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Africa Focus

The role of impact investing and renewables in Africa’s green energy transition

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While the banking sector will be pivotal in Africa’s sustainable transition, impact investors have an important part to play, especially in sparking growth in renewable energy to power change, writes Hiriyti Bairu.   

Africa is one of the most vulnerable continents to climate change. And as much as African governments are making some strides to transition their economies and protect their countries from the effects of rising temperatures, substantial private sector investment is needed in tandem with the government funding to help the continent successfully tackle the climate crisis.

International banks and Africa’s regional and domestic lenders are crucial to unlocking and facilitating the vast sums of private capital needed to drive sustainable change, and banks are stepping-up, supporting growth in sustainable finance and renewable energy projects.

To achieve scale, there first needs to be availability of low-cost technology, which there is, and second the availability of capital, which we believe is waiting to be allocated.
Nakul Zaveri, partner at LeapFrog Investments
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Yet, more can be done by the banks, and at the same time, so-called impact investors – in the private and public sectors – are increasingly joining the fight, and beginning to have an impact.

“The role impact investing can play is increasingly important to secure more support for a green and just transition, and more support for the climate innovations and adaptations which are already taking place, including access to energy for all,” says Alice La Trobe Weston, senior investment manager at Snowball, a London-based impact investor.

“A key theme for the [COP27] conference is how those with the greatest resources and capacity can collaborate with those who are the least responsible but most affected by the climate crisis. It is a critical opportunity for the holders of private capital to increase their participation in the global effort to build a more sustainable economy.”

Capital enables change, but material and lasting change is more likely achieved when it is combined with other factors, many of which are now coming into play across Africa, according to Nakul Zaveri, partner at LeapFrog Investments, an emerging markets-focused private investment firm.

He says there is now “an alignment of availability of technology, capital, government intervention, and consumer awareness,” which is supporting growth in green energy opportunities, including in “pay-as-you-go rooftop solar, distributed energy systems, EVs and smart farming practices.”

Scaling-up these technologies is the next step, but he believes that is possible. “To achieve scale, there first needs to be availability of low-cost technology, which there is, and second the availability of capital, which we believe is waiting to be allocated.”

Key to this momentum has been governments across Africa beginning to create “the enabling ecosystem for the technology and capital to come in, and governments are doing that,” says Zaveri.

“For example in Kenya, they have increased subsidies for rooftop solar panels, and we have seen some of these trends taking place progressively,” he says, adding that other key government initiatives include “enforcement of contract regulations, and delivering subsidies quickly and taking out friction from the implementation of projects.”

The role impact investing can play is increasingly important to secure more support for a green and just transition, and more support for the climate innovations and adaptations which are already taking place, including access to energy for all.
Alice La Trobe Weston, senior investment manager at Snowball
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Renewable power

Impact investment can be broad and varied in scope, but an important and growing focus for some, including Snowball, has been investing to support access to clean energy power in Africa.

Weston says an example of this is Snowball’s investment in the responsAbility Access to Clean Power Fund, a private debt fund launched and managed by Swiss impact asset manager, responsAbility, which was acquired earlier this year by investment manager, M&G.

“The fund addresses the lack of access to clean power by lending to off-grid energy projects in emerging markets with a strong focus on sub-Saharan Africa and South and Southeast Asia,” says Weston. “Over the lifetime of the fund, portfolio companies are expected to provide clean power to more than 150 million people, add 2,000 MW of clean energy generation capacity and reduce CO2 emissions by six million tonnes.”

Increasing access to power or electricity in Africa is a monumental challenge – nearly 600 million people still do not have access to electricity – but there is great hope in the power of renewable technologies, and particularly solar, to make a material difference. Indeed, the opportunity in solar is huge – Africa is home to 60% of the best solar resources globally, yet only 1% of installed solar PV.

There is a similarly compelling opportunity to develop wind and hydrogen power across the continent. To realise the full potential of these technologies, substantial amounts of capital are needed, as well as a consistent and committed drive among national governments to support these developments, says Linda Mabhena-Olagunju, CEO of DLO Energy Resources Group, a renewable energy developer, strategic investor, and owner of one of South Africa’s largest wind farms.

“84% of our generation capacity South Africa still comes from coal – less than 10% comes from renewables,” says Mabhena-Olagunju. “South Africa has had one of the most developed renewable energy strategies, but it has also been slow in implementing certain parts of it and there’s been a stop and start approach.”

She adds that there hasn’t been a “cohesive government plan around renewables in certain African countries” and that the lack of government funding support to the sector remains a major challenge.

“Most African utility companies are bankrupt or are not in a good financial position. Unless governments stand behind them or have the funding to stand behind, then we’re not going to see cohesive renewable energy plans,” says Mabhena-Olagunju.

Unfortunately, slowing growth in many African economies makes it more challenging for governments to provide the needed funding support.

Private sector funding directly from banks and institutional investors can, to an extent, help fill the void. Increasingly, though, a combined approach from the private and public sectors is proving important to unlock those capital flows.

Indeed, so-called blended finance, which combines concessional public funds with commercial funds, can be a powerful means to direct more commercial finance toward impactful investments, especially in the renewables sector.

“Catalytic instruments like blended finance are critical for scaling up electricity investments in Africa,” says Maud de Vautibault, senior infrastructure policy and legal advisor at GI Hub, a not-for-profit organisation, formed by the G20.