This chapter aims at synthesising the conclusions of the preceding chapters and it presents specific policy recommendations to foster the redirection of financial flows towards clean energy access solutions in sub-Saharan Africa.
The first chapter of this book presented the energy access challenge in sub-Saharan Africa and the negative consequences that energy poverty has on populations and the environment across the region. In order to tackle this pressing development concern, technical solutions exist, adapted to urban and rural zones of the continent. However, substantial financial investments are needed to allow their deployment.
The second chapter presented different investment opportunities for capital providers within the power and clean cooking sectors, including the drivers behind those energy solutions and the associated investment risks. These risks were classified into four distinct categories: (i) economic and financial factors, (ii) overall country situation, (iii) business environment and (iv) environmental and social considerations. In addition, core stakeholders, which can directly or indirectly influence investors’ risk perception, were identified and described.
This comprehensive mapping of investment risks and key stakeholders led the analysis to the second part of this book, namely the definition of risk mitigation strategies and innovative financing schemes, available to the public and private spheres. Those mechanisms and initiatives have the following objectives: (i) foster capital allocation in projects and organisations aimed at addressing the clean energy access challenge in sub-Saharan Africa, (ii) mobilise private investments and (iii) decrease the cost of financing in the power and clean cooking sectors across the region.
This book did not focus on specific countries. Accordingly, its final objective was not the selection of an adequate set of tools able to redirect capital allocation in clean energy solutions in a particular country. However, it provided a general overview of public and private strategies able to improve the attractiveness and competitiveness of the selected clean energy initiatives. This toolbox of public and private actions considered in this book was classified into four distinct spheres of interest: (i) public policies and initiatives, (ii) public financial and fiscal mechanisms, (iii) private financial structures and mechanisms and (iv) private initiatives.
In addition, this book included important concerns that may inhibit the deployment of public and private risk mitigation strategies. First, it described approaches to overcome political economy considerations in the implementation of targeted public policies and initiatives. Second, it underlined the necessity to develop capital markets in sub-Saharan Africa, crucial for the use of several financial mechanisms presented here.
Finally, the last chapter emphasised the role of multilateral agencies and development banks in the clean energy access challenge in sub-Saharan Africa. In particular, it focused on an efficient use of their limited resources in order to leverage private capital in the clean energy sector, thus increasing the utilisation of mobilisation tools, technical assistance and stakeholder engagement, alongside direct investing activities.
The various investment barriers mentioned above are interrelated and simultaneous. Indeed, their combined effect strongly influences the financing of clean energy access solutions in sub-Saharan Africa. Therefore, when developing energy strategies, the public sphere, including policymakers and international public institutions, has to consider the overall situation in order to design and implement integrated mechanisms, rather than isolated schemes. Hence, public actions need to be interconnected and complementary to each other.
Accordingly, the public sector, both domestic and international, shall focus simultaneously on three distinct areas of work when addressing the clean energy access challenge in sub-Saharan Africa:
The creation of an enabling investment and business environment
The improvement of risk-reward profiles
The mobilisation of private capital.
10.1 Creating an Enabling Investment and Business Environment
As previously highlighted, the region is perceived as highly risky by the private sector. This does not only apply to the energy sector, but to the entire economy. Thus, an adequate business and investment climate needs to be created and maintained in order to attract high-quality project developers and mobilise private capital at scale.
Formulation and communication of a national energy masterplan
Acting as overall guidelines, national energy strategies are the first step for any government addressing energy-related challenges, allowing to define the vision for the country’s future. They should include nationwide energy objectives, complemented by specific time frames as well as the role clean resources are expected to play in the energy pathway.
From the perspective of private players, setting-up clear, transparent and coherent targets is central. Moreover, it creates the basis to subsequently design targeted measures and mechanisms in order to achieve energy objectives. Furthermore, it allows to monitor energy objectives as well as to assess the effectiveness and efficiency of public actions.
