Why it’s so hard to invest in clean energy in Africa

Countries have implicitly stated that the lives of our peoples are negotiable. They are not. The last few days of COP have been chaos. Drafts who were floated back and forth, adding to DeLay's Protesters camped outside negotiation halls demanding progress, and the United Nations Secretary General Antonio Gutteris made a last minute intervention to try and bring nations together on an agreement, and there was an agreement reached at five

am on Sunday, November twentieth. COP twenty seven was supposed to be the implementation coup, the African coup, and for our final episode of Zero from Egypt, we'll be hearing from two people working to finance the clean energy transition in Africa, Rebecca Shirley, Director of Research, Data and Innovation at the World Resources Institute, and mak Dardop, director of the World Bank's International Finance Corporation and the former Minister

of Finance and Economy of Senegal. But first I'm joined by my colleague Schavon Wagner, Green's editor based in London, to talk about the news, and Will Kennedy, Senior Executive editor for Energy and Commodities, on his reflections and what happens next. Sure one, welcome to the show. Thank you. Now we've been up for twenty seven hours straight, so a little bit tired, but we have a deal. What

were the last twenty seven hours like? Well, I think we were all surprised as the way the deal came out, the fact that it was agreed so quickly at the beginning, I think we all had a bit of whiplash with that, and it probably took us a little time to process

that actually this had happened, you know. I mean, considering that the lead up to this cop like was said to be the contentious issue of loss and damage, and the controversial issue of loss and damage, and then all of a sudden it's unanimously voted in, and it just kind of made you really wonder what all those big

questions were about, you know. And the big holdup was even though lost in Damage fund was agreed upon by the countries and without any intervention from any country, there was expected to be a walkout from the European Union because there wasn't enough to try and reduce emissions so that we could keep on track for one point five degrees celsius warming. Why did we not see a walkout?

It's interesting because we were talking about that afterwards, and I think we were all kind of under the impression that, you know, it could have made the European Union look a little bit like a bully, you know, like kind of holding the negotiations hostage, you know, and especially something like loss in damage with everything that's happened in Pakistan this year, to kind of say that you're going to withhold funds, you know, and when you look at these

sort of sort of humanitarian situations, I yeah, I think it just from a PR perspective, it would have been terrible. Indeed, and what we heard was that there was a lot of bushback from fossil field producers. Anelina Berbach, was the Foreign Minister of Germany, said that fossil field producers resisted language around reducing emissions which did not make it into the final text, such as speaking emissions by twenty twenty five or phasing out all fossil fuels, and so there

was a sense of defeat in a way. Now, two weeks of governing this actually more than that. What was your experience, like, well, I mean it's interesting because everyone kind of pays attention towards the end, because that's the kind of where the climax and where all the drama builds up to. But weirdly, after being here for two weeks, the end was the least interesting bit for me. I found everything else around this conference to be the more

interesting thing. The fact, you know, you have just representatives from all over the world under one roof just things like China and the US kind of reinstituting their diplomatic relations, the JETP deals that we saw being made with so South Africa having their co transition deal being signed off on, massive announcement with Indonesia twenty billion dollar deal to transition the country off of coal, and another one set to

come in Vietnam. The other kind of exciting thing leading up to all this really was was Lula, which was quite interesting. You know that the kind of rock star treatment he got. You know, I joked with one of my colleagues because she was talking about, you know, all the people that were kind of you know, dancing and chanting when he came in, and I said, well, I don't think you know, President Biden got anyone dancing in their seat, that did any when when when he arrived.

Things that might be seen as the side show I actually found much more interesting than the actual deal that was that was being done. Thanks for coming on the show. Thank you well, welcome to the show. Thanks that shut great to be with you. Now, this is your first cop You run the Energy team here at Bloomberg News, one of the largest teams that we have. You've spend the entire two weeks here. What's your experience being like. It's a completely unique event, unlike anything that I've ever

covered before in my career. I've covered OPEC meetings and big conferences, but just the range of people is completely different to anything else. You've got politicians, of course, you've got activists, you've got campaigners, academics, you've got young people, and you've got people from all over the world. Truly, it feels like a global event, unlike any other I've attended.

