‘Africa must work at its own pace’ in energy transition

In 2024, Africa’s energy sector continued to evolve, with a new focus on renewable energy, even as fossil fuels continue to lead in the continent’s efforts to close its energy gap. Investment, however, remains constrained owing to environmental concerns with hydrocarbons and in the case of renewables, structural challenges that deter investments. Innovative financing models will be crucial to achieving the continent’s energy ambitions. 

Setting the scene with a review of the year, Ben Payton, energy and infrastructure reporter at African Business, noted that one of the interesting trends in the year has been the significant investment in renewables made by countries in the Gulf. One of these is the 1000 MW Benban Solar Park, an initiative of Amea Power, a Saudi firm. Another example is Masdar, a developer based in the United Arab Emirates, which is looking at installing 10 GW of renewable energy capacity by 2050. “One thing to remember is that these large investors typically deploy capital into very large projects, meaning that their investments are typically in the largest markets – Egypt, Morocco and some medium sized countries,” Peyton observed. 

Robust investor confidence

Peyton said that South Africa’s power sector has seen a significant improvement in 2024 compared to previous years. Coal-fired power stations had operated more efficiently and new solar power projects had been integrated. “Investors have been keen to take part in the independent power producers (IPP) programme for renewable energy and the latest round has been heavily oversubscribed on the solar side, pointing to robust investor confidence,” Peyton said.

Grid infrastructure remains one of the challenges, with consultants McKinsey estimating that the continent will need $400bn by 2050 to develop transmission and distribution networks. Due to financial constraints, governments are turning to the private sector. Regionally initiatives such as the Southern African Power Pool’s $1.3bn fund are focused on improving grid interconnections between countries, enabling them to import or export renewable energy as needed.

Another trend that Peyton highlighted was the increase in solar power use across Africa. “Power-intensive industries see installing renewable energy as a good way to save costs, improve their security of supply, and also demonstrate their sustainability credentials,” he observed. In South Africa, distributed solar generation has doubled to 6.1 GW in just two years, driven by efforts to mitigate the impact of load shedding. Regarding other energy sources, Peyton pointed to Africa’s ongoing exploration of nuclear, geothermal, and hydroelectric power, noting that Egypt is constructing Africa’s second nuclear power station, while Kenya is actively exploring nuclear energy, though achieving its goal within the next decade appears ambitious. 

Slow oil

The oil and gas sector has seen a slower year, according to Peyton, with only a few projects reaching final investment decisions in 2024. Notable developments include TotalEnergies’ projects in Nigeria and Angola, while Exxon delayed its final investment decision for Mozambique’s liquefied natural gas (LNG) project until 2026. 

In February the Republic of the Congo shipped its first LNG cargo. Angola’s withdrawal from the Organization of the Petroleum Exporting Countries (OPEC) in January may allow it to increase production in the future. Financing, however, remains a major hurdle for oil and gas projects due to environmental concerns and uncertainties around future demand. There may be some respite for producers on the continent. “In October, we saw the 18-country African Petroleum Producers Organization announcing, along with the African Export-Import Bank (Afreximbank), a project to create an Africa Energy Bank, which would be able to step in as a lender for these oil and gas projects, and which is seeking a capitalisation of $5bn initially.”

A major development in the downstream oil sector, Peyton said, was the launch of the Dangote refinery in Nigeria, which began delivering refined gasoline in September. While the refinery has faced initial challenges, including disputes over cheaper fuel imports undermining demand for local crude oil, it has begun exporting some cargoes to stabilise operations. “This is really big news,” he declared. 

Commitment to renewables

Macky Sall, former President of Senegal, emphasised Africa’s commitment to renewables. In a conversation with Omar Ben Yedder, group managing director of IC Publications, publisher of African Business, Sall argued that there remains an urgent need to utilise available resources like oil gas, and hydroelectricity to ensure development. The restrictions on funding for oil and gas unfairly deny Africa the right to develop its resources and power the continent, he said. 

Reflecting on Senegal’s experience, Sall said partnerships with independent power producers had enabled it to increase its energy capacity from 500 MW to 1,800 MW within a decade. 

“We developed partnerships as much as we could and allowed the private sector to invest in production while the state focused on transmission,” he recalled. This allowed the state to invest in expansion of access to energy, especially in the rural areas. 

