Africa and Denmark Join Forces to Promote Investment in Sustainable Energy

TS23-29African greentech projects get a sustainable finance boost from the Scandinavian kingdom

Denmark has a long history with Africa. From the 17th to 19th centuries, the relationship was primarily that of colonizer and colonized, as the small European nation established several trading posts and forts along west Africa's Gold Coast.

But today, the Scandinavian kingdom is developing a very different kind of relationship with Africa. Last year, the Danish government committed DKK 300 million (USD 56 million) to establish the Sustainable Energy Fund for Africa (SEFA), a joint initiative of Denmark and the Energy, Environment and Climate Change Department (ONEC) of the African Development Bank (AfDB), a regional multilateral development bank that promotes the socio-economic development of Africa.

MORE PEOPLE, MORE ENERGY

As the Millennium Project's 2011 State of the Future report states, "Investments into alternatives to fossil fuels are rapidly accelerating around the world to meet the projected 40–50% increase in demand by 2035." The report also notes that Africa's population could double by 2050, presenting an even more pressing problem in terms of sustainable energy generation and energy security in many developing nations across the African continent.

"t has become crucial to implement concrete measures to end energy insecurity and to set Africa on a sustainable energy path," the AfDB asserted in their summary of a panel discussion entitled "Powering Africa: Financing Energy and Green Growth," held in Lisbon in June 2011 featuring the speakers Ogunlade Davidson, Minister of Energy and Water Resources, Sierra Leone; Kevin Whitfield, Head of African Treasuries, Carbon and Financial Products Unit, Nedbank Group Limited, South Africa; Manuel Ferreira De Oliveira, CEO, GALP Energia, Portugal; and Abdoulaye Diop, Minister of State, Minister of Economy and Finance, Senegal.

"Africa has now the possibility to use its abundant natural resources coupled with an expanding number of innovative environment-related financing instruments, to significantly decrease its energy gap and do it, growing under a low-carbon, clean energy path that will attract more than ever the interest and participation of donors and private investors in support of strong growth, job creation, and poverty reduction on the continent."

But, while there is "ever-increasing energy demand across the continent," the AfDB observes, "nfortunately, the growth in power supply has not been sufficient."

SUSTAINABLE ENERGY FOR ALL

AfDB lists five main challenges facing the continent's power sector: inadequate generation capacity, limited electrification, low power consumption, unreliable services, high average generation costs; and "a financing gap of approximately USD 23 billion per year."

Into the breach comes SEFA, which is structured as a flexible multi-donor/multi-purpose platform to support Africa's sustainable energy agenda, as well as a financial instrument that works within the parameters set by the UN's Sustainable Energy for All Initiative.

"Sustainable energy fuels sustainable development. It drives economic growth, expands social equity, and helps create a healthier environment for us all," said Kandeh Yumkella, Director-General of the UN Industrial and Development Organization and Co-Chair of the High-level Group on Sustainable Energy for All, ahead of the Rio+20 United Nations Conference on Sustainable Development, held in Rio this past June. "Commitments to action…are a much-needed down payment on a more prosperous, healthier future for both people and the planet."

SUSTAINABLE SHORTHAND: EE, RE AND SMEs

Officially opened for business at the start of 2012, SEFA has two specific current mandates. Firstly, it seeks to fund Project Preparation Grants meant to expedite the launch of projects dealing with small and medium-scale renewable energy (RE) generation and energy efficiency (EE) that require between USD 30 to 75 million in total capital investment. And secondly, the fund will make equity investments in the USD 10 to 30 million range in SMEs involved in RE and EE projects but lack access to start-up and growth capital.

The fund is moving full-steam ahead, with the recent announcement of its first grant of USD 825,000 to finance the concept phase of the Green Tech Financial Facility, an investment vehicle for private sector greentech projects. The Private Sector Department of the AfDB, working with SEFA Secretariat and the African Biofuel and Renewable Energy Company (ABREC), will coordinate and monitor the grant, which covers fund conceptualization, fund manager selection and market analysis.

Denmark makes a perfect partner for Africa's sustainable energy efforts: The nation's forts were concentrated around modern-day Ghana, one of the first countries to partner with the UN Sustainable Energy for All Initiative.

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NOTES

Millennium Project. 2011 State of the Future. August 2, 2011. Accessed September 3, 2012.
African Development Bank Group. Powering Africa: Financing Energy and Green Growth. Panel Discussion. Lisbon Congress Center. June 8, 2011. Accessed August 30, 2012.
Ibid.
United Nations. Sustainable Energy for All Initiative Releases Major New Commitments to Action by Governments, Private Sector and Civil Society Ahead of Rio+20 Conference. June 18, 2012. Accessed September 3, 2012.
African Development Bank Group. SEFA Approves First Grant for Conceptualization of Green Tech Financial Facility. August 27, 2012. Accessed August 30, 2012.
Ibid.

image: Solar panels and telephones in Qunu in the Eastern Cape, South Africa (credit: Trevor Samson, World Bank, Creative Commons)

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