Finance Power People Planet Optimising innovative finance in Africa’s energy sector Africa is energy rich. Its unparalleled solar, wind, hydro and geothermal power resources offer the region incredible opportunity to build low-carbon energy systems for all. But there is a paradox. T oday, more than 600 million people or two thirds of the continent’s population live in darkness, without electricity. Electricity consumption in sub- Saharan Africa, excluding South Africa, (a population of 860 million) is less than that of Spain (population: 47 million). Africa’s poorest people pay the world’s highest prices for energy too. A woman living in a village in northern Nigeria, for example, pays 60 to 80 times as much for a unit of energy as a resident of New York, because she does not have access to grid electricity. The cost associated with lack and inefficiency of energy is devastating. Power shortages reduce economic growth by 2 to 4% annually. Key sectors are badly affected by the energy deficit, notably education. In Burkina Faso, Cameroon, Malawi, and Niger, for example, more than 80% of primary schools have no access to energy to light their classrooms or power computers. The need to act on energy is more urgent than ever. The recently adopted Sustainable Development Goals equally add more responsibility to act. Achieving, for example, the Sustainable Development Goal 7 – ensuring access to affordable, reliable, sustainable and modern energy for all by 2030 – is critical to the continent’s ability to meet a wide range of other needs. The solution to Africa’s energy deficit lies greatly in innovative finance. This is twofold. First, it has to do with how much African governments generate in revenues. Second, how much these governments spend on extending energy access. 24 Domestic financing in the continent is on the rise, with resources mobilised from taxes and utility charges accounting for around 80% of total spending on energy. These finances come from government budgets, sovereign bonds, and pension funds. Recent estimates put budgetary allocations for 2012 at US$12.6 billion, an increase of 28% over 2010. However, there is often a large gap between allocations and actual expenditure. The overwhelming bulk of public spending, around three-quarters, is directed towards operations and maintenance, rather than investment. In hindsight, African governments invest very little in energy. They invest just 0.5% (US$8 billion) of gross domestic product (GDP) per year. This ESI AFRICA ISSUE 3 2015