Several countries in the region have set renewable generation targets. These targets vary widely. For example, the ECOWAS countries aim for a 19% share of generation from new renewables in the electricity mix by 2030, Nigeria is aiming at 36%, South Africa 41%, and Kenya is going for 100% in 2030 from renewable power generation.

Reported investment requirements for the energy transition agenda, such as those by Ghana in September 2023 and Nigeria in August 2022, highlight financing needs rather than reflecting existing domestic policy and funding. For example, about $410 billion above business-as-usual spending is needed in Nigeria between 2021 and 2060.

Renewables are Africa’s best option

Despite requiring more investment, energy spending in Sub-Saharan Africa is going the wrong way. The region lagged in global energy investment, receiving just 3% of total energy funds and 1.5% of renewables between 2010 and 2020 and dropping to less than 1% since. Financing is also unevenly distributed, with a few countries receiving the bulk, while the 33 least-developed nations secured only 37% of renewable commitments from 2010 to 2019

Africa is missing out on the green technology revolution that is making non-fossil energy the cheapest option. The levelized cost of electricity for renewables is at an all-time low, making solar PV, onshore wind, and storage more viable than ever.

Despite the manifold benefits of green electrotechnology, our analysis shows that, until 2023, most capital expenditure in the power sector was directed toward fossil-fuel power plants. On average, between 2015 and 2024, for every $3 invested in fossil-fuel power plants, only $1 was invested in solar and wind in the region. However, in 2023, for the first time in Sub-Saharan Africa’s history, investments in solar and wind power surpassed those in fossil-fuel power.

The main reason for the previous lack of investment in solar and wind lies in the structure of capital financing. Large, centrally planned fossil-fuel projects typically benefit from state-guaranteed funding. To attract more investment into renewable power, it is crucial to enable the free flow of capital — which requires providing risk-guaranteed funding.

The success of utility-scale renewables hinges on an enabling policy environment, technical support, and international capital—particularly concessional finance and development bank funding to catalyze private investment. This highlights the critical role of COP29’s finance agenda. The financing structure of renewable energy investments varies widely across Sub-Saharan Africa, with projects ranging from fully debt-financed to fully equity-financed models. Both debt and equity capital carry associated costs. The cost of debt is reflected in interest payments, while the cost of equity represents the opportunity cost of invested capital. This overall cost of capital (CoC) is a key determinant of whether a renewable energy project, such as a solar PV power plant, proceeds to implementation.

The cost of capital is influenced by the level of risk associated with the project. Two primary risk factors impact financing: technology risk and geographic risk. If a technology and its supply chain are not well established, the perceived project risk is higher, leading to an increased CoC. Even for mature technologies like solar PV, projects located in high-risk regions, such as many parts of Africa, face a ‘risk premium’ which raises the CoC compared with lower-risk regions.

Why cost of capital is vital for Agrica

DNV modeled two scenarios to assess how varying cost of capital assumptions affect future solar PV capacity in Sub-Saharan Africa compared with the Energy Transition Outlook (ETO) baseline.

If SSA had a CoC equivalent to that of Europe throughout the period from 2024 to 2050, the region’s solar PV capacity would be 20% higher.

Will China meet Africa’s funding deficit?

The dismantling of USAID will have far reaching consequences for Africa and can be regarded as a sign of where U.S. priorities now lie. With recent geopolitical changes and budgetary pressure, European countries have also prioritized security spending often at the expense of foreign aid and investment.

Recent turmoil in the international financial markets demonstrates how previous norms have been upended. The rise in yield of U.S. Treasuries show how risk perception is changing and although investors are unlikely to choose an African utility scale solar project over long-term American debt, there may be a window for African countries to present themselves as a more stable option than previously perceived.

The most interesting player is China. Although slower domestic growth has put the brakes on China’s Belt and Road Initiative, Beijing may regard U.S. retrenchment in the Africa as an opportunity to act. African countries have already received billions in loans and grants from China and given that it is the global factory for green technology, there is an obvious investment gap for China to extend its soft power in the region.