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The Middle East and Africa region needs to build 906GW of renewable energy capacity by 2030 to meet local needs and energy transition requirements, according to UNCTAD’s 2023 World Investment Report. This will require annual investment of US$170 billon until the end of the decade.

With just US$17 billion committed in 2021 and US$45 billion in 2022, UNCTAD says the region is falling well short on its targets. 

The UNCTAD report, which was published in July, shows that South Africa, Egypt, Kenya, Nigeria and Zambia have accounted for about 40% of renewables projects on the African continent since 2015.

The key challenge holding back progress is access to finance. Renewables projects in the world’s least developed countries (LDCs) - 33 of which are in Africa - and developing economies find it much harder to secure funding.

According to UNCTAD, projects in LDCs require a higher share of equity participation and it takes significantly longer to close a loan financing agreement.

At an average of 524 days from the announcement of a project to achieving financial close, the length of time to launch a renewables project in an LDC is almost double the time taken in other developing economies and more than three times that in developed economies.

The higher risk perception also translates into higher interest premiums, with spreads in LDCs being almost 100 basis points higher. 

UNCTAD notes that government equity participation is a near-necessary condition for private investors to enter renewables projects in LDCs.

Government equity participation can help lower the cost of debt by reducing perceived risk through signalling commitment to the project. However, it simultaneously increases complexity and often requires longer negotiations, adding to the time needed to reach financial close. Majority stakes held by governments can also raise concerns about a project’s governance, the report states.

Photo: Solar panels (© Lovelyday12 | Dreamstime)