World Bank, AfDB unlock $40 billion for African power

From the newsletter
The World Bank and African Development Bank have made $40 billion in funds available to electrify 300 million people in Africa by 2030. They have convened a summit next week in Dar es Salaam that will culminate in the signing of the Dar es Salaam Energy Declaration committing African countries to accelerate electricity access.

• The World Bank and the AfDB will provide $30 billion, and $10 billion is expected to come from the private sector. The Global Energy Alliance for People and Planet (GEAPP) and The Rockefeller Foundation have already committed $10 million to create a technical assistance facility supporting electricity projects across 11 African countries including some with the lowest electrification rates like Nigeria, the Democratic Republic of Congo, and Côte d’Ivoire.

• For the countries to qualify for the funding they need to strengthen their policy on low-cost power generation, regional energy integration, increased energy access, enabling private investment, and utility strengthening.

More details

• Building Africa's energy sector requires a collaborative approach, with both governments and private companies playing vital roles. Financial institutions are also stepping up to provide funding and innovative solutions. 

• The upcoming event in Dar es Salaam will bring together key stakeholders to share success stories, build partnerships, and strengthen regional cooperation in energy planning, trade, and policy development to support the implementation of ambitious continental energy initiatives.

• The World Bank and AfDB funding is expected to support the expansion of the traditional electricity grid and the implementation of innovative off-grid solutions to reach remote communities. It will utilise sustainable financing models to address challenges like currency mismatches in project funding.

• Roughly half of Africa lacks access to electricity, with the majority residing in rural areas. In Kenya, about 65% of the rural population lacks access, while in Nigeria, the figure is about 70%. These rural areas, however, are home to most Africans.

• Several World Bank and AfDB-funded projects have been implemented to address this issue. In Kenya, the Last Mile Connectivity Project has successfully connected over 3 million Kenyans to the grid.

• The World Bank and AfDB have been instrumental in encouraging private investment in the energy sector. They achieve this by providing financial support through loans, grants, and guarantees, reducing risks for private investors. They have also worked to develop policies, competitive procurement processes, and risk mitigation tools.

• Despite the significant potential for growth in the renewable energy sector, African countries with low access rates face challenges due to underdeveloped policies that scare investors and they need derisking mechanisms.

• Power Africa, a program funded by the US government, has played a key role in incentivising private sector investment in Africa's energy sector. Through its public-private partnership model, it has provided technical support and financial assistance. In East Africa, for example, Power Africa has supported the 40 MW Kesses I solar project in Kenya and a 56 MW solar project in Rwanda.

Our take

• Over 600 million people in Africa lack electricity access, so getting electricity to this population is challenging. Energy is an expensive undertaking and it needs capital.

• Private investors and energy companies can take advantage of the World Bank funds, which typically have lower interest rates than commercial banks, and even leverage the technical assistance funding to fine-tune their investment decisions. This makes projects more appealing by reducing financing costs and improving bankability through technical expertise. 

• However, investors should be aware that these funds often require meeting specific criteria which may include social and environmental safeguards.