Africa’s Just Energy Transition: Investing in Africa’s clean energy future is critical for people and planet

As Africa’s population heads toward 2.5 billion people by 2050, the 54-nation region faces an epic challenge in achieving shared economic growth, energy stability and decarbonization to address the disproportionate global inequality and climate change burdens it faces. Finding intersectional solutions is not only critical to the future well-being of every African, it is also critical to the overall success of global decarbonization efforts.

Given the enormous importance of African minerals and energy resources to the world’s sustainable future, it remains a shame that more than 600 million Africans – or 43% of the continent’s population, especially in sub-Saharan Africa – still lack access to electricity. On a personal level this improves quality of life and on a macro level it drives economic growth. Surprisingly, Africa is home to about a fifth of the world’s reserves of minerals needed for battery electric cars and other low-carbon infrastructure.

Consider the following: Despite being home to one-fifth of the world’s population, the African continent contributes the smallest share of global greenhouse gas emissions, at only 3.8%, compared to 23% from China, 19% from the United States, and 13% from the European Union. . Globally, the industrial sector accounts for 30% of emissions and 38% of energy consumption, from sectors such as data centres, cement and construction, and food and beverage production. Even with powerful economies like Nigeria and South Africa in the mix, their emissions represent a tenth of the global industrial sector’s emissions.

However, Africa suffers disproportionately from climate change, with losses in financial terms only estimated at an estimated US$7 to US$15 billion annually, a figure that is expected to rise to US$50 billion by 2030 if nothing is done. To stop it. Of course, real life is affected too. Climate shocks have also displaced an estimated 7.4 million people since 2022, according to the International Organization for Migration.

To address the energy paradoxes facing Africa, the African Development Bank Group believes it will have to overcome a US$213 billion climate financing gap while facilitating inclusive energy growth to achieve its global climate goals.

To provide access to modern energy for all Africans by 2030 and implement the continent’s Nationally Determined Contributions (NDCs), energy investment on the continent must double to about US$2.8 trillion or US$250 billion each year between 2020 and 2030, according to 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 perceived investment risk – significantly increases the financial burden of energy projects. Reducing financing costs is key to unlocking a wealth of clean energy investment and transforming the continent’s energy landscape and future.

While Africa represents about 17% of the world’s population and has unlimited renewable energy potential, it receives only 2% of global foreign direct investment flows for renewable energy projects. This investment dilemma has serious consequences for the huge energy projects that Africa needs.

Understanding Africa’s energy potential

Africa’s renewable energy potential is unparalleled. To put it more clearly, the African Development Bank Group estimates that Africa has almost unlimited potential in solar energy (10 GW), abundant hydropower (350 GW), wind energy (110 GW), and geothermal sources (15 gigawatt). Africa’s unique geographic advantages also make it ideal for large green hydrogen projects, which could meet up to 25% of global energy demand by 2050, according to World Bank estimates.

But while the continent receives 40% of the world’s solar radiation, it still has less than 1% of installed solar energy, according to the International Energy Agency. Wind energy capacity in Africa is only 0.01% of its full potential. If this potential can be harnessed effectively, existing resources could generate 22 million jobs by 2050 across the energy sector. This sheer volume of jobs can be a major driver of economic growth.

But the current unfortunate lack of investment in all of these capabilities underscores the need for stronger financial commitments from well-funded international investors. Africa needs investors who view the continent not only as a market, but also as a key partner in the time-sensitive and critically important global quest for decarbonisation. 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 job opportunities. One obvious place to start is to address the concerns of the Financial Action Task Force (FATF), which in June included 12 African countries, including major economies and energy producers such as Kenya, Nigeria, Namibia and South Africa, on its gray list. Investors consider such 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 critical to ensuring that Africa receives the economic benefits of the energy transition. Today, Africa represents just 1% of the global renewable energy workforce, highlighting the urgent need to invest in local skills and education. Siemens Energy predicts that by 2030, the continent could increase this share to 10%, creating millions of jobs in clean energy technologies such as solar PV and wind, if some favorable forces come together.

African countries have the potential to benefit from foreign investment from emerging regions such as the Gulf Cooperation Council, which invested US$53 billion in 2023 during COP28 alone. Currently, the continent imports 75% of its renewable energy equipment, primarily due to a lack of local manufacturing capacity, which leads to high costs. By 2040, Africa could have the capacity to manufacture 60% of its renewable energy infrastructure locally, significantly reducing costs and increasing local ownership of energy resources.

Unlocking Africa’s potential

Unlocking Africa’s vast renewable energy potential requires a combination of local inclusion, concessional capital, and long-term policy frameworks. Accelerating the pace of development in Africa requires increased capital flows that prioritize sustainability and drive localization.

But in order to attract more affordable capital, African countries need to improve risk-sharing mechanisms. We are already seeing the benefits of this. Blended finance, which combines concessional public financing with private capital, has mobilized more than US$30 billion in clean energy investments between 2016 and 2023, but more is still needed.

We have a short five-year window to ensure that foreign investment is strategically deployed in ways that accelerate domestic infrastructure, capacity building, and energy security, and deliver broad economic benefits to all Africans, not just a handful of beneficiaries, by 2030. The financial and climate benefits are so enormous that It cannot be ignored.

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