We need to find better ways to fund energy development in Africa

Late last month, Treasury Secretary Janet Yellen toured Africa to kick off a new Biden administration initiative to reengage with countries in the continent. The visit followed the administration’s summit of African leaders in December to promote economic development. During her visit in South Africa, Yellen encouraged the Pretoria government to accelerate its transition away from fossil fuels towards more renewable energy. These dueling messages — promoting economic development and discouraging fossil fuel energy — gloss over the challenging conflict between the growth of emerging economies and the urgency of climate action.

Throughout human history, economic development and all its benefits have been driven by energy consumption and the efficiency with which it is put to work. Higher agricultural output, higher manufacturing productivity, and higher standards of human comfort all require higher energy inputs.

For the past two hundred years, starting with the industrial revolution, no nation has emerged from poverty or significantly grown its economy without dramatic increases in the use of energy. Unfortunately, consumption of energy is also the primary driver of climate change. Fossil fuels contribute over 75 percent of all global greenhouse gas emissions, and despite rapid development of renewable energy technologies, more than 80 percent of worldwide energy consumption still comes from fossil fuels.  

Africa, meanwhile, consumes less energy than any other continent. Per person consumption of energy in Nigeria, the largest country in Sub-Saharan Africa, is less than 2,500 kwh per year, while the average consumption in the U.S. is over 75,000 kwh/yr. There is no path to increasing the living standards of sub-Saharan Africa that does not require an increase in the consumption of energy. And, although many parts of Africa are endowed with abundant solar resources, less than 1 percent of global solar electricity generation capacity is generated in African countries. 

We now have the technology to de-couple carbon emissions and energy consumption. Renewable energy, paired with technologies that simplify payments and monitoring, represents a huge opportunity to advance development goals like food and water security and economic opportunity without intensifying carbon emissions. But for this to happen, we need to see the right kind of foreign investment. A study conducted by Oxford University researchers in 2021 analyzed 2,500 power plants being planned throughout Africa and found that non-hydro renewable generation would remain below 10 percent of total generation, and that fossil fuel generation would remain the dominant source of energy.

Although Africa accounts for 18 percent of the global population, it receives only 5 percent of global energy investment, and much of that investment goes to fossil fuel extraction projects destined to supply Europe, Asia and North America. Renewable energy investment in Africa amounted to only 2.4 percent of the global investment in renewables and actually fell between 2018 and 2020 from over $10 billion to less than $3 billion.

Make no mistake, renewable energy is growing across Africa. Between 2000 and 2020, the five-year average renewable energy investment in the continent grew from $1.3 billion to just over $5 billion, but more than two thirds of that investment went to northern African nations or South Africa, the countries that need it least. Foreign investors, governments, and local utilities in most of the continent continue to opt for fossil-based generation, which costs less to build but incurs fuel costs over time. Renewable energy projects, on the other hand, require higher upfront capital cost, a challenge for African nations which suffer from borrowing costs that are often two to four times higher than borrowing costs in OECD countries. Many of these countries also suffer from higher political risks, driving investors towards short-term investment planning. 

Despite the low levels of investment, technological advances have resulted in a wave of innovation. Companies have built household and community scale product and service offerings that are now reaching hundreds of thousands of customers in East Africa and elsewhere, targeting customers that are just beyond the grid. Many governments have recognized that the old, centralized models for energy generation are not the only answer and are opening regulatory systems to private sector led decentralized and off-grid energy service solutions. 

While more than half of African households remain without reliable electricity services, the situation is even more dire for refugees displaced by conflict and climate disruptions. A 2022 survey by the UN found that in 23 countries hosting 35 million refugees (almost all of them in Africa), only 36 percent had access to electricity and only 28 percent had access to modern cooking options. Many scavenge for scarce wood to cook their food, decimating local flora and causing widespread deforestation. In 2021, the UN High Commissioner for Refugees (UNHCR) established the Clean Energy Challenge in partnership with the UN Environmental Program (UNEP) to address energy access for refugees. 

Humanitarian organizations are working with local partners to test and scale innovative models to serve the poorest segments of the market, where growth in energy consumption will be highest. However, the need is far greater than private aid organizations can meet, and more than government donors have been willing to fund. More risk tolerant funding is needed, including first-loss grants, low-cost debt, and philanthropic equity financing. Yes, initial capital costs are high, but the long-term benefits of clean economic growth offer better prospects than short-term humanitarian aid.

Scott Brown is member of the board of directors and senior climate advisor for Mercy Corps and a founding member of the Harvard Negotiation Project. From 1998-2005, he was a member of the Advisory Council of the National Renewable Energy Laboratory of the U.S. Department of Energy.

David Nicholson is chief climate officer of Mercy Corps.