By showing political commitment and determination, governments send a strong message to the private sector and to the civil society, related to the direction public authorities are taking for the national energy journey. A declaration establishing specific energy targets also gives the opportunity to define a social contract and articulate how those goals can contribute to the sustainable socio-economic development of the country.
In addition, the energy access challenge must be integrated in national energy strategies, including centralised and decentralised power systems as well as clean cooking solutions. The latter is too often considered as a second-level priority, even though universal access to clean and efficient cook stoves would bring an enormous positive social and environmental impact in the region. Furthermore, rural electrification plans have to be clearly formulated, mentioning the technologies as well as energy resources used in different areas. They should represent a central part of national energy masterplans.
Several public actions must be taken to achieve universal energy access in sub-Saharan Africa, including but not limited to: mainstreaming decentralised power systems and clean cooking solutions in national energy strategies; elaborate and implement specific regulations and policies as well as fiscal and financial support mechanisms dedicated to all technical solutions and geographical areas.
Mitigation of country risk
National governments must mitigate investment barriers linked to the overall country situation for capital providers and project developers. Specific reforms need to be implemented at the country level, including anti-corruption measures as well as sound management and governance practices. Public authorities must also strengthen law enforcement within their respective territories and increase disclosure and transparency.
Additionally, by streamlining administrative requirements, decreasing bureaucratic burdens and creating pipeline facilities, the public sector can largely reduce the barriers to entry in the energy sector and facilitate access to the market. Moreover, one-stop-shops, representing public authorities and dedicated to the supervision of the energy industry, will increase the overall efficiency of the industry and foster the implementation of clean energy initiatives. They should be accessible in urban as well as rural zones, in order to assist in the execution of administrative tasks as well as ease the functioning to public mechanisms.
Moreover, power utility reforms must be aligned with national energy strategies, be committed to the clean energy access challenge and include targeted actions to strengthen the financial position of state-owned utilities. In addition, concerns related to the access to the national electric grid have to be considered, in order to send a clear message to potential market participants.
Considering the complexity and extensiveness of the country risk in many developing and emerging economies, mitigation without external support is usually complicated. Therefore, the international community should be actively involved, proposing risk mitigation instruments such as political risk guarantees, as well as developing targeted initiatives aimed at decreasing the risk perception of private stakeholders.
Encouragement of international cooperation
Public authorities can also contribute to the development of an enabling investment and business environment through international and mutually beneficial collaboration, within and outside the sub-Saharan African region.
International cooperation enhances the transfer of technologies and knowledge between countries. Moreover, it has the potential to improve the perception of the overall country situation as well as to reinforce investors’ confidence.
In addition, through collaboration with nearby states, properly functioning regional power market pools should be created to increase the efficiency of the sector and allow the provision of electricity at lower tariffs, thus making power affordable and accessible to a wider part of the population.
10.2 Improvement of Risk-Reward Profiles of Investment Opportunities
In addition to an enabling investment and business climate, the attractiveness of clean energy initiatives needs to be improved to leverage private capital at scale in sub-Saharan Africa. Two non-mutually exclusive options are available: (i) increasing expected financial returns and (ii) reducing risk perception.
Measures adapted to local contexts and energy objectives
To that end, the public sphere has a broad set of tools at its disposal. Each scheme presents advantages and disadvantages. Furthermore, the selection process of the most efficient and cost-effective mechanisms has to consider social and cultural circumstances as well as local opportunities and challenges associated with the domestic energy market. In addition, they should be aligned with national energy objectives.
Encourage the use of risk mitigation tools
Moreover, public actors are uniquely positioned to incentivise the utilisation of specific risk mitigation tools adapted to the clean energy sector. Indeed, the use of risk mitigation tools for clean energy is still low compared to other industries, with some exception such as off-balance sheet financing for large-scale power generation plants.
