I’m long on the record that I ♥️ the DFC. The launch of America’s new development finance agency in 2020 was a huge step toward modernizing how the US government can help create jobs, promote open markets, and boost infrastructure. But I’ve been surprised that the DFC hasn’t done more energy projects in Africa. A lot more.
Where is Africa’s solar bonanza?
Since President Biden came to office, the DFC has approved just one utility-scale renewable energy project in Africa, a single loan for a pretty small 20 MW solar + storage plant in Malawi.
That’s it for 54 countries. That’s all for more than one billion people who live on a continent with massive shortages of power and gobs of solar & wind potential. And that’s the US government response to China’s Belt Road Initiative, Russia’s energy machinations, and America's Big Commitment to climate justice and leaving no one behind in the global clean energy transition.
The US of course isn’t alone. Bloomberg yesterday reported that “investment in renewable energy in Africa fell to an 11-year low in 2021, comprising just 0.6% of the global total.” And it concludes, “Africa has the raw ingredients to make the green transition. Now it needs the finance.”
That’s where agencies like the DFC come in. They are specifically built to provide capital in high-impact projects where the private sector is too scared to go alone. They have tools to mitigate risks and reduce capital costs. The DFC should be at the forefront of America’s contribution to Africa’s energy transition.
So… where are the projects?
Common responses I hear are that more renewable power projects on the continent aren’t ready or aren’t bankable because
Offtaker utilities are bankrupt. (My reply: True.)
Governments can’t take on more debt right now. (Sadly, mostly true.)
Demand is low. (Sorry, but that depends how you measure it.)
Actual projects are scarce. (See below!)
Given the pessimism, I was pleasantly surprised to read recently in Reuters and elsewhere that the UAE will be investing up to $2 billion in solar projects in Zambia. Details are scant but given Zambia’s ongoing and still unresolved debt crisis, I have to assume this will be financed with equity.
A possible equity avenue for DFC too?
On paper, the agency can now invest via equity, one of the principal enhancements when Congress replaced the old OPIC with the bigger and better DFC. But in practice sizable equity investments by the DFC have been blocked by an arcane dispute over how equity is scored in the US budget. (The problem in a nutshell: equity investments are being counted like grants with zero value, rather than as an investment with a market value, which is how all peer institutions do it.) If the Administration wants DFC to be more aggressive in energy investments in Africa and elsewhere, fixing equity scoring has to be a priority.
The UAE announcement also suggests that the US (either DFC itself or in concert with other federal agencies) needs to invest a whole lot more in early-stage project development. This is hard. But the old passive model of waiting for investors to walk in the front door with shovel-ready projects is clearly not good enough. Proactive pipeline building is a must. I’m working with my colleague Katie Auth on some specific ideas how the US might do this smartly, so watch this space.
The bottom line: Do More 🇺🇲
If the US wants to fulfill its self-declared goal to be a global leader on clean energy, it has to foster and finance a lot more projects. The numbers show that, even in a tough market, we’re falling behind, not only to China and Russia, but even to much smaller powers.
Interesting insight about equity scoring. No incentive to invest if they can't take credit for it.
The trick seems to be to avoid the first two barriers you mention and hope the 3rd and 4th pan out. That has been the strategy of PAYGo and maybe now is the time for Mini Grids as people's electricity needs expand beyond 3 lights and a TV. So far no anchor customer for minigrids has been found. MNO antennas were the original idea. Maybe water pumping for industrial agriculture. TBD.