Slowly but surely, the shift to renewable energies is occurring at a global level. In fact, this year will be the first where investments in solar power will exceed those in oil. Throughout the world, countries are leveraging technological advancements to address pressure concerns over climate change. But when it comes to these investments, access to funding is anything but equitable. Developing nations, particularly those in regions like Africa, face the most notable barriers to clean energy transition. This is because support for renewable energy in developing countries is extremely limited. Despite being home to more than a billion people, opportunities to utilize green energy remains scarce.
(Any Green Energy Movement is useless without global participation–read why in this Bold story.)
The irony of all this is inescapable. Within Africa, the vast majority of its inhabitants lack adequate access to electricity, and those that do use diesel-powered generators, which must be transported over significant distances from regional ports. As such, the costs involved are substantial, which is why millions cannot afford energy access, and the resultant energy produced is certainly not environmentally friendly or sustainable. Renewable energy in developing countries is something that is desperately needed for several reasons, and in order to accomplish this, financing barriers to clean energy transition must be better addressed.
The Energy Crisis of Developing Countries
According to global data estimates, there are 152 nations that qualify as developing rather than developed. Their population approaches nearly seven billion in total, which represents 85% of people in the world today. Despite this, these nations receive less than 5% of the investments targeting renewable energy. In countries like the Democratic Republic of the Congo, home to 100 million people, over 70% have no electricity at all. And those that do use less-than-desirable energy sources as far as the climate is concerned. In essence, options for renewable energy in developing countries are almost non-existent. Too many barriers to clean energy transition exist presently for this to be a reality.
Notably, this is worrisome not only from a regional perspective but also from a global one. Based on the current situation, over 75% of all carbon dioxide emissions will come from these countries by 2050. While developed nations are rapidly advancing in green energy alternatives, barriers to clean energy transition in developing countries prevent this. Infrastructures are certainly lacking in some instances. But the bigger problem in relation to renewable energy in developing countries is funding. Investments to acquire the needed technologies are difficult to acquire. This remains the biggest obstacle for these nations despite the tremendous potential such energy investments might make.
“We’re trying to use philanthropic money to create proof points to get the market moving and show it’s less risky than international lending institutions and private banks think.” – Simon Harford, Chief Executive of Global Energy Alliance for People and Planet
No Risk, No Gain
By far, the most significant barrier to clean energy transition for developing countries relates to risk. In places like the Congo, the threat of violence, protests, and even Ebola epidemics concern investors and lenders. Rather than taking a chance on a market in need, they tend to take the safer route. Investing or offering loans within developed nations offers better guarantees. As a result, those looking to advance renewable energy in developing countries tend to have limited options. For example, African countries receive less than 2% of all investments and funding for alternative energy projects. This is despite the continent experiencing incredible population growth and economies.
Overcoming this risk aversion by banks and investors is essential to evoke change. Some nonprofits appreciate this and are striving to reduce these barriers to clean energy transition in developing regions. For example, Bezos Earth Fund, the Rockefeller Foundation, and the Ikea Foundation have supported such renewable energy programs. However, even still, the funds offered are done so at substantially higher interest rates. In many instances, interest rates are around 15%, which is five times more than loans in developed nations. Of course, the hope is these supports will make lenders realize the tremendous potential of renewable energy in developing countries. In other words, risk perceptions have to be reduced before real progress can be made.
“Investors are human beings too. Once you come here and see the hunger for energy, the potential for growth, you can finally look past the risks and see what a transformative investment this will be, a real, genuine business opportunity.” – Archip Lobo, Founder of Nuru
Providing the Proof for Change
Certainly, one strategy to reduce the barriers to clean energy transition involves nonprofit foundation supports. But this isn’t the only strategy that works. Local entrepreneurs in developing countries are also attempting to convince multinational banks and investors of the needs and potential. One such entrepreneur, Archip Lobo, founded Nuru, a solar energy company in the Congo. He has been able to create a few urban microgrids, bringing affordable electricity to many. And by inviting would-be lenders and investors to visit, he has been able to acquire funding for limited expansion. This has been a welcomed development for those services by these new solar-powered grids.
Unfortunately, Nuru’s story is one of the few success stories. Others, including those seeking modest funding for hydroelectric dam construction, have been met with rejection. Getting investors to visit the region, especially amidst violence and pandemic situations, has been challenging. And projects like these don’t have track records to prove their potential for success. This isn’t to say they would not succeed or provide significant returns. But compared to lower-risk opportunities in developed nations, decisions usually go against projects for renewable energy in developing countries.
Taking the Broader View
In the coming weeks, major symposia and meetings will be held concerning climate change. In Kenya, the African Climate Summit will be discussing regional opportunities. For Dubai, the United Nations will be meeting to explore the subject globally. There is little doubt that the subject of renewable energy in developing countries will be included on the agenda. And those representing underprivileged nations will definitely bring up the barriers to clean energy transition. Whether or not this encourages positive change remains to be seen. But one thing is clear…these nations need access to loans and funds to realize these goals. And for the world to truly make the move green energy solutions, this needs to be a priority.
What is the Broadband Equity Access Deployment (BEADs) Program? Find out in this Bold explainer!
