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Africa’s energy paradox: cheap technology, costly finance Dr Rahmat Poudineh, Head of the Electricity Research Programme, Oxford Institute for Energy Studies (OIES) is among the distinguished speakers at the Africa Energy Indaba – happening 3 to 5 March 2026 in Cape Town. In this article, Dr Poudineh outlines what causes the high cost of capital and emphasises that this is what is hobbling Africa’s transition to sustainable energy.
T wo identical solar plants: one in Spain, one in Kenya. Same panels, similar sun, similar engineering. Yet one produces cheap electricity and the other struggles to deliver a ordable power. The dierence is not in technology, labour, or resource endowment. It is in the cost of capital. Across sub-Saharan Africa (SSA), electrification and power- sector decarbonisation are oen framed as technology or resource challenges. In reality, they are finance-architecture challenges. Costs for solar and wind energy have fallen dramatically worldwide, but the cost of money required to build, connect, and operate electricity systems in SSA remains persistently high. This financing premium a ects not only renewable generation projects, but also the grids, distribution networks, and utilities that determine whether electricity becomes a ordable, reliable, and widely accessible. This distinction matters. In SSA, the cost of capital problem is not primarily a renewables problem – it is an electricity system problem.
Dr Rahmat Poudineh, Oxford Institute for Energy Studies.
Lenders shorten tenors or increase margins. The result: even low-cost renewable generation does not translate into low-cost electricity for consumers. This is the core paradox: it’s why SSA can have cheap renewable energy sources and expensive electricity at the same time. An electrification problem Electrification is fundamentally a distribution and network investment challenge. It requires expanding and reinforcing grids, financing transformers, substations, and meters, funding connections for new customers, and maintaining reliable supply. This requires long-tenor low-cost capital. Yet the institutions responsible for these investments – distribution companies and utilities – are oen financially fragile. High financing costs therefore constrain electrification directly. Utilities cannot borrow cheaply to expand networks. Governments face fiscal limits in providing guarantees. Mini-grids and o -grid systems can help but oen require high tari s unless concessional finance reduces their cost of capital. This dynamic also creates investment bias. Developers prefer commercial and industrial customers (mines, telecom towers, data centres) with hard-currency revenues and strong payment discipline. Capital flows towards self-supply solutions and away from mass electrification. And a decarbonisation problem Many SSA systems rely on diesel and heavy fuel oil generation. In principle, these could be displaced by solar, wind, storage, and grid upgrades at lower system cost and with lower emissions. In practice, these projects require long-term finance backed by credible o takers. When utilities are weak and currency risk is high, investors demand high returns or avoid projects altogether. Governments must then provide guarantees that strain already limited fiscal space. Hence, the region remains locked into expensive, carbon-intensive
A common misunderstanding: renewables are capital-intensive
A widely accepted narrative is that renewables are especially sensitive to financing costs because they are capital-intensive and fuel-free. This is true in principle. However, focusing only on generation economics misses the central issue in SSA. The International Energy Agency (IEA) has repeatedly highlighted that Africa receives a disproportionately small share of global energy investment [1] relative to its population and needs, and that financing costs are a critical barrier to scaling clean energy [2] . But the obstacle is not only the financing of solar or wind farms – it is the financing of entire electricity systems that struggle with weak balance sheets, currency risk, and under-investment in networks. As a result, even where renewable generation is technically and economically attractive, electricity remains expensive and unreliable for end users. Cheap renewable technology does not mean cheap electricity Generation costs (LCOE/ levelised cost of energy) constitute only one component of delivered electricity prices. In many SSA countries, the dominant cost drivers are high transmission and distribution losses, weak revenue collection, under-investment in grid infrastructure, currency risk embedded in power purchase agreements, and sovereign and o taker risk priced into tari s. Analysis by the World Bank shows that many African utilities do not recover their operating and capital costs [3] , with significant losses stemming from poor collection rates and technical ine iciencies. A subsequent study confirms that both revenue- side problems and cost-side ine iciencies drive poor utility financial performance [4] across the region. These weaknesses translate directly into higher perceived risk for investors. Developers price this risk into required returns.
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MARCH 2026 Electricity + Control
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