As two international funds for low carbon technologies have recently been established, new analysis from Frost & Sullivan reveal that these funds will create investor confidence for early-stage technology development and deployment while also increasing PPPs.
The report shows that the sub-Saharan African market for clean energy projects, including solar, wind, biomass, and small scale hydro energy, has more than $200 million in financing available from private investors.
“In spite of its potential, the sub-Saharan Africa region is yet to fully realize the significant prospects to develop renewable energy projects,” says Frost & Sullivan energy program manager, Cornelis van der Waal. “The lack of suitable financing has been one of the key reasons for the slow progress in the development of the region’s renewable energy projects. However, policies and regulations that enhance public and private sector financing assist in shifting some of the investment costs away from the investor to the public sector.”
The key challenges to the financing of renewable energy projects in sub-Saharan African countries are a lack of clarity on targets for renewable energy projects, an underdeveloped policy and regulatory environment, and a dearth of funding for suitable projects.
“Despite the fact that global private equity (PE) and venture capital (VC) investment grew in 2008, PE investment remains a relatively new asset class,” explains Van der Waal. “Even in countries where investors are comfortable with PE investments, sustainable investments are unfamiliar, creating an additional challenge for renewable energy companies seeking to raise finance.”
A combination of private sector investment and government funding will be the key to ensuring that sufficient capital is available for the financing of renewable energy projects. “Governments should use instruments such as subsidies, tax measures, feed-in or quota schemes to lower investment costs,” concludes Van der Waal.
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