Concessional loans drive renewables investment

From the newsletter

Africa's renewables sector secured $5.8 billion in June, with the lion's share ($4.19 billion, from 16 deals) coming in the form of debt. This highlights the sector's maturity, as funders are comfortable backing projects with substantial loans. In the past month, the 1,100 MW Obelisk solar plant in Egypt, Africa's largest, reached financial closure.

• Most debt in recent months has been concessional, primarily from multilateral and development finance institutions, helping to lower project risks and costs. 

• Grant funding totalled $123 million. Despite the total being just a third of what was raised in May, the overall number of deals went to 11.

More details

• The African energy sector faces a significant challenge, with more than 600 million people across the continent lacking electricity. The available generation capacity cannot meet the demand, and even those with excess supply lack the necessary infrastructure to sell surpluses to neighbours. For the sector's success, investments need to target both generation and transmission and luckily enough, this is happening.

• South Africa was one of the recipients of the largest sum of loans, securing a $1.5 billion infrastructure loan from the World Bank. This loan is targeted at strengthening its energy and freight transport infrastructure. A key part of the reforms is enhancing energy security, moving away from Eskom's monopoly towards a more open and competitive electricity market, and allowing more providers to generate, transmit, and distribute power. This could potentially create 250,000 jobs by 2027 and about half a million jobs by the early 2030s.

• Beyond traditional debt, blended finance — a combination of loans and equity — raised a significant $760 million. This approach is gaining popularity because it allows for the sharing of risk and reward, making it easier to fund larger and more complex projects by attracting a wider variety of investors.

• Pure equity investments also played a crucial role, contributing $312 million across three deals. This capital is essential for developing new projects and expanding existing ventures, providing the necessary risk funding that supports long-term growth and innovation in the energy sector.

• The renewables startup scene was not left behind, receiving $30 million in seed and venture funding. South Africa's solar home system provider secured the largest amount, $27.8 million, in venture funding from Jaltech. Wetility is among the fastest-growing companies and has recently repaid some of its loans months ahead of time. Open Access Energy, also in South Africa, secured $1.8 million in seed funding to expand its AI-powered platform for electricity trading.

• Apart from the private sector and foreign lenders, the Egyptian government set aside $56 million in its annual budget for the state-owned South Cairo Electricity Distribution Company (SCEDC). This is about 20% higher than what it provided in the last financial year. The funds are intended to develop and upgrade networks managed by SCEDC in the capital and other parts of Egypt.

• While June 2025 may not have matched May's funding volume, the diversification of financial instruments, with significant contributions from debt, equity, and foreign direct investment, signals a robust and evolving market. The key challenge for Africa's renewable energy sector remains not just attracting large sums, but ensuring a consistent and balanced flow of all types of capital to meet the continent's vast energy demands and drive sustainable development.

Our take

• The lack of dedicated government funds in budgets for the sector highlights the challenge of balancing revenue and investments. With most African countries debt-stricken, the only option is to rely on the private sector. This can be achieved through better policies that not only open the sector for investments but also de-risk investments.

• More venture and seed capital is needed to finance new innovations that are emerging, especially in the use of artificial intelligence in energy. These are set to support the adoption of smart meters and seamless integration with regional power pools for cross-country electricity trading.

• The long-term success hinges on consistent capital flows across all types — concessional, blended, equity, and FDI — coupled with supportive policy frameworks. There’s also a need to focus on decentralised solutions and local capacity building to truly unlock Africa's vast renewable energy potential and drive inclusive growth.