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Investment in Africa’s energy resources is severely underperforming

Africa, despite having some of the largest reserves of solar energy, along with high potential for successful hydroelectric and wind-power projects, is currently experiencing an woeful period of investment. As MSN is currently reporting, The International Energy Agency (IEA) has issued a report highlighting the urgent need for a significant increase in energy investment in Africa to achieve the continent's energy and climate objectives.

The IEA claims that present investment levels are insufficient to fully utilize Africa's huge stocks of essential minerals and its abundant clean energy resources. In addition to having more than half of the world's top solar resources, Africa has significant potential for wind and hydroelectric power projects, as well as possessing a significant impact on the availability of vital minerals needed for innovations like electric batteries and autocatalysts.

The IEA report emphasizes the difficulties brought on by the high costs connected with African energy projects. This financial impediment discourages both public and private investment, which is one factor in the underinvestment in energy in the area. The financial instability of many African countries, the absence of regulatory frameworks, and worries about political and reputational risks are a few factors that contribute to these high prices.

The report emphasizes the need to more than double annual energy investment in Africa from the current $90 billion to $200 billion by 2030. Approximately two-thirds of this investment should be directed toward clean energy projects to meet climate targets outlined in the Paris Agreement and ensure universal access to modern energy systems. Unfortunately, energy spending in Africa has declined over the past five years due to a decrease in fossil fuel investments and stagnant funding for renewable energy initiatives. Currently, Africa accounts for only 3% of global energy expenditure.

The continent's indebtedness further hinders public spending on energy projects, while private investors are hesitant to participate in the absence of regulations and due to concerns about political stability. These factors inflate capital costs, rendering many African energy projects financially unviable. Large-scale renewable energy projects in Africa face capital costs up to three times higher than in advanced economies and China, with even greater expenses for smaller rural projects.

To overcome these challenges, the IEA recommends concessional financing, wherein international development banks provide developing nations with more favorable terms, including lower interest rates and longer repayment periods. The report estimates that only half of electricity grid projects in Africa are commercially viable without such assistance, while most clean cooking initiatives would be financially unfeasible.

Despite accounting for 20% of the global population, Africa's energy projects receive disproportionately low investment, leaving many without access to electricity or clean cooking fuels. Currently, 600 million Africans lack electricity access, and nearly one billion lack access to clean cooking fuels. The IEA estimates that $25 billion per year could provide basic access to these necessities for all Africans, a sum roughly equivalent to the cost of installing a single Liquid Natural Gas (LNG) Terminal.

The IEA's report coincides with the Africa Climate Summit, where African leaders have called for debt relief to address the impacts of climate change and received pledges of hundreds of millions of dollars for Africa's nascent carbon credits initiative. Africa, despite contributing minimally to global carbon emissions (2-3%), remains highly vulnerable to extreme weather events driven by global warming.


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