Sall said that Senegal’s intention to diversify away from oil led to rapid development of renewable energy sources, particularly solar and wind power. “It was really a revolution,” he said, noting that the country achieved more than 250 MW of solar power and 70 MW of wind power in a short period, with renewables now accounting for 31% of its energy output. He emphasised the importance of regional collaboration, as exemplified by the West African Power Pool, which has expanded to 14,000 MW of power for distribution across the sub-region. 

Sall, who is also chairman of the Macky Sall Foundation, said that with the discovery of oil in 2016 Senegal has an opportunity to develop a balanced energy mix, incorporating renewables such as wind and solar, alongside hydroelectric power from the Senegal River Basin. Under its “Gas to Power” initiative, Sengal intends to use domestic gas resources such as the Yakaar field for local energy production and exports. This programme includes plans to produce ammonia and enhance regional energy supply through the West African Power Pool. 

“Our ambition is not just to use gas for domestic purposes but to create a system of exchanges that benefits the region,” Sall explained, adding, however, that the success of such projects hinges on securing financial support for the needed infrastructure. The African Development Bank, Afreximbank and the World Bank have been tremendous partners for the continent’s energy development, he said. 

More energy, less emissions

Cheick-Omar Diallo, leader of the task force for communication engagement at TotalEnergies Africa, said the oil giant had been guided in 2024 by its goal of “more energy, less emissions,” which involves transitioning from projects with high carbon dioxide emissions to lower-emission alternatives, including LNG and gas. Over the course of the year TotalEnergies launched projects in Nigeria and Angola, while exploration in Namibia and development of Uganda’s Tilenga project also continued. Diallo noted that TotalEnergies invests between $4 and $6bn in wind and solar projects annually, including current projects in South Africa, Mozambique and Senegal. The company has also backed an initiative to provide clean cooking solutions to 100m people in Africa and India. 

Daniel Alexander Schroth, director for renewable energy and energy efficiency at the African Development Bank, said the bank had made significant investments in renewable energy projects, including hydropower, solar and wind energy. Notable among them are the recent approval of a 1.1 GW wind project in Egypt and a 120 MW wind project in Mozambique. The bank has also approved a 1,400-kilometer interconnection between Mauritania and Mali, which integrates solar power plants into its design and supports electrification of communities along its route. Another key project, expected to be approved soon, is the Uganda–South Sudan interconnection. 

The year also saw record investments from the bank’s Sustainable Energy Fund for Africa. “We will be exceeding $100m in concessional investments, either from taking junior equity positions in the funding structures or in providing concessional loans to bring projects towards bankability and financial close,” he announced. An example of such projects is a 25 MW solar plant in Zambia, which leverages the Africa Green Co-aggregator model to reduce reliance on single off-takers such as national utilities. Schroth also noted the establishment of the Alliance for Green Infrastructure in Africa (AGEA), a project development fund managed by the Africa 50 project of African governments and the African Development Bank, which aims to address the persistent challenge of developing bankable green energy projects. 

Financial strain 

Rolake Akinkugbe-Filani, non-executive director of ALL ON, an impact investor in renewables, noted that the weakness of Nigeria’s naira was one of the major impact on the country’s energy sector in 2024. “This has had implications for both energy producers and net importers of energy and because of the effect on inflation; we’ve seen high energy prices across the board,” she explained. High energy prices have strained both demand and supply while also raising the costs of transactions and capital, posing challenges to attracting financing and investments.

Akinkugbe-Filani pointed out the contrast between oil and gas projects and renewable energy ventures. On the upstream side, many oil and gas initiatives are backed by dollar-tied funding and receipts. However, companies earning revenues in local currencies have faced difficulties repaying their debts. There is a silver lining in the renewable energy space, however, where more localised value chains are beginning to thrive. “We are starting to see more fundraising in the renewable energy space,” she said, noting ALL ON’s success in raising over $15m in local currency to finance off-grid and distributed renewable energy ventures.

Decentralised energy solutions will be critical for the continent, Akinkugbe-Filani argued. “We’re not just talking about the last-mile distribution of energy,” she said, “but more hybrid solutions within the commercial and industrial space.” She acknowledged the struggles of utility-scale renewable projects in Nigeria due to infrastructure demands, but praised the momentum toward decentralised renewable energy systems, including interconnected and standalone mini-grids. Regulatory alignment is playing a key role in supporting these systems.

