The PRINDCISSA Project
Private sector finance for NDC implementation in sub-Saharan Africa (PRINDCISSA) is a multi-year research project funded by the Swedish Energy Agency. The Stockholm Environment Institute is the lead organisation on the project and is supported by Perspectives Climate Group and SouthSouthNorth.
By researching case studies in sub-Saharan Africa and engaging with stakeholders, this research programme looks to answer some of the key questions and contribute to a body of literature that will help to unlock private climate finance flows to developing countries. It is critical that we understand how private climate finance flows can be best incentivised and is also crucial that we improve our understanding of the results of climate finance supported activities in terms of their mitigation and adaptation impacts. If we know what works, we can start doing more of it.
One of the challenges facing researchers is obtaining reliable data of investment flows directed towards climate projects. Climate finance is not disaggregated from other investment flows and the organisations that report on this data use different definitions. The Climate Policy Initiative estimates that in 2015/16, only USD $12 billion or 2,6% of the total global climate finance was spent on projects in sub-Saharan Africa. Yet research indicates that the countries that make up sub-Saharan Africa require the largest portion of global climate finance to meet the goals outlined in their respective Nationally Determined Contributions (NDC). Even if the Paris Agreement goals are met, the continent will be severely impacted which makes apparent the scale of the challenge and the resolve needed to address it. To fully realise mitigation targets, sub-Saharan African countries will require significant flows of international private sector investment. This is reflected in the high proportion of sub-Saharan African countries with NDCs conditional on receiving finance support.
Through our research and stakeholder workshops, which were held in Cape Town and Kampala in 2018, we encountered common themes that highlighted private sector investment barriers that had parallels with the African infrastructure gap. The barriers fall into well-documented categories: appropriate policies, institutional arrangements, capacity development, finance mechanisms and importantly, committed leadership.
Our research finds encouraging signs emerging from the energy sector in sub-Saharan Africa driven by policy reform and private sector investment in utility scale renewable energy infrastructure. South Africa’s renewable energy programme, the REIPPPP, which is covered as one of the project case studies, is a good example of ambitious energy sector reform. The programme is largely funded by debt from local commercial banks with equity taken up by a mixture of national and international project developers. Unfortunately, only a few African economies have the required depth to their capital markets to achieve similar results with local finance. Nonetheless, there are an increasing number of success stories of utility scale renewable energy projects in less liquid African economies, supported by multi-lateral development banks and funds, careful policy reform and targeted application of concessional and non-concessional public financing.
In spite of significant traction in Asia and Latin America, the Clean Development Mechanism (CDM) has had limited success in Africa. Low prices for certified emission reductions (CERs) and high costs of CDM procedures are preventing project implementation and operations. CDM reform, introduced in 2014, lowered transaction costs and initiated other changes which resulted in an uptick in project registrations in Africa. Our research examined an Ethiopian case study which demonstrated how CDM, in collaboration with other climate finance mechanisms, has created impact for energy access in the country. Lessons from CDM reform and Africa need to be incorporated in the Article 6 negotiations for the next generation of UNFCCC-backed market mechanisms to ensure climate finance instruments cater for the challenges of sub-Saharan Africa. Yet even post reform, CDM will not provide the transformative change in climate finance that Africa so badly needs.
African adaptation projects, particularly in the agriculture sector, are currently struggling to secure the necessary private sector funding to build climate resilience. African agriculture is extremely vulnerable to climate change and poorly developed infrastructure adds additional risks for logistics and access to markets. Meeting food demand for a growing population is already a formidable challenge for the sector, and it will be further exacerbated as climate impacts escalate.
Madagascar has secured funding from the Green Climate Fund to implement the first adaptation project in Africa. The objective of this GCF-funded project is to leverage private sector finance through policy reform. In our research, we looked at this case study as it addresses both mitigation and adaptation climate action. It describes efforts by the Government of Madagascar (GoM) to stimulate the rural economy through renewable energy projects and support for agriculture through improved farming techniques.
An important theme emerging from this research is the incremental benefits of multiple factors acting systemically to build private sector investment momentum. The leverage points in this complex system are likely to be policy reforms coupled with strong political leadership and public sector risk finance to build investable project pipelines.
Dr John Thorne, SouthSouthNorth 2019
Resources from the PRINDCISSA project:
Policy Brief: Opportunities for Private Sector Investment in Climate Action in Sub-Saharan Africa