Financing of high-risk climate action in Africa

The financing of high-risk climate action in Africa continues to be a pressing issue as the demand for renewable energy in the continent rises. Despite this growing demand, commercial investments in the sector are still lacking due to various challenges such as infrastructure, policy, and capacity constraints. CNBC Africa's Ridhima Shukla sat down with Sanji from AECF to delve into how grants can help de-risk investments in the private energy sector. Sanji, representing AECF, highlighted their mission to develop a prosperous enterprise in African countries, with a focus on reducing rural poverty, creating jobs, and fostering the growth of the private sector. AECF aims to positively impact the lives of individuals in Africa by unlocking private sector support through funding mechanisms like grants, results-based financing, and concessionary loans. One of the key challenges deterring commercial investors from Africa is the lack of historical data and quantifiable risk models for the renewable energy sector on the continent. Commercial investors struggle to craft a risk appetite for sub-sectors due to the complexities of assessing risk in African markets. AECF plays a vital role in generating insights through grants and financing instruments, which in turn can help commercial organizations craft their risk appetite and understand market dynamics in Africa. The interview further explored innovative financing solutions for enterprises in Africa, emphasizing the importance of leveraging instruments like carbon credits to unlock additional funding opportunities. Sanji proposed the creation of special purpose vehicles to accumulate and monetize carbon credits, thus expanding the capital available for investment in renewable energy projects. Sanji stressed the significance of grants in enabling organizations to operate in fragile contexts and test uncharted legal frameworks, ultimately paving the way for private sector investments and foreign direct investments (FDIs) in the renewable energy sector. By utilizing grants effectively, enterprises can prepare themselves to be more attractive for commercial investments and foster a conducive environment for FDIs. In conclusion, the renewable energy space in Africa presents a unique opportunity for growth and collaboration between public and private sectors. With the right support from grants, innovative financing instruments, and a conducive regulatory environment, Africa can unlock its full potential in the renewable energy sector, attract commercial investments, and drive sustainable development across the continent.