And of course this is about climate change and trying to figure out how to keep temperatures under control, but a lot of conversation is around energy, and not just within the negotiations, but even outside your energies to the fore for a couple of reasons. I think. Obviously, the one of the big differences between this COP and Glasgow is that we've had a big global energy crisis since so people are talking a lot about how to fit the climate agenda into the short term energy gender. Does

that mean you go slower on abating fossil fuels? Does that mean you go quicker? And it's become almost like a Davos for energy people. And one thing that we've started to see, perhaps controversially, is more energy industry people at this COP. Obviously, the Saudi Arabia is well represented. They had this big Saudi Green initiative. The UAE will be hosting the next COP and they're very well represented. We've had oil executives here, including the head of Total

the head of BP. There are a lot of renewable companies, and you're starting to get the infession that people come here to meet to do deals, to talk energy policy, to interact with policymakers, and I think to some longtime COP participants that's rather against the spirit, but I think it does also show how central climate climate policy is becoming to business finance investing. And now we are going to be heading next year to another Middle Eastern country,

this time the UE. We'll move from being an Africa COP to an Asia COP, even though it's only a few hundred miles away. What are your expectations Having been to this COP, I feel sure that it's going to be a very big event for several reasons. It's a big diplomatic moment for the UAE, a very ambitious country, a country that wants to assert itself in the world, and this is a chance for it to have a

diplomatic showpiece. Now, obviously they're a controversial decision to host it in the UAE because they are one of the world's largest style producers. They've produced about four million pounds of oil every day. That is the source of their wealth.

Now they will argue with some justification that they're also investing a lot in renewable energy, which is true, but they're great advocates to this idea that the world needs all forms of energy, so they come with a message which is controversial to some people in a COP community. But I also think they will organize a big event, a very well organized event, event that they'll be to

make successful. Dubai is a global hub, so it will be easy for people to get there, to find places to stay, so I think it will be big of an Egypt and I suspect we will see a lot more, even more the stuff I was talking about earlier, about of executives being here, of it being a real meeting of the energy climate world across business and finance as well as policy people. So it's going to be a

big one. Now, this energy climate world, they've been separate for some time, even though physically it makes no sense. You cannot tackle climate without dealing with emissions that are generated from energy, and you cannot meet the world's goals if you don't have all the energy you need. Our COP meeting is the place where you're seeing this overlap really come together so that we can find a way forward.

I hope that that's true. I think there are reasons to think perhaps clearly fossil fuel actors who are moving into the renewable space, who are engaging with climate to a greater or lesser extent. We can see that when we look at some of the green initiatives proposed by Saudi Arabia and other Middle East countries. We can hold them to account, of course, but they see them as

meaningful policy agendas. We can see that when we look at some of the global oil companies and the investments that they're making in renewable energy, and we can see that in the way that the investment community is thinking about what projects it finance and importantly what projects it doesn't finance. There are going to be arguments about what

people's true intentions are. There are always going to be arguments about whether fossil fuel companies can have any role to play, whether fossil fuel countries should have any role to play, and those arguments are entirely legitimate. But it does seem to me that there is a coop, a sort of nexus for all those different interests forming with that. Lasts, I think will depend on how much momentum the process maintains. I think it will depend on how serious some countries

stay about the climate policy agenda. But right now you can sort of see this meshing into one big energy climate nexus. Thanks Will. We'll be back with another two

week grind next year. See you in Dubai Action. The African continent has the fastest growing population in the world and needs resources to fund both its basic energy needs and a transition to clean energy, and yet it attracts just a tiny fraction of the funding, less than one percent of renewable spending globally, according to Bloomberg and ef went to Africa, even as it represents seven percent of the global economy. After the break, we hear from two

people working to change that. Joining me now is Rebecca Surely, the director of Research, Data and Innovation at the World Resources Institute, who talks about the bottlenecks slowing a green energy transition across Africa. Rebecca, welcome to the show. Thank you so much for having me. Really appreciated now. A lot of what's happening at the CUP meeting this time, but usually is the case with CUP meetings, is talking about money and how rich countries will pay for the transition.

