How climate investors can accelerate energy access in Africa

New research highlights a $200bn market opportunity for climate-first investors to help achieve universal access to energy in Africa and avoid 626 m/t CO2e by 2030.

The climate crisis is the world’s greatest existential threat − but the race to reduce CO2e emissions and achieve global net zero is often perceived as at odds with the scale of economic growth needed to tackle poverty in emerging markets.

Robust research now disproves this tension. A recent study by Catalyst Off-Grid Advisors shows that the quickest and most affordable way to deliver inclusive economic growth in Africa is in fact to invest in ‘Decentralised Renewable Energy’ (DRE) solutions such as household solar systems, solar mini-grids and electric or LPG cookers for people who live on $2 to $10 a day.

This opens the door for a new wave of climate-first funders to support the DRE sector, a sector that has mainly focused on the social value of energy (improved income, health, education and resilience) for the 790 million people across the globe who live without electricity and the further two billion people who are denied sufficiently reliable, affordable power at home, at work, at school and for health and community services.

By contrast, ‘A Green Energy Future for Rural Africa’ outlines a $200bn opportunity for climate-first funders to avoid 626 m/t CO2e while delivering universal energy access in Africa by 2030 − helping to achieve several of the Sustainable Development Goals by 2030 and global net-zero emissions by 2050.

Three visions for the future

The research, supported by The Rockefeller Foundation and Shell Foundation, and benefiting from technical advice from IKEA Foundation, The Rocky Mountain Institute, Sustainable Energy for All, is the first of its kind on several fronts and will be followed by a series of country deep dives. It combines historical trends analysis, extensive financial modelling and a full lifecycle analysis of energy sources to produce three feasible scenarios to meet the energy needs of rural households and small and medium enterprises in Africa, with varying levels of reliance on DRE and grid extension.

The study’s business-as-usual scenario paints a stark picture. On current projections 31% of African households would still be unelectrified by 2030, with the use of polluting, expensive backup generators increasing (two-thirds of electricity grids in Africa are unreliable, spurring the use of seven million backup generators today that consume $13bn worth of fossil fuels annually). Over 230 million households would continue to cook with solid fuels, a practice that is a leading cause of the household air pollution that claims 600,000 African lives each year and significant deforestation.

Two further scenarios are explored: one low carbon and one high carbon, in which 100%  access to electricity is achieved, alongside improved grid reliability and a more marked transition to cleaner cooking.

The low-carbon scenario relies on more extensive use of DRE technology to achieve 100% household electricity access and replaces 9.2 million fossil-fuel powered backup gensets with solar alternatives. While noting that Africa’s cooking crisis will be difficult to solve, the researchers believe it is feasible to shift at least 39 million households from cooking with charcoal to using modern, less CO2-intensive energy sources like LPG or electricity.

Under this scenario, Africa avoids up to 626 m/t CO2e emissions compared to a high-carbon scenario − the approximate equivalent to the annual emissions of 160 coal-fired power plants, or 933 million round-trip flights between London and New York City. This is also the lowest-cost way to generate inclusive economic growth.

A $200bn market

The low-carbon scenario represents a significant investment opportunity of over $200bn by 2030 for climate-first investors with a social mandate. This includes $20bn to $67bn(depending on the level of power provided) in funding to scale and replicate businesses providing standalone solar and mini-grid power for residential use, $130bn to increase the prevalence of affordable solar alternatives to diesel gensets, and a $7.5bn injection to improve the affordability and availability of modern cooking options for low-income families.

For grant-makers and governments, the low-carbon scenario also relies on the provision of $2.4bn in demand-side subsidies to 42 million households that lack sufficient means to pay for energy.

Set against global investment of $3.5bn into the DRE sector over the last 10 years, this is a substantial increase. We believe it represents an untapped opportunity for climate-first investors who have a dual mandate to deliver the SDGs by 2030, or those that wish to catalyse the green growth in Africa that makes the Paris Agreement achievable.

Raising green investment for the DRE sector

Achieving the low-carbon scenario is the most cost-efficient approach for African governments to realise their stated ambition for universal energy access as part of their national electrification strategies. We urge that they, alongside their development finance partners, engage with international climate investors and focus on DRE as a priority.

Climate finance must be mobilised at scale to support this, and this will require vehicles and instruments that allow investors with different risk, return and impact expectations to join forces; aligning the incentives of grant-makers, development finance institutions and concessional impact funders on one hand, with corporations, venture capital, investment banks and institutional investors on the other − to finance a more equitable future for Africa’s poorest.

Immediate investment opportunities exist, with a range of financing vehicles in the market offering the chance for climate-focused foundations and concessional investors to prime the DRE sector − by providing the type of patient capital that enables early and mid-stage renewable energy enterprises in Africa to expand their reach.

Meanwhile foundations and donors can support innovative new mechanisms to monetise the environmental and social impact of DRE enterprises, as a way to improve their viability. New solutions in the market include the UN’s outcomes-based Universal Energy Facility for the mini-grid sector, and instruments such as Digital Carbon Credits or Distributed Renewable Energy Certificates (that enable corporates to reduce emissions while driving SDG impact.)

Both Shell Foundation and Rockefeller Foundation are working to expand the pipeline of investable renewable energy enterprises for these funds in the next nine years, to increase the reach of the sector. In the next six months, in collaboration with longstanding partners such as UKAID, US DFC, Power Africa and USAID, as well as the Global Off-grid Lighting Association, the African Mini-grid Developers Association and the Clean Cooking Alliance, we will be joining forces with climate-first investors, in partnership with national governments across Africa, to map existing and new opportunities to facilitate a step-change in funding for the DRE sector.

A more compelling and inclusive transition

As the world marks the fifth anniversary of the signing of the Paris Agreement, today’s Earth Day Summit is the first of several high-level engagements that seek to accelerate the transition to a green economy, building to COP 26 hosted by the UK this autumn. This research is part of a series that will aim to support this.

Our hope is that all commitments to support Africa’s transition to renewable energy prioritise universal access to electricity by 2030, tackle unreliable grids, and increase clean cooking − as the only way to lift hundreds of millions of people out of poverty.

This will take 100 times the level of investment the DRE sector has seen to-date − but without it 300 million people in Africa will still be without electricity in 2030. The good news is that cost-effective solutions exist, they are already being deployed across Africa, the economics are steadily improving… and the investment is only a fraction of the cost of extending the national grid to all parts of the continent.

We invite climate-first investors from across the public and private sector to help nurture, scale and replicate decentralised renewable energy solutions in Africa. While ambitious, the low-carbon future is an achievable goal that sets the continent on a path to inclusive growth. Together we can make it a reality.

Download the full report (pdf, 2.6mb)