How can we finance a fair energy transition in Africa?

It is a continent of paradoxes: rich in renewable energy resources but plagued by energy poverty; endowed with critical minerals but facing capital flight; courted as a climate partner but chronically underfunded when it comes to implementing solutions. As the world races toward net-zero, the question is no longer whether Africa will transition, but rather what that transition will look like, who will pay for it, and how it can be made truly fair.

Let’s explore the financing landscape shaping Africa’s energy transition by examining how things currently work, where they fall short, the actors involved, the structural barriers that persist, and the systemic changes needed to unlock a just and development-focused energy future. Understanding these interwoven dimensions can help in imagining a financing framework that supports Africa’s climate goals without sacrificing its development ambitions. 

A tale of two realities

Today, Africa exists in a separate climate reality from that of the Global North. High-income countries are phasing out coal plants, banning internal combustion engines, and building out renewables at record speeds. Meanwhile, about 600 million Africans still live without access to electricity, and nearly 1 billion rely on wood, charcoal, and other forms of traditional biomass for cooking and heating. Indoor air pollution from traditional stoves causes over 600,000 premature deaths annually across the continent.

Africa’s energy transition is therefore about more than decarbonization. It is about escaping a developmental deadlock. It is about powering homes, hospitals, schools, farms, and industries. Yet the continent faces an uphill climb to achieve these goals while adhering to global expectations of carbon neutrality by mid-century. Meeting Africa’s energy and climate objectives will require more than doubling current energy investments of USD $90 billion by 2030, with nearly two-thirds directed toward clean energy.

The problem with the current financing paradigm

The climate finance currently flowing to Africa is neither adequate, accessible, nor appropriate. Globally, Africa receives just about 2% of total climate finance, highlighting a significant gap in funding relative to other regions. Moreover, most of this funding is in the form of loans, not grants, further burdening countries already facing debt distress. Many multilateral development banks (MDBs) and climate funds prioritize risk-averse, commercially viable projects. This often means favoring large-scale solar and wind farms in politically stable African countries, while ignoring the urgent need to finance rural electrification and productive energy use projects in fragile African states.

The very architecture of global finance is skewed. African countries pay higher interest rates than countries in some other world regions, even with similar credit histories. This is due to structural biases in credit ratings, risk perceptions, and the lack of hedging instruments to manage currency risk. As a result, a solar project in Nigeria could cost three times more to finance than an identical one in Madrid. Furthermore, energy finance in Africa is rarely development-focused. Too often, it is shaped by donor priorities or corporate returns rather than African needs. This leads to skewed investment portfolios; lots of money for so-called climate mitigation projects, little money for productive energy use, or climate-adaptation and resilience infrastructure.

Principles for a fair energy transition

To correct these imbalances, the global community must adopt a new financing framework rooted in justice, partnership, and pragmatism. Three principles, in particular, could guide this effort:

1. Development-centered decarbonization: Africa’s energy transition must be about powering growth, not just reducing emissions. Financing clean energy for job creation, food security, industrialization, and public services should be treated as more than climate action. After all, sustainable development is the best form of climate resilience.
2. Equity in burden sharing: High-emitting countries must bear a larger share of the financing responsibility. This is not just about historical responsibility; it is also about capability. The Global North has more fiscal space and mature capital markets, and has reaped the benefits of fossil-fueled development. Africa should not be forced to choose between financing clean energy and its own development.
3. Structural reform, not charity: Africa does not need pity or one-off pledges; it needs a seat at the table and access to fair finance. That means reforming the rules of the global financial system to unlock capital, reduce borrowing costs, and shift more decision-making power to African institutions.

Who pays and how?

Financing Africa’s fair energy transition requires mobilizing funds from multiple sources, domestic and international, public and private, but with new rules of engagement.