But also maybe climate impacts happening in poor countries. That seems like a simple, straightforward thing if you look at the moral responsibility, the historical burden of emissions, all of that should just happen, and yet it doesn't, and when it does, it happens in complicated ways. So maybe let's just start there. Why is it that rich countries find it so hard to put forward small amounts of money than they really should be. Thank you so much for

that question. You've gotten right to the heart of the issue. For the benefit of the audience, let me paint a picture of what the financing landscape looks like today, because, as you rightfully pointed out, to finance a transition to low carbon systems and landscapes globally, we are trying to finance for mitigation, We're trying to finance for adaptation, for loss and damage, for low carbon technologies, for buildings. There's

so much that really needs to be financed. So the best available information, the best available estimates from our research partners at CPI put the price target something like four to five trillion per annum out to twenty forty. Today we're at somewhere around six hundred billion, So we're really falling short of the financial package. The thing that I'll say on top of that is we're still financing, We're still putting pumping something around nine hundred billion into fossil

fuels at the same time. So as a globe, we are still spending more today on fossil fuels than we are on climate. That's number one. Number two. When you break down that six hundred billion and think about where it's flowing to, two things. One, very little of it is flowing to the global South, and two, oftentimes the financial flows are staying within the country of a region.

So together that means that we're actually seeing very little of that trickling down to the countries that are most vulnerable, most in need of urgent funds for adaptation. If we bring it even closer to home to Africa, of that six hundred billion, we're receiving about nineteen billion nineteen out of the six hundred and as of course, as everyone loves to say, this is one of the regions that

is most vulnerable globally. Of that nineteen billion, to trickle down even further, or to look a little bit even further, only about two billion of that is private, right so seventeen billion is public sector funds coming to continent, very little private sector investment, and so this becomes a really big challenge, and it becomes a big challenge from the negotiation space as well. So why is it so hard

to put forward money? Well, let me explain why that is the case from a point of view of energy, because the energy transitions in Africa have become such a very central theme to the global climate discussion, and I think that that's going to transfer to a lot of other spaces like adaptation and so on. The African continent is perhaps the continent that that's most in need of financing for energy transitions. Why because, of course, as we all know, we're standing at a very very low base

for energy access. In fact, energy access is almost becoming an exclusively African issue. We are nine out of ten persons that still on Earth today don't have basic electricity and clean cooking services. We have a price tag. The SEFRAL has put a price tag on on this something about one hundred and twenty billion per year out of twenty fourty needed just on energy access. But when you unpack what the opportunities are, it's not for lack of

resources on the continent. The solar is amazing, the wind is amazing, hydro amazing, geothermal is amazing. We've got a lot of resources. So you ask yourself, well, if you've got this big demand, six hundred million still without access, if you've got all these amazing resources, why aren't investors toppling over themselves to come and invest here. You've got demand and you've got amazing resources. And as we all know,

renewables are at the levelized cost cheaper than fosil fuels today. Well, the answer to that question is that it's not as simple as the upfront cost of technology. You have to think about the layers of the onion because on top of the cost of your solar panels, your balance of system for setting up a solar system, there is the cost of the capital itself. Now, what that means is the cost that you have to take on as a developer to access the finance to then go and deploy

your systems. And on the continent, we have very high cost of capital. They range up to as much as forty thirty eight to forty percent in some of our Central African countries. So imagine if you're trying to take out a loan for a home and your interest rate is thirty percent? Can you afford that home? No, you

can't afford that home. And the challenge is that for a lot of our climate solutions, including renewables, they are highly sensitive to this cost of capital because they need upfront costs, and so that's one of the big challenges. Finance doesn't flow naturally to the continent because of risk perceptions, because of foreign exchange issues. Right, you take out a loan in US dollars, but you're paying it back in your local currency, which is oftentimes depreciating and then depreciating,

as we're seeing now with the Ukraine crisis. And then on top of that, we have the challenge of not having grid systems that are really ready for very massive rollout of renewables, because you need to have a really resilient, a really sturdy transmission distribution system to absorb that level

of renewable capacity. And then thirdly, I would say part of the challenge is that once you've built systems, we don't have ready off takers for those systems industry, commerce, enterprise, and so the payback periods can be very very long, and for investors, you might as well put that money somewhere else where, you're going to get a faster rate of return, maybe seven years or less. We're here as

we might be talking about more. So, I know that was a long winded answer questions the chicken and the neck problem. Right, you are saying there is demand because clearly people don't have electricity, yes, but then you're also saying they're not enough for off takers. What does that mean?

That you've hit the nail right on the head. And it seems like a very weird paradox, right that there are people that want power, communities that want power, but developer saying I don't have anyone to take the power away.

