Embracing a new paradigm in funding energy infrastructure

Currently, over 600 million Africans lack access to electricity, a figure that has stubbornly remained unchanged for the last 10 years, severely constraining economic development, healthcare, and education.

Compounding this challenge is the reality of climate change. Africa, despite contributing less than 4 percent of the world’s greenhouse gas emissions, bears the brunt.

From devastating droughts in the Horn of Africa, which have displaced millions and decimated livelihoods, to erratic rainfall patterns affecting agricultural output across the Sahel, the effects are tangible and immediate.

The urgency to transition to clean energy is an economic and humanitarian imperative that can be harnessed to position Africa at the forefront of global climate solutions.

Yet, African governments face competing priorities and significant fiscal constraints. The continent’s public debt, intensified by global economic shocks and the lingering effects of the pandemic, reached an average of 65 percent of GDP in 2023.

In this landscape, traditional government-led infrastructure development is no longer viable, nor prudent to meet the urgency and enormity of the challenge.

The geopolitical landscape further complicates Africa's development trajectory. As African countries strive to meet the growing energy demands, they must navigate a complex web of relationships with global partners, especially the US, China, and the EU, who are continuously jostling for influence and, where possible, control.

The tools- financing mechanisms, and development partnerships are often tied to conditionalities that may not always align with national development agendas or long-term strategic interests of African nations. This dynamic underscores the need for African countries to diversify their funding sources and assert greater control over their development agendas.

Africa holds 60 percent of the world’s best solar resources, vast geothermal potential, and significant wind corridors. The challenge is unlocking this potential in a way that is financially viable, environmentally sound, and socially inclusive. This is where alternative funding models like PPPs can plug the funding gap and help accelerate infrastructure development in Africa.

PPPs represent a collaborative model where the public sector and private sector pool resources, share risks, and leverage respective strengths to deliver public services and infrastructure.

They offer a good alternative to traditional government-funded models, and when well structured, can unlock private capital, introduce efficiencies, and transfer skills and technology, accelerating project delivery and ensuring long-term sustainability.

Innovation doesn't stop at PPPs. African nations are increasingly exploring a broader spectrum of financial instruments. An example is Talanta Stadium in Kenya, where the government is exploring securitisation of future revenues to finance the construction of a world-class sports facility.

This innovative approach is not limited to new projects; Kenya is also looking at the securitisation of the Road Maintenance Levy to unlock funding for road construction and rehabilitation.

This model, common in developed markets to fund critical infrastructure such as roads, ports and airports, through tolling, allows governments to raise capital against predictable future income streams, de-risking projects for investors and freeing up immediate budgetary resources.

Read:  Leveraging domestic capital to fund PPPs

This kind of financial engineering, tailored to specific project cash flows, represents an innovative solution that should be deployed for infrastructure financing across Africa.

Globally, countries have leveraged diverse models to finance their growth, including resource-backed loans, green bonds, and the strategic deployment of sovereign wealth funds for infrastructure development. These exemplify how nations have mobilised capital beyond conventional debt.

Africa, with its abundant natural resources and growing financial markets, is uniquely positioned to adapt and innovate these models. By strategically leveraging its mineral wealth, renewable energy potential, and burgeoning digital economy, we can attract patient capital and transform its infrastructure and economy while navigating the energy transition.

A trailblazing example of strategic collaboration

Lake Turkana Wind Power (LTWP), Kenya's largest privately owned investment with a capacity of 310 MW, is an example of what can be achieved when vision, execution, and strategic collaboration between the public and the private sector converge within a well-structured PPP framework to deliver an engineering and renewable energy marvel that LTWP is.

Since becoming operational in 2018, LTWP has delivered over 10.5 billion kWh to the Kenyan grid. This significant contribution to Kenya's 100% green energy target by 2030 goes beyond megawatts, enhancing grid stability, displacing fossil fuels, and investing in local community access to healthcare, water, and education for a sustainable future.

From inception, LTWP forged critical alliances with global financiers, Kenya Power, Ketraco, National and County governments to deliver the Sh85 billion project. The strategic alignment with the government was key in mitigating risk and giving comfort to investors about the project’s longevity and the safety of their capital.

This PPP model transcends transactional agreements, cultivating synergistic strategic partnerships that create shared value, shared responsibility, and shared prosperity.

Beyond the grid, a truly successful PPP integrates national development goals with private sector efficiency. LTWP’s commitment to local employment and skill development from Marsabit County, alongside a KSh 2.6 billion tax contribution in 2024, is a direct outcome of this shared value model.

Through our NGO, Winds of Change (WoC), LTWP has invested over KSh 1 billion in community projects in the areas of health, water, and education since inception.

Over the years, we have learned and witnessed the fruits of community involvement, prioritising local talent and promoting local procurement to ensure economic benefits are shared. This has promoted a sense of local and national ownership and enhanced relationships among stakeholders.

Navigating complexities

The path to successful alternative funding models is not without its complexities. Honest reflection is key for continuous improvement. Large-scale infrastructure projects invariably encounter challenges related to land tenure, community engagement, and navigating local dynamics.

For projects like LTWP, success involves intricate negotiations with local communities, emphasising the need for respectful and transparent processes from the outset.

A critical lesson here is that community engagement must be authentic and long-term, not a by-product of compliance. It is a strategic priority. This philosophy should drive social investment to cushion social friction, which, when poorly managed, can easily derail even the most financially sound project.

Furthermore, political shifts pose significant risks to long-term investments. PPPs, and indeed any long-term investment, are exposed to changes in government policy, regulatory frameworks, and political priorities.

This underscores why robust, transparent, and legally binding structured frameworks are essential. They provide a degree of insulation against future uncertainties by clearly defining roles, responsibilities, and risk allocation among stakeholders, ensuring that shared ownership and alignment of interests act as a shield for all participants.

Another challenge is managing community expectations on benefit sharing versus project limitations. The evolving discourse on "meaningful participation" demands open communication, genuine co-creation, and recognition of communities as active partners in their own development.Evolving models

Ultimately, we must frame these alternative funding models as evolving tools, acknowledging both their successes and their imperfections. Accepting them as perpetual work in progress rather than silver bullets.

This approach promotes a more honest conversation about equity, governance, and development. It allows us to learn from past mistakes, adapt to new realities, and build more resilient and impactful partnerships for the future.

No doubt, Africa can transform its infrastructure and become a global leader in renewable energy. For this to happen, there has to be a fundamental shift in how we approach development finance.

The era of traditional, public debt-heavy models as the primary infra-funding solution must be complemented with new models to rapidly unlock the continent’s vast potential and secure a sustainable future.

George Njenga is the Executive Chairman, Lake Turkana Wind Power. Email: [email protected]