To finance energy access in Africa, private and public sectors must come together

Lapo Pistelli is the Executive Vice President of Eni

In Africa, just under 600 million people have no access to electricity. While electrification is expected to improve around the world in the coming years, according to the International Energy Agency’s 2017 World Energy Outlook, this figure will remain unchanged by 2030.

From an investment perspective, the situation does not look rosy either. Providing electricity to all by 2030 would require annual investments worth $52bn, which is more than twice the current input. Of that, 95% would need to be spent in sub-Saharan Africa. Yet the region has failed to attract private capital and according to the World Bank, it is the only area that saw private investment decline in 2017, reaching its second-lowest level in the past decade. This is a glaring indication of how big a challenge fulfilling the United Nations Sustainable Development Goals (SDG) is.

Against this background, there are three factors that can marshal the role of the private sector in achieving access to affordable, reliable, sustainable and modern energy for all – which translates into SDG7 – in Africa and inform the European debate on how to reach the Agenda 2030.

First, success in achieving SDG7 depends on effective collaboration between governments, development finance institutions and businesses. Often raised – and dismissed – as a general principle with no teeth, this point has specific consequences in terms of mutual commitments. From a business perspective, the shift from an aid-based approach to development goals and to the investment-driven one that the European Union has embraced is a major positive development. A policy approach that expands the use of financial instruments to tackle risk and channel investments into fragile countries is key to support broader public policy goals such as access to energy.

There are nonetheless shortcomings that must be tackled, if the private sector is to be on board. Big international oil and gas companies can already autonomously pursue opportunities in fragile markets, often backing investment with traditional high-margin operations, where and if this is a viable option. Eni has traditionally done this, committing to supply the domestic markets of our host countries as much as possible, to foster local economic development and value chains. In 2017, we sold 56 billion cubic metres of natural gas to local markets, which account for 100% of production in countries like Congo, Egypt, Algeria and Tunisia.

While we continue to pursue this, we know it alone is not enough to achieve SDG7. To do that, investment should flow in countries where we cannot cover our backs. There, we need support from the development finance institutions to expand our portfolio to operations that have lower margins upfront and entail higher risks but that come with a major impact in terms of access to sustainable energy in countries where investment conditions are dramatically poor. In order for this option to become concrete, the political willingness to commit public resources to risky projects needs to be passed on to the bottom of the transaction, thus creating conditions where risks are shared across governments, finance institutions and, finally, private sector businesses.

Our deep offshore non-associated gas project OCTP is a successful example, thanks to an innovative World Bank guarantee scheme, of securing payments by state-owned Ghana National Petroleum Corporation (GNPC) and attracting other players to invest. Since June 2018, we are able to supply enough fuel to convert half of Ghana’s power generation capacity into gas. If EU development instruments like the External Investment Plan (EIP) mainstreamed similar securitisation schemes, the private sector could support the EU efforts to help Africa achieve SDG7 extensively.

Second, we need a common strategic understanding of how to achieve full-scale access to energy. Currently, development finance institutions and other international organisations apply different definitions to concepts such as sustainable energy, which is often used as a synonym for renewables. Africa is the perfect example of why this is an obstacle to achieving SDG7: the continent is immensely rich in natural gas reserves and could leapfrog to an energy system where highly polluting coal has no role to play. Yet we still need to streamline processes and adopt clear, shared guidelines across governments and development finance institutions regarding what to fund as sustainable assets.

We strongly believe in Africa’s renewables potential and have bet high on it, earmarking €1.2bn for renewables projects that are planned to take place mostly in sub-Saharan Africa. But the best way to achieve SDG7 is favouring a faster and more sustainable transition by combining natural gas and renewables according to specific needs, such as rural vs. urban or household vs. industrial consumption.

Third, if the EU is serious about rebuilding its strategic partnership with Africa, it must scale up its efforts in the continent. Increasing the use of guarantee schemes to €60bn, as the European Commission proposed in the 2021-2027 budget, may consolidate the approach spearheaded by the EIP. Yet these numbers must grow considerably, and financial instruments need to be available to sustain large-scale investments rather than piecemeal pilot projects, which are unlikely to be sustainable once the support infrastructure is gone.

The current SDGs investment gap is estimated at $2.5tn on an annual average for 2015-2030. The political stakes are high for the two continents, as pressing challenges such as increased inequality, security and illegal immigration loom large. We know that official development assistance alone cannot make it, and there are high expectations for business to take the lead. We stand ready to do our share, provided these basic conditions apply, allowing for a new model of cooperation between governments, the financial sectors and the business to deliver on long-term sustainable investment strategies for Africa.