fund that the lender manages.
In September 2024, MIGA and the International Solar Alliance (ISA) – made up of countries in the tropics – established the MIGA-ISA Solar Facility specifically to provide risk mitigation for solar projects in developing countries, initially only in sub-Saharan Africa.
In July 2024, the World Bank launched a platform to bring together warranty products from all divisions of the group to simplify the process by giving customers a single access and due diligence process. It now also offers project-based payment guarantees to utility-scale solar developers that protect against losses to private entities or a foreign public entity arising from government failure to meet payment obligations, including under power purchase agreements.
However, Kappen from the World Bank pointed out that “as markets mature, the private sector is best placed to play a greater role in mitigating project and technology-related risks and scaling up financing of power generation solar energy.”
By Neil Ford
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