Private finance sector grows foothold in renewables

From the newsletter

Ecobank has launched a $31 million concessional financing initiative aimed at speeding up solar energy adoption across Ghana. This move adds to the growing trend of private sector-led energy consumer financing on the continent. Several other African banks have also updated their sustainability goals to include renewable energy allocations. 

• The initiative will help households, small and medium-sized enterprises (SMEs), and agricultural cooperatives install distributed solar systems with the goal of achieving 30.6 MW in installed capacity.

• Ghana is experiencing frequent power cuts due to insufficient supply. Households and businesses seek to go off-grid completely or access reliable backup for the existing grid.

More details

• The programme, known as the Accelerating Solar Action Programme (ASAP), is being rolled out in partnership with the Green Climate Fund (GCF), the Government of Ghana, and other institutional stakeholders. The initiative is expected to create approximately 1,800 green jobs along the solar PV value chain and potentially stimulate local solar manufacturing.

• The ASAP programme will provide concessional loans and technical assistance. A key focus is ensuring inclusive access for underbanked individuals and groups, including sole proprietors, women-led businesses, informal vendors, and smallholder farmers. This concessional funding approach helps to de-risk projects, enabling Ecobank to lend to segments it might otherwise consider too risky.

• Ecobank is acting as both the Accredited and Executing Entity under the GCF framework, and intends for ASAP to overcome common obstacles to clean energy adoption. These include high upfront costs, limited financing options, and low consumer awareness.

• Africa faces a significant investment gap in its energy transition, requiring over $240 billion annually for inclusive clean energy. In 2021, the continent received only $2.6 billion. Many African nations, including Ghana, are burdened by high debt, limiting public investment in renewable energy infrastructure and necessitating a greater reliance on private capital.

• Ecobank's accreditation with the GCF provides it with direct access to concessional capital, allowing for greater autonomy in programme design and deployment. By 2021, Ecobank had processed an estimated $750 million in eligible transactions under its Sustainable Finance Framework, representing 8% of its total lending portfolio. And this is growing.

• Across Africa, commercial banks are showing increasing interest in financing renewable energy projects. This reflects a growing confidence in private financial institutions to deliver climate finance at scale. This trend mirrors the situation in South Africa, where commercial banks are significant contributors to renewable energy projects. Multinational banks such as Standard Bank, Stanbic, and Absa Bank, for instance, hold substantial project portfolios in the countries where they operate.

Our take

• There needs to be policy alignment in government-led ministries. Unclear or conflicting energy transition plans in many African countries, with different ministries proposing varied timelines and approaches, create policy uncertainty. This deters long-term commitments from potential investors.

• Banks should develop specialised green finance risk assessment tools. The central banks and financial regulators need to implement green capital adequacy requirements, ensuring a minimum percentage of loan portfolios is allocated to green projects.

• Future strategies should prioritise developing innovative de-risking instruments and building capacity in local financial institutions. This approach shifts the focus from merely securing funds to making projects genuinely investable.