(Geoffrey Manley) The writer is an investment director and head of energy access and efficiency at British International Investment.
Africa stands at the cusp of a green energy revolution with the potential to uplift hundreds of millions of lives. Despite its vast and largely untapped renewable energy potential, only 2% of global investments in renewable energy in the two decades to 2022 were in Africa, according to the International Renewable Energy Agency. Development finance institutions (DFIs) play a pioneering role in backing renewables across the region, yet financing gaps persist. The mismatch of perceived risks and returns continues to limit the flow of private capital to attractive investment opportunities — and this is felt most acutely in smaller frontier markets. DFIs cannot fill the financing gap; mobilising private capital is critical.
In recent years, the UK’s DFI, British International Investment (BII), has been more intentional about developing new platforms to accelerate this flow of capital to frontier markets. An example includes the BII’s Gridworks, which is investing in and operating assets in Africa’s electricity sector.
Through its investment in African energy firm Virunga Power, Gridworks is developing a public–private partnership (PPP), Weza Power, with the Burundian government to help increase access to clean power in one of the world’s poorest countries. The project will generate energy from clean, run-of-river hydropower and supply reliable distribution-level power to the main urban areas. A decade ago, just 7% of Burundi’s 13 million people had access to electricity; within the next decade, that number is projected to reach 70%.
Separately, as the majority shareholder in Sustainable Power Solutions — a South African-based provider of solar photovoltaic and battery solutions — Gridworks has encouraged further equity investment from South African investment group New GX and, in turn, debt financing from Investec.
Frontier and fast-growing
Smaller countries often need help attracting large-scale private investments, even those with growing economies and strong investment opportunities. Fast-growing markets such as Rwanda, Côte d’Ivoire and Benin — which have abundant solar, hydro, biomass and wind potential — can offer early mover advantages for businesses and investors. These countries can also play strategic roles in regional economic integration and enable businesses to benefit from regional trade agreements and energy trading programmes.
DFIs now collaborate with local experts to develop flexible, long-term financing solutions with risk-bearing capabilities to accommodate traditional lenders, who tend to be more risk-averse. For example, BII works with partners across multiple platforms including Norway’s DFI Norfund, and private power developers such as Scatec and Industrial Promotion Services (part of the Aga Khan Fund for Economic Development), to accelerate the delivery of hydropower projects. This includes the 206-megawatt Ruzizi III hydropower plant, which is Africa’s first tri-national PPP and involves the governments of Burundi, Democratic Republic of Congo (DRC) and Rwanda. This will provide electricity to 13 million people across the three countries, 70% of whom are living under the poverty line and averaging a 6% electricity access rate.
Misunderstood Markets
Blended finance instruments can also help attract private capital to advance the energy transition in Africa’s frontier economies. In partnership with the UK’s Foreign, Commonwealth & Development Office, BII’s £240m Climate Innovation Facility allows it to take on more risk by testing, seeding and scaling cutting-edge technologies and business models to fill energy access gaps and mobilise more investment from commercial investors by improving the risk and return profile of innovative, green projects.
The DFIs of G7 nations are also collaborating among themselves, having established the Africa Resilience Investment Accelerator (Aria) to unlock greater investment in the continent’s frontier economies. Aria helps countries boost their investment readiness and access long-term funding. Its focus countries include Sierra Leone, Liberia, Burkina Faso, DRC, Ethiopia and Benin. Many of these geographies are often misunderstood, despite being compelling growth opportunities.
A commitment to market transformation and counter-cyclical investing uniquely positions DFIs to drive green growth in Africa’s frontier economies. More support from diverse partners within the development finance community is critical. However, we can’t do it alone. DFIs are laying the foundations for more firepower in the form of private capital to help bring clean, affordable power to people where it is in short supply.
FDi
