COP26 and Africa’s energy sector: The need to invest beyond power generation

October 2021

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As the COP26 Summit begins in Glasgow this week, the world’s attention is squarely centred on climate change. Leaders from multilateral institutions, national governments, and the private sector will come together to make new commitments to reduce greenhouse gas emissions and mobilise climate finance. From an African perspective, COP26 has particular significance: no continent has contributed less to climate change, but none has been, nor will be, more severely impacted by it.

In Africa, the fight against climate change has, to a large degree, played out in the energy sector. While the continent continues to be a major global producer of oil and gas, over the past decade, it has also made large strides in utilising renewable energy sources to generate electricity. In East Africa, particularly, climate change agendas have led to significant investment in clean energy production, in part driven by donor and development finance funding.

Yet, while this has undoubtedly been positive, both in terms of increasing installed capacity and reducing reliance on ‘dirty’ fuels, a strong climate change focus must not overshadow the power sector’s wider development in Africa. Any commitments to investing in African renewable energy made at COP26 must be followed by a renewed focus on strengthening all links of the power supply chain, specifically transmission and distribution. Only through this can both the climate change and broader development objectives of African countries be met.

Combatting climate change: Increased investment in African renewable energy

During the past 10 years, Africa has increasingly established itself as a major global site for the generation of renewable energy. While much of this industry’s development has been financed by African governments, multilateral and other development institutions have also been significant funders. Driven by a two-pronged intent to mitigate climate change and improve energy supply in Africa, these institutions have made renewable energy generation a central facet of funding initiatives on the continent. Kenya’s flagship Lake Turkana Wind Power Project – a 300 MW windfarm in the country’s north – for example, received USD 150 million from the African Development Bank (AfDB), which, in turn, crowded in private sector investment.

The results of Africa’s ongoing energy transformation have been significant. While North Africa remains heavily reliant on non-renewable energy sources, south of the Sahara, the picture is markedly different. In both western and southern Africa, over a quarter of installed energy capacity comes from clean sources, according to a report published by German development bank KfW. Significantly, in Central and East Africa, this figure rises to over 70 percent. Contrasted with many developed economies – in the US, for example, 85 percent of energy comes from non-renewable sources – these numbers appear all the more impressive.

This trend of increasing renewable generation in Africa looks set to continue, with the International Energy Agency predicting that by 2040, almost half of the continent’s power could come from clean sources. A pipeline of major projects exist, not least the Grand Ethiopian Renaissance Dam (GERD). With a planned max capacity of 6.35 GW, when the GERD comes online – expected to be in 2022 – it will be the largest hydroelectric powerplant in Africa, and the seventh biggest globally. COP26 will no doubt only bolster the growth of clean energy production in Africa, with participants from the continent seeking to, as the AfDB states, “crowd in private sector capital flows” – a vital element to scaling renewable generation.

The risk of overshadowing: Renewable generation diverts focus from broader power sector challenges in Africa

With climate change currently at the fore of global policy development, the considerable growth of renewable energy generation in Africa will rightly receive airtime at COP26. Moreover, with over half of Africa’s population lacking access to electricity, according to the World Bank, this increase in installed capacity supports a pressing development objective on the continent – the UN Sustainable Development Goal 7: “Ensure access to affordable, reliable, sustainable and modern energy for all”. However, in the broader context of this aim, climate change agendas risk narrowing the focus on renewable generation, at the expense of other vital elements of the power supply chain.

During the past decade, the vast majority of energy sector investment in Africa – particularly from private sources – has been directed towards generation, notably independent power producers. This trend exists despite the well-publicised issues with power transmission and distribution in Africa. South Africa’s Eskom, and its outdated transmission networks that contribute to load shedding, stand out as a clear example of this challenge, but the issue is prevalent across the continent. Encumbered by dilapidated or geographically limited transmission and distribution infrastructure, as well as poorly run state energy companies, vast sections of Africa’s population lack access to electricity. While off-grid solutions can alleviate this problem, on-grid investment is still urgently required, with the World Bank estimating that around 12 percent of electricity produced in Africa is lost during transmission and distribution.

In some African countries, a focus on producing clean energy has even led to an oversupply of power, even as challenges remain with transmission and distribution. Uganda, for example, has installed capacity of 1,300 MW, with over 90 percent of this coming from renewable sources, yet the country uses around 700 MW of power annually. When the Karuma hydropower station comes online, possibly next year, production will increase to over 1,900 MW. However, despite being home to perhaps the most respected energy distribution company in Africa – publicly listed Umeme Limited – significant investment is still required across Uganda’s power supply chain. Given Umeme’s positive track record, securing additional financing – even from the private sector – should not prove a challenge. In other African countries, however, based on current trends, alleviating the power sector funding gap may not be as straightforward.

Private investment and development finance key to addressing power sector limitations

For the financing requirements of Africa’s energy transmission and distribution infrastructure to be met, private sector and development finance investment is vital. Innovative solutions should be deployed, with CDC Group’s creation of Gridworks – a development and investment platform targeting transmission, distribution and off-grid electricity in Africa – a positive example.

With COP26 likely to lead to calls for greater private sector investment in renewable energy generation, a broader focus on SDG7 must not be lost. Power transmission and distribution in Africa remains in urgent need of increased investment, and with national debt spiralling as the COVID-19 pandemic continues to bite, African governments should look to private capital and development finance for financial support.

AML October Insight
AML October Insight