Financing remains a barrier to Africa's energy development (Image source: Adobe Stock)

Financing costs still remain a critical barrier to scaling up clean power in Africa, according to the International Energy Agency (IEA)

In a recent commentary, the IEA singled out Kenya and Senegal as two places where the high cost of capital is holding back energy development.

Power consumption in Africa is rising fast and IEA analysis estimates that meeting lofty energy targets would mean annual investment roughly doubling from US$110bn today to over US$200bn by 2030.

“As investment needs grow in the power sector – where projects tend to have relatively high upfront costs – financing becomes especially important,” the IEA commentary states.

“However, many African governments face challenges in financing clean energy projects due to public funding constraints such as high debt servicing costs.

“This, combined with limited financial market maturity and low domestic savings levels, results in a reliance on external funding for clean energy projects from development finance institutions (DFIs) or international private financiers.

“While DFIs can offer lower or concessional rates, private financiers often have to price in higher project risks, resulting in a high cost of capital. This makes it harder for projects to be considered bankable or provide affordable power to end users.”

The commentary — written by Emma Gordon, IEA energy investment analyst, and Alessia Sterile, IEA junior energy investment analyst — looks at how to overcome such barriers, with a focus on two key markets, Kenya and Senegal.

Despite clear interest from investors, the cost of capital for clean power projects in both countries remains high.

Lowering solar costs

For utility-scale solar projects, data suggests the weighted average cost of capital (WACC) in Kenya and Senegal is between 8.5% and 9% — compared to North America or Europe where rates are between 4.7% and 6.4%.

Nonetheless, Kenya and Senegal still see lower financing costs than South Africa and many other emerging territories, where the WACC is between 9.5% and 11%.

This is primarily due to the role of concessional capital, the IEA notes, with about half of the projects analysed in Kenya and Senegal funded by international financial institutions in the form of low-cost debt.

Most renewable power projects in Africa that relied on concessional finance used tools such as political risk insurance or guarantees to help lower risks for other investors. Nonetheless, even with these mechanisms, the perception of political or macroeconomic risks at the country level drove up borrowing costs.

According to the report’s authors, to reduce financing costs further different risks require tailored solutions, though there is some common overlap.

Current approaches to financing, which often involve a high proportion of foreign currency, can drive capital costs even higher.

In Kenya and Senegal, off-taker risks were among the top three sector-specific concerns reported for clean energy projects. In both, state utilities, Kenya Power and Senelec, act as the sole off-taker, and both have high debt levels, increasing risk of non-payment to power producers.

Notably, all Power Purchase Agreements (PPAs) in Kenya and Senegal covered by the IEA Cost of Capital Observatory were in hard currency, while clean energy projects typically earn revenue in local currency.

“Given the significance of off-taker risk, addressing concerns about potential non-payment by utilities is key to reducing capital costs,” the commentary states.

Using guarantees can help, though in the longer term governments can also work to improve the the financial health of utilities by implementing cost-reflective tariffs, improving collection rates or even supporting debt restructuring programmes.

Interest rates, the regulatory environment and expanding local currency lending may also help to ease the problem. Other financial measures and credit enhancement mechanisms such as currency hedging could also play a role.

“Investors often report a lack of bankable projects, implying more equity capital needs to be made available for projects in the early stages,” the report adds.

“Equally, an increase in grant funding and higher risk-taking from concessional providers, if paired with the relevant policy reforms and tailored approaches to structuring financing, are key to fostering an attractive environment for private investment.”

Read more: Renewables to meet almost half of global electricity demand by 2030

The Wärtsilä 46TS is an evolution of the successful Wärtsilä 50 engine platform, which has accumulated 55 million operating hours worldwide since 2008. (Image source: Wärtsilä)

Technology leader Wärtsilä has introduced its latest innovation, the 46TS engine, designed to enhance renewable energy integration, deliver highly efficient baseload power, and support future sustainable fuels

Building on a legacy of dependable power plant engines, the Wärtsilä 46TS is an evolution of the successful Wärtsilä 50 engine platform, which has accumulated 55 million operating hours worldwide since 2008.

Balancing engines offer a more cost-effective and sustainable solution for achieving net-zero energy systems compared to relying solely on renewables. This approach, which optimises costs, reduces emissions, and minimises land use, was highlighted in Wärtsilä’s recent Crossroads to Net Zero report.

