Sub-Saharan Africa faces massive clean energy funding gap despite fossil fuel investments

Sub-Saharan Africa (SSA) is currently facing a significant energy crisis characterized by a severe funding deficit that limits access to clean and affordable energy. This region is in dire need of $20 billion per year to achieve universal access to energy by 2030; however, actual annual investments are around $8 billion. Consequently, nearly half of the population lacks proper access to electricity, which exacerbates the economic challenges faced by the region. As SSA's economy and population continue to grow, electricity demand is projected to quadruple, reaching approximately 2100 terawatt-hours (TWh) by 2050. This expected demand is roughly equivalent to half the current electricity usage of the United States. Despite ambitious energy targets set by various countries in the region, investment in renewable energy sources such as solar and wind remains alarmingly low, especially when compared to fossil-fuel projects. In fact, between 2015 and 2024, for every $3 invested in fossil-fuel power plants, only $1 was directed towards solar and wind energy. In a noteworthy development for Sub-Saharan Africa, 2023 marked a pivotal moment in the energy sector, as investments in solar and wind surpassed those in fossil-fuel power for the first time in history. The previous trend of lackluster investment in renewable energy was primarily attributed to the financing structure associated with large fossil-fuel projects, which typically benefitted from state-guaranteed funding. This situation highlights the importance of addressing the financial tools and structures available for renewable energy projects, which vary widely across the region. The financial costs associated with renewable energy projects are often dictated by the cost of capital, which is further influenced by the perceived risk of the project. If the technology or supply chain for renewable energy projects is not well established, the risk is greater, thereby increasing the overall cost of capital. As negotiation and planning for greater investment continue, the outcome will significantly impact the region's ability to avoid future energy crises and support the ongoing economic development necessary to address pressing issues such as poverty and job creation. Lastly, amidst shifting geopolitical landscapes, questions arise surrounding the ability of China and other foreign countries to fill the funding gap left by diminishing European foreign aid, potentially shifting the dynamics of international investment in Sub-Saharan Africa's energy sector.