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August 22, 2022updated 24 Aug 2022 9:40am

Cop27: What’s on the agenda for Africa?

How can Africa tap the capital it needs to fulfil its demand for energy while remaining aligned with global net-zero goals? Capital Monitor speaks to Bogolo Kenewendo of the UN Climate Champions initiative and Khalid Hamza of the European Bank for Reconstruction and Development (EBRD).

By Virginia Furness

Bogolo Kenewendo, of the UN Climate High-Level Champions initiative, is working with partners to showcase projects in Africa to attract investors. (Photo courtesy of the UN Climate Champions)
  • Implementation of climate pledges, finance for adaptation and access to energy in Africa are all high on the agenda for the Cop27 climate summit.
  • The UN Climate High-Level Champions initiative is working with partners such as the EBRD to drive investment into climate change adaptation and mitigation in Africa and push for new approaches to financing.
  • But the continent is likely to rely on its fossil fuel resources for some time, indicates a recent statement by the African Union.

Turning pledges into action is at the heart of the agenda for the Cop27 climate summit coming up in November. If last year’s Cop26 is to be remembered for the $130trn declared as aligned with achieving net-zero emissions, decision makers at this year’s climate gathering in Sharm El Sheikh want to ensure that real progress is made in delivering that capital to where it is really needed.

Africa is unquestionably one of those places. It is home to four out of the five people globally without energy access, according to Africa Finance Corporation (AFC), a multilateral development finance institution (DFI). Hence access to energy on the continent – which contributes just 4% of the world’s global greenhouse gas emissions – will be high on the agenda at Cop27.

Yet it’s tricky to balance the need to meet global climate goals by expanding clean power generation with providing Africa access to the energy required for development, as lenders such as Ecobank Transnational and Standard Bank know well.

Energy access issues

For AFC, a “pragmatic path” to net zero for Africa means developing the region’s natural gas reserves as a transition fuel. Based on known reserves, there is the potential for around 400GW of gas-generated power in sub-Saharan Africa – almost twice the continent’s installed capacity, AFC says.  

The African Union of 55 member states is taking an even stronger stance, having said last month that “Africa will continue to deploy all forms of its abundant energy resources, including renewable and non-renewable energy, to address energy demand”.

The UN Climate Change High-Level Champions initiative is working on a response to this position, says Bogolo Kenewendo, its Africa director.

“We need to find the nexus of transition energy and energy poverty,” she tells Capital Monitor. “When Germany reached 30% of energy poverty, they started up coal-fired plants. And energy poverty in [Africa] is over 70%.” Energy poverty refers to the difficulty of acquiring energy to meet basic living standards.

Accordingly, a key focus for the Climate Champions initiative at Cop27 will be to translate the large capital pledges of Cop26 into clearly defined investments. “We need to break these trillions [of dollars] into millions because that is where tangible impact really comes from,” Kenewendo says.

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Pledges falling short

Her statement cuts to the heart of the frustrations in developing countries: that promises of capital made by rich countries have consistently fallen short. The climate finance pledge of $100bn a year to emerging markets made by developed countries in 2009 has not hit that target in any year since and stood at just $79.6bn in 2019, shows OECD data.

Africa needs $200bn annually to help it meet the UN Sustainable Development Goals, according to the London School of Economics. But the International Renewable Energy Agency (Irena) says the continent receives only 2% of global investment into clean energy (which amounted to around $300bn in 2018), revealing a big mismatch between the project financing needs and the capital demanded.

This is something the Climate Champions, along with its partner, the United Nations Economic Commission for Africa (Uneca), are seeking to tackle with a platform that showcases investment-ready projects. With a view to closing the financing gap, they are not just asking where the money is but where the deals are, Kenewendo says

A group of 19 projects designated as ‘best in class’ by Boston Consulting Group were duly presented at the first of five UN Framework Convention on Climate Change-convened regional finance forums in the Ethiopian capital Addis Ababa on 8 August. Climate Champions had worked with Uneca and the African Union to identify 180 transactions, though Kenewendo admits not all of the projects could provide information sufficient for conversations with investors.