Flexible power solution

Anders Lindberg, president of Wärtsilä Energy, emphasised the need for flexibility in the energy transition, commented, “The energy transition cannot be achieved by renewable power alone – we need flexible, highly efficient engines to support wind and solar power during times of low generation. The flexible 46TS engine offers exactly that, expanding our existing technology offering to balance renewables and operate cost-effectively on baseload power. “This engine is built on our 85 years of engine expertise, incorporating everything we have learned to develop our latest and greatest solution.”

Designed for compatibility with sustainable fuels, the Wärtsilä 46TS ensures a future-proof role in 100% renewable energy systems. Key benefits include:

• Superior efficiency and performance – Achieving over 51% efficiency, reducing fuel consumption and emissions while maintaining strong performance in extreme conditions and high altitudes.
• Higher output – Delivering 23.4 MW per unit, reducing the number of engines needed for large-scale power plants.
• Enhanced flexibility – Rapid response to demand fluctuations with a two-minute ramp-up time and no operational constraints on start-up or shutdown.
• Streamlined installation – Factory-tested modular components enable faster, more cost-effective deployment.

Wärtsilä supports the 46TS with lifecycle services, ensuring long-term reliability and profitability through optimized operations, guaranteed performance, and remote monitoring.

The Wärtsilä 46TS engine will be commercially available in 2025. In a significant milestone, Kazakhstan Caspian Offshore Industries (KCOI) recently became the first customer, ordering engines for a new 120 MW power plant. This project will also mark Kazakhstan’s first hybrid power system integrating engine-based generation with wind and solar energy.

South Africa's president Cyril Ramaphosa highlighting the Electricity Regulation Amendment Act as a game-changer in tackling load shedding and ensuring long-term energy security. (Image source: Africa Energy Chamber)

South Africa is entering a new chapter of energy sector reform, with President Cyril Ramaphosa highlighting the Electricity Regulation Amendment Act as a game-changer in tackling load shedding and ensuring long-term energy security

In his 2025 State of the Nation Address, he stressed the Act’s significance in restructuring the electricity market by increasing private sector participation and fostering competition in power generation.

Effective from 1 January 2025, the Act lays the groundwork for a more open electricity market, allowing multiple entities to generate and sell power. This represents a major departure from Eskom’s traditional monopoly, creating opportunities for independent power producers to enhance efficiency and accelerate energy diversification. Ramaphosa has underlined that this shift will not only boost generation capacity but also attract private sector investment into vital infrastructure, particularly transmission networks that have suffered from underinvestment and outdated technology.

Load shedding over?

South Africa’s Energy Action Plan, introduced to address the electricity crisis, has already contributed to a significant reduction in load shedding over the past year. Investments in transmission infrastructure are advancing to accommodate new renewable energy projects, while efforts to improve Eskom’s coal plant operations have intensified, with maintenance initiatives extending the life of key power stations.

Additionally, over 5,000MW of renewable capacity has been secured through the Renewable Energy Independent Power Producer Procurement Program, with upcoming solar and wind projects set to expand supply. JUWI recently committed US$320mn to construct three solar projects with a combined capacity of 340MW in 2025, while Eskom has restored the second unit of the Koeberg nuclear power plant. Large-scale battery storage solutions are being deployed to improve grid stability—AMEA Power is developing the Gainfar and Boitekong projects, each with a capacity of 300 MW—while gas-to-power solutions are being explored to provide flexible backup capacity.

As the energy market undergoes this transformation, the upcoming Africa Energy Week (AEW): Invest in African Energies 2025 conference will be a pivotal event for engaging investors, policymakers, and industry leaders. Set to take place in Cape Town from September 29 to October 3, AEW will focus on attracting private investment in energy infrastructure, with an emphasis on renewables, natural gas, and critical transmission projects.

With South Africa aiming to secure US$13bn in climate finance for its Just Energy Transition, AEW will also facilitate discussions on balancing decarbonisation with energy security and economic growth. Beyond domestic implications, an improved electricity infrastructure could enhance South Africa’s ability to export power to neighbouring nations, reinforcing its role as a regional energy leader. As the country moves toward a more sustainable and investment-friendly energy landscape, the coming months will be crucial in determining whether it can finally leave load shedding behind.

Also read about JUWI's construction plan here