Harnessing Sustainable Finance for Africa’s Energy Transition
The Africa Sustainability Forum recently brought together key stakeholders to discuss pathways for the continent’s energy transition. A critical theme that emerged was the alignment of national and corporate transition strategies, with transition finance playing a pivotal role in driving sustainable energy initiatives. During a panel discussion titled Financing Energy Transition for a Sustainable Future in Africa, Mwansa Kapaya, Finance Manager at our subsidiary CEC Renewables, shared insights drawn from Zambia’s energy landscape, offering broader perspectives on Africa’s sustainable energy financing opportunities and challenges.
“Africa possesses immense potential to accelerate its renewable energy transition. Several key opportunities stand out. Access to financing through green bonds and sustainable financial mechanisms is proving instrumental in funding renewable energy projects. These financial instruments support investments from both the public and private sectors, fostering sustainable infrastructure development. Policy incentives, such as subsidies, tax incentives, carbon pricing, and stringent emission regulations, can drive the adoption of renewable energy by making green investments more attractive. Increased private sector participation, especially through public-private partnerships (PPPs), is essential for scaling up renewable energy projects and ensuring efficient infrastructure development. Technological advancements are enhancing efficiency and reducing costs, making clean energy solutions more accessible and competitive. Regional energy integration, through strengthening energy grid connections across borders, allows for efficient renewable energy distribution, fostering regional energy security and optimizing power supply,” he said.
Despite the opportunities, several challenges hinder Africa’s renewable energy transition. Many countries rely on outdated energy infrastructure designed for conventional sources, requiring significant investment in upgrades. While investment in Africa’s energy sector is rising, access to suitable financial instruments and risk mitigation strategies remains limited, particularly due to high initial capital costs. Energy project developers, financiers, and advisors must build expertise in leveraging sustainable financing mechanisms. Many energy projects still rely on government guarantees, limiting private sector engagement. National utilities often struggle with financial sustainability due to energy pricing structures that do not reflect actual costs. Lengthy approval processes, high permitting costs, and policy inconsistencies slow down energy transition efforts.
Mr Mwansa said “To address these challenges, Africa must adopt innovative financing models tailored to local market conditions. Green bonds have emerged as a powerful tool for raising capital for renewable energy projects. Despite Africa accounting for less than 1% of global green bond issuances, investor interest is growing. Successful case studies include the CEC Green Bond, which raised USD 150 million for the development of 230MW of solar power and was oversubscribed by 200%, and Nedbank’s Green Bonds, which raised USD 184 million for solar and wind projects and were oversubscribed by 400%. Carbon finance presents another opportunity, as Africa’s carbon markets contribute less than 10% of the global market but have the potential to generate up to USD 20 billion by 2030. Strengthening policy frameworks and improving access to financing will be critical in unlocking this potential. Public-private partnerships (PPPs) provide an effective model for financing energy projects while reducing fiscal pressures on governments. Governments should lead long-term planning through Integrated Resource Plans, design policies to support renewable energy development and grid modernization, and act as bankable offtakers for Independent Power Producers (IPPs) to enhance project viability.
To accelerate Africa’s energy transition, I believe strategic partnerships are essential. Development banks need to work with African commercial banks, which have deeper local market knowledge and expertise in environmental, social, and governance (ESG) considerations. While several bilateral agreements for renewable energy investments exist, increased capacity-building is necessary for developers to fully leverage available financing. Cross-border energy trade enhances energy security and ensures optimal use of renewable energy resources. A well-integrated regional power market reduces investment risks and attracts both foreign and domestic stakeholders.”
With the right partnerships and innovative financial mechanisms, Africa can harness sustainable financing to drive its energy transition. Governments, investors, and energy innovators must collaborate to develop, fund, and operate renewable energy projects. By leveraging green bonds, carbon finance, and PPPs, Africa can unlock the full potential of its renewable energy sector and pave the way for a sustainable, energy-secure future.