The 19 projects span energy and transport, agriculture and land, digital transformation, carbon credit markets, the blue economy and water, and cities. They range in scale from $7m for forest conservation in central Africa to $10bn for restoring degraded land in 32 countries and the replacing of thermal power with renewables in Egypt. Investments will made across both debt and equity, Kenewendo says.

In addition, the European Bank for Reconstruction and Development (EBRD) is working on a structured approach to identify projects in water, food and energy alongside the Egyptian government and a coalition of other multilateral development banks (MDBs) headed by the European Investment Bank. One of these is the aforementioned decommissioning of fossil fuel assets in Egypt.

Tapping private capital

A more fundamental challenge, however, is tapping large institutional pools of capital to allocate ticket sizes in the low single-digit millions. Big investors are less inclined to want to spend time and effort on a small emerging market deal, given that it would require as much – if not more – due diligence as a $1bn transaction in a developed country.

The issue does not lie in a lack of awareness of the projects on the ground, says Thomas Hohne-Sparborth, head of sustainability research at Swiss private bank Lombard Odier. “Those with capital are [already] looking for those kind of projects. It’s much more a question of mobilising the right type of finance.”

Whether such funding is driven by the public or private sector or some combination of the two depends on the type of project in question, says Khalid Hamza, the EBRD’s Egypt director.

Agreements on hydrogen projects, for example, would most likely be between private developers and private investors, as hydrogen markets are not yet developed in Egypt, he says. With tenders or power purchase agreements, such as those seen in the 1.8GW Benban solar park near Aswan, there would still be private sector investors, but the government may also give some sort of guarantee, Hamza adds.

For her part, Kenewendo argues that innovation in financial instruments is as important as showcasing projects. She says she engaged with many members of the Glasgow Financial Alliance for Net Zero (Gfanz) at the gathering in Addis Ababa on how to de-risk investments and make projects more commercially viable.

AFC, meanwhile, says it can leverage support from governments and non-governmental organisations to de-risk climate investments and offer strong returns to pensions funds, sovereign wealth funds and insurance companies. It uses public-private partnerships, blended finance, B-loans, green bonds, first-loss equity, insurance and guarantees to deliver its capital. AFC said it had mobilised $7.24bn in private-sector capital over the past five years.

Cop27: addressing adaptation needs

Another major focus area for Cop27 will be climate adaption, which is struggling to attract capital. At Cop26, 35 countries joined the Adaptation Action Coalition, a state-led initiative of 40 countries that aims to accelerate global action on adaptation. Rich countries committed to at least double the level of financing for adaption to some $40bn by 2025.

But the $356m pledged for adaptation projects at Cop26 is a tiny fraction of the $70bn a year the UN estimates developing countries will need to cover adaptation costs. The UN says that figure will rise to between $140bn and $300bn by 2030.

Instruments such as sustainability-linked bonds, which are already used to finance climate change mitigation, could also be used to finance adaptation, says Hohne-Sparborth. However, this approach is still very much at the “concept stage”, he adds, and there needs to be a better understanding of the economics of adaptation projects.

Kenewendo agrees that it is easier to use existing methods of finance for climate change mitigation projects than adaption. For the latter types of deal, “it is more difficult to quantify a return on investment”, she adds. “They can be profitable, but they are also a way for rewarding countries for protecting their nature and being part of the solution where the formal negotiation process isn’t succeeding.” 

Hence adaptation projects will rely more heavily on blended finance, concessional capital such as philanthropy and funding from DFIs with an ESG focus, Kenewendo adds.

Cop27 will bring many international investors to Africa – but can they be persuaded to deploy more of their capital?

Capital Monitor is hosting the Webinar series, Making Sense of Net Zero. Find out more information on NSMG.live.

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