• Domestic resource mobilization: African countries must lead with credible energy strategies, regulatory reforms, and improved public financial management. In May 2023, Nigeria removed fuel subsidies that had cost around US$10 billion the previous year, four times the health budget. These subsidies were largely poorly targeted and mostly benefited wealthier groups. Public-private partnerships and sovereign green bonds are also growing in popularity. Kenya, Morocco, and South Africa have issued green bonds to fund climate-friendly infrastructure. But the scale remains limited by small capital markets and weak investor confidence.
• Multilateral development banks and climate funds: MDBs must do more than lending; they must also lead. This means de-risking investments in Africa through blended finance, offering long-term concessional loans, and investing in upstream infrastructure, such as transmission lines. The African Development Bank has launched innovative instruments like the Sustainable Energy Fund for Africa (SEFA) and the Desert to Power initiative. But more needs to be done. The World Bank and others must simplify procedures and align their strategies with African energy access goals.
• Carbon markets and global taxation: A share of revenues from global carbon taxes, aviation levies, or carbon border adjustment mechanisms could be earmarked for African countries. If wealthy countries tax carbon-intensive imports from Africa, those revenues should be reinvested in just transition investments within the exporting African countries.
• Private sector investment on fairer terms: Private capital is essential, but it must be patient, pro-poor, and fit for purpose. Current returns expectations and risk aversion exclude too many impactful projects. Blended finance, credit guarantees, and currency hedging facilities can reduce risk and attract investors. Initiatives like the African Guarantee Fund and the Alliance for African Multilateral Financial Institutions must be scaled. Additionally, development finance institutions should stop crowding out local capital and start empowering African financial intermediaries.
• Loss-and-damage and reparative finance: At COP28, the operationalization of the Loss and Damage Fund marked a breakthrough. Though still underfunded, it sets a precedent: the Global North owes a climate debt to the Global South. Financing Africa’s energy transition should be part of that moral obligation; not just mitigation, but redress.

Structural barriers beyond money

Finance is only part of the equation. A fair energy transition in Africa also requires fixing systemic bottlenecks that prevent money from flowing into the continent.

• Lowering the cost of capital: Africa’s high cost of capital is driven by risk perceptions, weak credit ratings, and currency volatility. Global institutions must support efforts to improve creditworthiness, expand risk insurance schemes, and localize capital markets.
• Strengthening institutions and capacity: Weak utilities, slow permitting processes, and a lack of bankable project pipelines often stall progress. Capacity-building at the national, local, and project levels is essential.
• Promoting regional integration: Africa’s power systems are highly fragmented. Regional integration through initiatives like the West Africa Power Pool or the Eastern Africa Power Pool can enable economies of scale, reduce redundancies, and expand markets for clean power.
• Investing in human capital: A just energy transition must also be a jobs transition. Africa needs engineers, technicians, policy experts, and entrepreneurs to design, install, operate, and maintain clean energy systems. Financing skills development is climate action.

Africa’s right to define its own path

The narrative surrounding Africa’s energy transition must change. It is not about catching up with the Global North or meeting externally set global timelines. It is about building an energy system that is African in design, scale, and purpose. That could mean some instances where natural gas is used as a bridge fuel in select countries. It might mean investing in transmission and local manufacturing instead of imported climate solutions. That’s all a part of the transition, not apart from climate action. What matters most is that Africa’s energy transition reflects the continent’s realities, resources, and aspirations, not the preferences of financiers in faraway boardrooms.

The financing of Africa’s energy transition is not a test of Africa’s capacity; it is a test of global solidarity. To make the energy transition real and fair for Africa, we need bold actions such as canceling climate-related debt, lowering interest rates, shifting control to African institutions, and treating energy access as both a human right and a climate imperative. By following the principles outlined here, rethinking how the transition is financed and who pays, and eliminating structural barriers, the rest of the world can work alongside Africa to usher forth a fair energy transition. The question is no longer whether Africa will transition; it is whether that transition will lead to a better, fairer future. 

Michael Dioha, Ph.D., is passionate about energy transition and works at the intersection of research, policy, and real-world solutions. He is currently a Senior Energy Researcher at Clean Air Task Force, where he focuses on energy systems analysis and modeling, Africa’s energy transition, and energy policy and planning. At Project Drawdown, he contributes to efforts in assessing climate solutions in the electricity sector.

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