Innovative Financing Models for Energy Infrastructure in Africa
Caitlin MacLean and Katie Olderman
As of 2014, the infrastructure needs of Sub-Saharan Africa were expected to exceed US$93B annually over 10 years. Traditional sources of investment in infrastructure together contributed approximately US$45B per year, leaving a gap of US$48B to be financed annually. This large gap posed a significant risk to the future of energy infrastructure and overall economic growth in Africa.
To expand energy infrastructure investment in Africa, the Milken Institute, in collaboration with the U.S. Agency for International Development, convened a Financial Innovations Lab in London in October 2014. The Lab included senior leaders in private-sector energy investments, multi- and bilateral organizations, and corporations, along with representatives of financial institutions. Participants explored ways to improve efficiency in transaction management as well as widen access to capital. Lab participants agreed that financing energy infrastructure is not a one-size-fits-all exercise, and that new solutions must address credit/sovereign risk, improve deal implementation, and mitigate financial risk through increased variety in product offerings. The group concluded that standardization of power purchase agreements and the use of covered bonds can help in beginning to accelerate investment and better develop Africa’s infrastructure market.