On the policy front, Akinkugbe-Filani praised the government of Nigeria for the Petroleum Industry Act and other government incentives under President Tinubu. These reforms have fostered deeper investments, especially in deep offshore upstream production and local solar component assembly. “In 2025, we will see a broadening of the ecosystem around renewable energy,” she predicted, pointing to greater localisation as an inevitable response to macroeconomic pressures.

‘Africa must work at its own pace’

On the question of whether renewables or hydrocarbons are better for Africa, Diallo said the continent needs to make use of both, pointing out that for many African communities the shift is not from fossil fuels to renewables; it’s from having no access to energy at all to adopting green solutions. Africa, he said, must work at its own pace. 

Oil and gas projects are vital for generating financial resources while also expanding access to energy. “At TotalEnergies, we are consistent about continuing to develop new oil and gas fields while also investing in renewable energies.” It is important to reduce greenhouse emissions, even in hydrocarbon projects. “In Uganda, the project we developed is, in terms of greenhouse gas emissions, one of the lowest in Africa and even worldwide,” he said. 

Schroth said that the African Development Bank has been shifting towards green and inclusive growth since 2016, with about 87% of its investments dedicated to renewables. He noted, however, that the bank acknowledges the role that natural gas can play as a transition fuel. “We recognise that this is part of the equation but we certainly have an emphasis on alternatives to fossil fuel power generation and we are increasing investments in renewable baseload technologies where they are available.”

Schroth also pointed to the refurbishment of Africa’s ageing hydropower infrastructure as a significant opportunity, describing it as “low-hanging fruit”. A recent study with the International Hydropower Association identified 10 gigawatts of existing capacity in urgent need of modernisation, with potential enhancements such as floating solar installations to increase efficiency. The bank, he said, is partnering with the World Bank in “Mission 300”, which aims to provide energy access to 300m Africans by 2030. This initiative, supported by 14 countries, seeks to resolve barriers such as off-taker risk, regulatory challenges and currency exchange volatility.

Noting that African stakeholders largely favour a pragmatic approach, Akinkugbe-Filani predicted that “hydrocarbons will still dominate the African economy,” pointing to new oil and gas fields in regions such as Namibia, now a significant offshore hotspot. She stressed the need to reinvest revenues from these resources into more sustainable energy forms, advocating for a coexistence model that blends traditional and renewable energy. 

African countries, she recommended, must initiate hybrid projects such as integrating solar power into large-scale oil and gas infrastructure and designing LPG systems that complement renewable energy solutions. “A lot of it will be collaboration between the public and the private sector with more strategic national and economic planning,” she said.

Comparing the two, Diallo noted that financing for oil and gas had dwindled with the global focus on decarbonisation, while renewable projects in Africa attract only 3-5% of global energy investments. He attributed this to the perception of Africa as high-risk due to concerns about project execution, grid infrastructure limitations and other systemic barriers. Consequently, even when funding is available, it often comes with prohibitively high interest rates. “This is why we have these initiatives from the African Development Bank,” he said. 

Risk perception

Despite 2023 being a record year for global renewable energy generation capacity, Schroth said only 1.6% of that investment occurred in Africa. Despite the fact that infrastructure defaults in Africa over the last 20 years are among the lowest globally, according to a Moody’s report, the perception of risk remains associated with the continent. 

“That’s not to say that there are risks that need to be addressed and the foreign exchange risk is certainly one of them, “ Schroth clarified, adding that “we’re looking into ways to increase our local currency financing and also kind of strengthening kind of institutions that can provide that financing at the national level. This includes mechanisms such as the Nigeria Infrastructure Debt Fund, which facilitates debt financing and is able to attract institutional capital, such as investments from Nigerian pension funds. Such solutions must be scaled up to boost investment in the sector, he said. 

Akinkugbe-Filani suggested that the $100bn held in pension funds in the continent could be tapped to fund energy infrastructure in Africa. Additionally, blended finance approaches, incorporating equity, convertible debt, and credit tailored to individual projects’ risk profiles must be explored. This multifaceted approach, according to her, ensures a more inclusive and sustainable framework for financing Africa’s energy transition.