In addition, governments as well as multilateral agencies and development banks have to support the creation of new and innovative structures, tailored to small- and medium-scale energy investments. In particular, few strategies and mechanisms aimed at mitigating the currency and liquidity risks in the clean cooking and decentralised power sectors exist. However, their impact would be huge. Thus, the public sector should fill this gap.
Avoid market distortion
Moreover, several policies currently in place in many emerging and industrialised economies are distorting markets as well as negatively affecting the competitiveness of clean energy solutions. Indeed, public subsidies in sub-Saharan Africa should be progressively shifted away from polluting fossil fuels and redirected towards cleaner alternatives.
Furthermore, targeted subsidy schemes should be developed, in order to support the poorest segments of the population and avoid over-consumption of energy by better-off households. Besides, any subsidy reform has to be completed by additional measures aimed at compensating poor individuals for whom energy expenses generally represent a significant part of their incomes.
10.3 Deployment of Mechanisms Aimed at Catalysing Private Capital
Even though public financial resources are crucial to bridge the energy access gap in sub-Saharan Africa, private investments are strongly needed, first because of limited public finance availability and second to avoid unsustainable debt to GDP ratios. Therefore, the public sector needs to use part of its resources to attract private capital providers, commercially oriented and not, local and international.
Mobilisation of international financial resources
Financial resources can be made available by industrialised countries through various channels:
First, multilateral and development agencies as well as public climate funds have a central role to play in the financing of clean energy access in sub-Saharan Africa. Apart from directly investing in clean energy activities using money coming from tax payers and donors, those public institutions may increase their utilisation of mobilisation tools (guarantee instruments, currency hedging, development of local capital markets, fostering local financing, …) in order to leverage private capital. As explained in Chap. 9, some internal and cultural changes (increased awareness, internal capacity building and incentives, improved impact assessment and KPIs, …) may be required to incentivise an effective use of the limited resources.
Second, international carbon markets present an interesting opportunity to mobilise private capital from emitters based in industrialised economies. Public authorities have the potential to foster the use of carbon finance within their territories, by supporting promising projects able to fulfil all the requirements of international carbon market mechanisms.
Development of domestic capital markets
In addition, the public sector has to help develop capital markets in the sub-Saharan African region, in order to increase the flow of capital in the clean energy sector, provide more visibility, as well as improve the liquidity of the market. Moreover, capital markets are crucial for the use of certain financial mechanisms such as green bonds and offer more exit options for investors using equity-like instruments.
Legal frameworks supporting innovative financial schemes
By encouraging the use of alternative and innovative financial instruments and/or mechanisms, the public sector can support tailored financing structures adapted to the needs of several clean energy initiatives as well as risk profiles of different capital providers. Yet, innovative financing schemes can be deployed at scale and used by market participants provided that adequate legal frameworks are built and implemented in sub-Saharan African countries.
Support domestic financing
Domestic financing has to be developed and increased as it cancels the currency risk and allows the strengthening of the local financial sector. A significant amount of capital is available in sub-Saharan Africa. However, adequate frameworks need to be designed, and attractive investment opportunities should be available to local private capital providers.
In addition, the public sector has to support domestic financial institutions, by reinforcing capacity in investing in specific industries considered important for the development of the country, such as the energy sector. Moreover, multilateral agencies and development banks should use their high credit rating to access low-cost capital and put it at disposal of local financial institutions under certain conditions, through the use of on-lending structures.Footnote 1
Multilateral agencies and development institutions provide capital at lower cost to local banks and make it available for particular sectors, thus increasing the liquidity. This lower cost of capital can thus be on-lend to local projects and companies at lower rates than what was previously possible, without currency mismatch. For more details on on-lending structures, please refer to Chap. 7.
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Michoud, B., Hafner, M. (2021). Conclusions and Policy Recommendations. In: Financing Clean Energy Access in Sub-Saharan Africa. SpringerBriefs in Energy. Springer, Cham. https://doi.org/10.1007/978-3-030-75829-5_10
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