Africa’s Sufficient Energy Transition: Investing in Africa’s clean energy future is vital for people and the planet

As Africa’s population approaches the 2.5 billion mark in 2050, the region of 54 countries faces an epic challenge to achieve combined economic growth, energy stability and decarbonisation to address the disproportionate global inequality and climate change burdens it faces. Finding multi-pronged solutions is not only critical to the future well-being of every African, but also essential to the success of global decarbonisation efforts.

Considering the importance of Africa’s mineral and energy resources for the world’s sustainable future, it remains a shame that more than 600 million Africans – or 43% of the continent’s population, mainly in sub-Saharan Africa – still do not have access to electricity. which at the personal level improves the quality of life and at the macro level drives economic growth. Interestingly, Africa is home to about a fifth of the global metal reserves needed for electric vehicles (EVs) with batteries and other low-carbon infrastructure.

Consider this: While home to a fifth of the world’s people, the African continent contributes the smallest share of global greenhouse gas emissions, just 3.8% compared to 23% from China, 19% from the US and 13% from the European Union. . Globally, the industrial sector accounts for 30% of emissions and 38% of energy consumption, from verticals such as data centers, cement and construction, and food and beverage production. Even with powerhouse economies like Nigeria and South Africa in the mix, emissions are 10th of the global industrial sector.

However, Africa suffers disproportionately from climate change, with estimated losses in financial terms alone totaling approximately USD 7-15 billion per year, a figure expected to rise to USD 50 billion by 2030 if nothing is done done to stop it. Of course, real life is also affected. Climate shocks have also led to the displacement of around 7.4 million people by 2022, according to the International Organization for Migration.

To address the energy paradox facing Africa, the African Development Bank Group (ADBG) believes it must address the $213 billion climate finance gap while facilitating inclusive energy growth to meet global climate goals.

In order to provide access to modern energy for all Africans by 2030 and implement the Nationally Determined Contributions (NDCs), energy investment on the continent must be doubled to about $2.8 trillion or $250 billion per year between 2020 and 2030, according to the Climate Policy. Initiative.

However, the high cost of capital in Africa – which can be up to 7-10% higher than in developed markets due to the perceived risk of investment drastically increases the financial burden for energy projects. Lowering the cost of financing is key to unlocking clean energy investment and transforming the continent’s energy landscape and future.

While Africa accounts for about 17% of the global population and has unlimited renewable energy potential, it receives only 2% of global foreign direct investment (FDI) flows for renewable energy projects. This investment dilemma has dire consequences for the mega energy projects Africa needs.

Understanding Africa’s Energy Potential

Africa’s renewable energy potential is unparalleled. To be clear, ADBG estimates that Africa has almost unlimited potential for solar capacity (10 TW), abundant hydro (350 GW), wind (110 GW), and geothermal energy sources (15 GW). Africa’s unique geographical advantages also make it ideal for large green hydrogen projects, which could meet up to 25% of the world’s energy needs by 2050, according to estimates from the World Bank.

But while the continent receives 40% of the world’s solar radiation, still less than 1% of solar capacity is installed, according to the IEA. Wind power capacity in Africa is also only 0.01% of its full potential. If this potential can be used effectively, today’s resources can generate 22 million jobs by 2050 in the energy sector. This enormous volume of work can be a driver of economic growth.

The current unfortunate underinvestment in all this potential, however, emphasizes the need for a strong financial commitment from well-funded international investors. Africa needs investors who see the continent not only as a market but also as a key partner in the time-sensitive and mission-critical global decarbonisation quest. African governments have the opportunity to create a favorable investment climate that will pay dividends in the future in terms of economic returns, industrial growth and jobs. One of the obvious places to start is to address the Financial Action Task Force (FATF) which in June has 12 African countries, including major economies and energy producers such as Kenya, Nigeria, Namibia and South Africa, on the gray list. Investors look at these factors when deciding where to invest.

Africa’s energy future lies in a sustainable transition that prioritizes local talent development, technology transfer, and ownership. Talent development is essential to ensure that Africa reaps the economic benefits of the energy transition. Currently, Africa represents only 1% of the global renewable energy workforce, highlighting the urgent need for investment in local skills and education. Siemens Energy projects that by 2030, the continent can increase this share to 10%, creating millions of jobs in clean energy technologies like solar PV and wind power, if several favorable forces come together.

African countries have the potential to tap foreign investment from developing regions like the Gulf Cooperation Council (GCC), which invested USD 53 billion in 2023 during the COP28 conference alone. Currently, the continent imports 75% of its renewable energy equipment, mainly due to a lack of local production capacity, which drives up costs. By 2040, Africa could have the capacity to produce 60% of its renewable energy infrastructure locally, significantly reducing costs and increasing local ownership of energy resources.

Unlocking Africa’s Potential

Unlocking Africa’s renewable energy potential requires a combination of local inclusion, affordable capital, and a long-term policy framework. Accelerating Africa’s development requires greater capital flows that prioritize sustainability and encourage localization.

However, to attract more affordable capital, African countries need to improve risk sharing mechanisms. We have seen the benefits of this. Blended finance, combining concessionary public finance with private capital, has boosted clean energy investment by more than USD 30 billion between 2016 and 2023, but more is needed.

We have a short five-year window to ensure that foreign investment is strategically deployed in a way that accelerates local infrastructure, capacity building, energy security and broad economic benefits for all Africans, not just a few beneficiaries, by 2030. Human potential, financial benefits and the climate is too enormous to ignore.

Dietmar Siersdorfer is the Managing Director of Siemens Energy Middle East and Africa.