Financing Clean Energy Access in Sub-Saharan Africa Risk Mitigation Strategies and Innovative Financing Structures by Bruno Michoud and Manfred Hafner

Chapter 1
Introduction

Notwithstanding the ample and critical challenge regarding clean energy access glob-

ally, the African continent is the region with the highest number of people facing
this issue worldwide. According to recent estimates, in sub-Saharan Africa, close
to 580 million persons lack access to electricity (IEA, 2020) and over 900 million
cook with inefficient and polluting stoves (WHO, 2020), representing, respectively,
52 and 85% of the subcontinent’s 1.1 billion inhabitants.
This situation inhibits socio-economic development in the region and prevents
populations from prospering. In addition, this painful statement is in stark contrast
to the large availability of energy resources across the continent.
Providing reliable access to energy will unlock substantial benefits and improve
living conditions of sub-Saharan African citizens. Moreover, it will allow the devel-

opment of the economic and industrial sectors as well as reinforce the competitive-

ness of the whole region. In addition, the utilisation of clean and renewable energy
resources will lessen the dependence on fossil fuels and contribute to global climate
change mitigation efforts.
Technical solutions exist to reach the first target of Sustainable Development Goal
7 (SDG 7.1.1), namely ensuring by 2030 universal access to affordable, reliable and
modern energy services. However, significant additional investments in low-carbon
technologies are required in order to achieve access to clean energy for all. In sub-

Saharan Africa, around $350 and $23 billion are needed for the power and clean
cooking sectors, respectively (Corfee-Morlot et al., 2018).
Given the limited public resources and in order to avoid unsustainable debt to gross
domestic product (GDP) ratios, most of the investment needed has to come from the
private sector. Indeed, public finance alone will not be able to bridge this funding gap.
However, the public sphere has a vital role to play in catalysing private investments
in clean energy access initiatives. For its part, the private sector may bring not only
capital but also a broad range of skills as well as innovative mechanisms to foster
the allocation of funds into this pressing development challenge. Therefore, both are
crucial and need to be complementary.

Private capital providers tend to limit investments or cover risk premiums due
to higher perceived risks in the region, thus reducing the availability of affordable
capital for clean energy-related projects. Indeed, the cost of financing is still relatively
high in sub-Saharan Africa, despite ongoing reliability improvement and decreasing
technological costs in the energy sector. Therefore, many project developers and
companies face important difficulties in accessing the necessary capital to build and
scale up innovative business models.
In this context, this book has the objective to contribute to the scientific literature
related to sustainable development and the future of energy in the region. The general
purpose is to support the achievement of an enabling investment climate in sub-

Saharan Africa, with a particular focus on the energy sector. More specifically, the
present book aims at analysing how to (i) enhance capital allocation in projects and
organisations that foster clean energy access in the region, (ii) mobilise private capital
at scale and (iii) decrease the cost of financing through risk mitigation strategies.
To that end, this publication adopts a comprehensive approach, encompassing
economic, financial, political, environmental and social perspectives. Moreover, this
book aspires to go beyond traditional initiatives and presents innovative solutions to
approach the financing of universal clean energy access in sub-Saharan Africa. In
addition, it seeks to adapt to the various specificities and remain consistent with the
cultural and socio-economic contexts of the African continent.
Mainly because of the negative consequences generated by a lack of access to clean
energy on socio-economic development and environmental concerns, this partic-

ular topic has been widely discussed by several research centres, think tanks and
academics, providing a solid basis for the elaboration of the present book. Most of
this work has focused on one specific aspect or technology associated with clean
energy access in emerging countries. On top of that, emphasis is usually put on
actions available to the public sphere, with the objective of creating enabling invest-

ment environments and attracting private capital at scale. However, little work has
been done on potential initiatives that private actors can undertake.
This book concentrates on a specific geographical zone, sub-Saharan Africa,
which is the world region where energy poverty is the most severe. Moreover, it
aims at highlighting specific initiatives and actions available to the public and private
spheres, at an international, regional and domestic level. It provides a holistic view
of the opportunities and challenges related to the financing of clean energy projects
and companies in sub-Saharan Africa, encompassing different technologies adapted
to energy needs in urban and rural areas.
The book aims to be accessible to a wide readership of both academics and profes-

sionals working in the energy industry, the financial sector and the political sphere, as
well as to general readers interested in the ongoing debate about energy, sustainable
development and finance. Moreover, it has the objective to provide a solid basis for
further analysis regarding the financing of clean energy access initiatives in specific
contexts and for research projects in both academic institutions and think tanks. More
specifically, the book targets project developers, policymakers, regulators, public and
private financial institutions, asset managers, development agencies and researchers.

Financing Clean Energy Access in Sub-Saharan Africa Risk Mitigation Strategies and Innovative Financing Structures by Bruno Michoud and Manfred Hafner