We can't assume that once you build a system that naturally the next day the the ability to absorb that power will exist, because what you would need is at the same time as we're developing generation and expanding generation, we have to be thinking about the commercial, industrial and enterprise space. And we don't have again, for it's the same chicken and egg because we don't have very reliable power.

We don't have very big commercial industrial sectors. Because we don't have very many commercial industrial customers, it's difficult to make the investments on the power grid. So we're really in this sort of like chicken and egg, and what do we need to do to get ourselves out of that and then pivot ourselves into a virtuous cycle where we have off takers that then make the economics of energy delivery more efficient, which then means that we have

more offtakers. And to pivot into that virtuous cycle, we really need far more investment in the commercial and industrial space across the continent. So we're talking about light manufacturing, heavier manufacturing, we're talking about textiles, We're talking about small

and medium sized enterprises and agriculture. So it's ironic that the answer to the energy access and the energy finance question lies in supporting economy and we have very little finance flowing into that space for the reasons that we talked about earlier. And are there countries, given how diverse Africa is as a continent, where things are going in

the right direction, Yes, yes. I think what we're seeing at this COUP, which is different from last year's Cup, is that African countries are starting to realize we have to come to the table with an investment package that investors can say I see the whole picture. It's not just the generation side. You've also put industry, put put commerce into this, so full packages are starting to come

to the table. We have transition packages now from South Africa, of course, as we're all familiar to the South African just energy transitions pledge. Next was Nigeria, who's doing a great job at this cup securing an investment in its energy transition plan. We have Senegal, we have Ghana, we have Kenya, we have a lot of countries. Realizing that we need to put together these almost whole of economy

packages for investors to react to. And when we do that an aggregate, it makes the exercise much easier, so that we're actually not just talking about finance, we're talking about partnership, partnership and building out economy in in African countries. Wonderful,

thank you for coming on the show, My pleasure. We are joined next by Mark tur Diop who is the director of the International Finance Corporation, which is part of the World Bank Group and provides over thirty billion dollars each year in loans to the private sector in developing countries. To bring more climate focused finance into the continent. Welcome to the show. Mark, Yeah, it's a pleasure to be here.

Now tell us what the IFC does. IFC is a premier institution when it comes to financing private sector in developing countries. Thirty two point eight billions, that's what we learned it last year. One third of it is going to climate change and one sort of it is going to Africa. So that basically in a nurture what IFC is. But what is it that as a development financial institution it actually does, like what is a loan relative to a private industry doing Maybe give me an example through

a project. So what we are doing is that we in the past people will think that the public sector was the only solution to developmental issues, and the world came clearly realizations that in fact, most of the solution will be coming from the private sector. But often the private sector doesn't have the tools or knowledge the intelligence to know what is happening in the most remote place in the world. So they need to have a people

who have them do these investments. So what we're doing is that to be bringing our resources because we are represented in a lot of country, we have a lot of knowledge of what is happening the count We understand the risk and we are mobilizing resource. For each dollars that we put, we mobilize one dollar for the capital markets.

An example will be if it's a billion dollars solar power plant being built in Senegal and IFC is involved in that, then IFC will give five hundred million as a as a loan and private capital will bring in five hundred million is that roughly exactly, but will come

here to Egypt where we are. Ben Park was one of the leading investment in these countries was ben Ban Park is one of the world's largest solar parks, located in Auswan in southern Egypt, with a capacity of generating one point eight gig awards of electricity, enough to power more than a million Egyptian homes. A lot of people don't know that, but we were as the one who launch it. We are tomorrow we're going to our board before those one billion dollar investment is renewable for Egypt

and the same amount for Jordan. So that's is a today now example of what we are doing when it comes to us a solar industry. We launch a few years ago what we called Scaling Up Solar, which was an initiative because when developers were coming to countries in Africa, it takes a long time to develop a project, is costly. They don't know that. So we have a kind of standardized contract, standardized template that was presented to the investors and that allows them to narrow the time needed to

prepare a project and reduce their cost. So where you are doing two things. We're bringing my name, but also we help the captain market in general to better appreciate the risk in countries that are not familiar with And so we talked about solar. What kind of other projects climate related do you rein the finance The two projects that we are taking to the board tomorrow one is solar that the one is wink. So we are doing

a lot of women. We are planning also to do more of a green ehydrogen not only for the energy side, but also for something which is very important today, which is fertilizers. So we know that a big element of the food crisis has been the lack of availability to fertilizer.

But sometimes that people don't talk about something else is that some of these fertilizer can be a problem in terms of climate change and sustainability right and just for context, ammonium most of the time is made from combining nitrogen, which is plentiful in the atmosphere with hydrogen, but that hydrogen right now comes from natural gas, and when natural gas prices are high, just as it is the case right now, that makes fertilizer very expensive and many fertilizer companies,

especially in Europe have shut down because they couldn't buy natural gas at the price. And so allowing for use of green hydrogen, which can be made just from renewables and water, allows you to make ammonium cheaper prices. Absolutely active because it's are some things that I didn't go through the process, but its portents are to remind tool

to people we were listening how it's happening. But it's a golden opportunity for countries which were not part of that fly channel value chain to pay an important role. Just picture it. Senegal, Morocco, Egypt, all the country which are adowed today with renewable an Egypt will be able to be major player. Is a product of abonyac also

product related to it. Not only we are bringing capital, but we are helping structurally transform the economy and create jobs, which is something that is very important in our objectives. Now let's talk about the Glasgow Financial Alliance for at zero, which is a group of private companies in financial institutions, banks and pension friends, et cetera that want to help move money towards an AT zero goal. These are all private institutions that you have worked with in some capacity.

What kind of questions are they asking you when they want to figure out the best places to put their money towards this transition? So number one is de risking, deer risking, de risking, de risking. We have facing a lot of hydewinds, high lation war in Ukraine, high interest rate in a more advanced economy, strong dollar strong dollar, so you have a currency mismatch and all these kinds

of things. So today people have an incentive to actually move their money from emerging economies to safer assets, usually euro or dollars the nominated So how can we reverse that new trend is by de risking and giving the type of instruments that you are providing in de risking is a first loss guarantee, partial risk guarantee, currency swapped and this type of things which are very important for investors. That's the first thing. Second second is intelligence linked to

the understanding of what discappening in those countries. You have people in world Street or in at the city in London who want to invest money, but they don't have times, they don't have the resources to look at those markets. So we are providing signal which are very powerful, and

one of the signals is our own investments. So in fact our own investment we are seeing it much more a catalyst to being more investment from secuptain market in these countries because our ability to assess the risk properly our institution is a kind of guarantee of safe investment. Actually we are a very low level of a non performing low, very very low level. We chose that we

know what we are doing in investment. Now, the finance gap, which is the amount of money that needs to go towards the transition, is very clearly a developing market gap. If you look at how much money needs to be spent in developed countries, those numbers are just about there, but it's really developing countries where the money needs to go. And through the example we've talked about, you're clearly filling a gap, but the amounts you're leaning and the amounts

you're multiplying is still quite limited. In twenty seventeen you had twenty six billion dollars that was committed, and that's gone up to thirty one point five billion dollars last year. Say in twenty twenty five, how much do you expect to have been committed in loans? Will it go up from thirty two billion dollars to sixty billion dollars? My ambition, will it happen? Let's work hard for it. Who do you have to convince to convince people to put more

blunted finance? Where will it come from? Come from philanthropy, come from countries. You're not going to get more money being committed from governments towards if I'm asking for it and I hope that you will happen. And who is the bottleneck there? Which are the main countries that you have to convince? Let's be realistic. The world is facing difficult situations. A lot of countries also have some a lot of of the challenges to address some of the

social needs such a population are raising. But you believe that the link between what a population is facing in immediately and climate change is becoming more and more obvious, so countries I think will be while addressing the imagiate challenge that facing their population will also make the effort to be able to bring more blunted finance so that you can advise. We've talked about a lot of solutions, and one of the themes here at CUP twenty seven

has been how will money come to those solutions? So the work you're doing is absolutely crucial. Thank you for coming on the show. Thanks so much. Thanks for listening to Zero and I hope you've enjoyed our episodes from COP twenty seven and got a sense of what it's like to attend one of the world's largest meetings discussing one of the world's most urgent problems. If you like the show, please rate, review and subscribe, Tell a friend

or tell an investment banker. If you've got a suggestion for a guest or topic or something you just want us to look into, get in touch at zero pot at Bloomberg dot Net. Zero's producer is Oscar Boyd and senior producer is Christine Risco. Our theme music is composed by Wonderlely Special thanks to Kira Binjin. I'm Ucshratrati back with the regular weekly episodes from Thursday,