Why Africa’s Power Projects Remain Underfunded—dangote, Ramaphosa Weigh In

Why Funding Power Projects in Africa Remains a Challenge in 2026

As Africa races to bridge its energy deficit—where over 600 million people still live without reliable electricity—one question looms large: why is funding power projects in Africa still so difficult? Despite abundant natural resources and growing demand, the continent’s energy transformation continues to stall under the weight of policy inconsistencies, currency instability, and investor caution. At a high-level dialogue in Johannesburg in August 2026, business mogul Aliko Dangote and South African President Cyril Ramaphosa openly debated the root causes, laying bare a paradox: Africa has the resources, but not the capital.

This is not just a matter of money. It is about trust—trust in governments to keep promises, trust in currencies to hold value, and trust in policies to stay consistent long enough for projects to break even. While countries like Nigeria, South Africa, and Kenya have ambitious energy plans, implementation remains bogged down by bureaucratic delays, off-grid solutions that fail to scale, and an overreliance on public funding in economies already stretched thin. The result? A widening energy gap that threatens industrialisation, job creation, and social stability across the continent.

The Dangote-Ramaphosa Exchange: A Glimpse into the Core Issue

During a panel discussion at the Africa CEO Forum in Johannesburg on August 22, 2026, Dangote, Africa’s richest man and founder of Dangote Industries, challenged the continent’s leadership to do more than talk about energy access. “We cannot keep blaming colonialism or global markets,” he said. “The problem is structural. Our policies chase investors away faster than we can build power plants.” Ramaphosa, in response, acknowledged the challenge but pointed to South Africa’s Renewable Energy Independent Power Producer Procurement Programme (REIPPPP) as a rare success story. “We’ve shown that when government creates a predictable framework, private capital will come,” he stated.

Yet even REIPPPP, once hailed as a model, now faces headwinds. Currency volatility—especially the rand’s depreciation against the dollar in recent years—has eroded investor returns. Renewable energy projects, often dollar-denominated in their financing, now cost significantly more in local currency terms, making tariffs uncompetitive. This is a pattern playing out across the continent: from Nigeria’s gas-to-power initiatives bogged down by forex scarcity to Kenya’s geothermal delays due to funding shortfalls at the Kenya Power and Lighting Company.

Policy Whiplash: Why Investors Are Walking Away

In many African countries, the biggest barrier to funding power projects in Africa is not the lack of capital, but the lack of policy consistency. Governments frequently revise tariff regimes, change licensing conditions, or introduce new taxes mid-project, leaving financiers exposed. A recent report by the African Development Bank (AfDB) found that policy uncertainty was cited by a majority of energy investors as their top risk—higher than currency risk or political instability.

Take Nigeria, where the Electricity Act 2023 was meant to liberalise the power sector. While it opened the door for state governments to issue licenses and allowed for increased private participation, implementation has been uneven. The Nigerian Electricity Regulatory Commission (NERC) has struggled to enforce tariff adjustments that reflect the true cost of generation, leaving Independent Power Producers (IPPs) operating at a loss. Many have exited or scaled back, citing unbankable projects.

The Currency Trap: When the Dollar Rules the Grid

Most large-scale power projects in Africa are financed in US dollars due to limited local capital markets. But when local currencies weaken—like the naira or the cedi in recent years—project economics collapse. For example, a solar plant in Ghana financed with $50 million a few years ago now requires significantly more in local currency to service the same debt, even though its revenue is in Ghana cedis.

This mismatch forces developers to either raise tariffs sharply—politically unpopular—or abandon projects. In response, some countries are exploring local currency financing, but depth in bond markets remains shallow. Nigeria’s planned sovereign green bond aims to tap pension funds, but uptake has been slow due to low yields and lingering scepticism about government credibility.

The Role of Public-Private Partnerships: A Broken Promise?

Public-Private Partnerships (PPPs) were supposed to be the bridge between government ambition and private capital. Yet in practice, PPPs in Africa’s energy sector often suffer from misaligned incentives. Governments want cheap electricity for voters; investors want returns. When tariffs are kept artificially low, projects become unviable. When tariffs are raised, citizens protest.

South Africa’s REIPPPP avoided this trap by allowing tariffs to reflect market costs, with government guarantees for offtake. But even that model is under strain. Eskom’s debt crisis and repeated load shedding have eroded confidence, and some IPPs are now suing the government over delayed payments. Meanwhile, in Kenya, the Last Mile Connectivity Project has electrified millions but left distribution utilities financially weak, unable to pay generators on time.

Mini-Grids and Off-Grid: The Grassroots Alternative?

With centralised grids struggling, mini-grids and off-grid solar solutions have surged across rural Africa. Companies like Starsight Energy and Daystar Power have installed thousands of systems in Nigeria, Kenya, and Tanzania. These models bypass weak national utilities and offer faster access to energy. Yet they face their own funding challenges: high upfront costs, limited access to long-term debt, and regulatory hurdles in securing land and permits.

In Nigeria, the Rural Electrification Agency (REA) launched the Nigeria Electrification Project (NEP) in 2018 with a World Bank loan. By 2026, it has connected over 1,000 mini-grids, but scaling remains slow. “We need patient capital,” said REA CEO Abba Aliyu in a June 2026 interview. “Banks want two-year payback periods. Solar mini-grids need seven to ten years.”

Regional Blocs and Cross-Border Energy Trade: A Path Forward?

One solution gaining traction is regional energy integration. The African Union’s Programme for Infrastructure Development in Africa (PIDA) aims to create a continental power market. Already, countries like Ethiopia and Kenya trade electricity via the Eastern Africa Power Pool, while West Africa’s WAPP connects Nigeria, Ghana, Benin, and Togo. These networks allow surplus power from one country to serve another, reducing the need for each nation to fund standalone projects.

But integration requires harmonised regulations, stable currencies, and cross-border payment systems—none of which exist yet at scale. The African Export-Import Bank (Afreximbank) has launched a facility to support cross-border energy trade, but disbursement has been slow. “We need to move from talk to transactions,” said Benedict Oramah, Afreximbank President, in a speech in early 2026.

Can Local Pension Funds and Sovereign Wealth Fill the Gap?

Another growing trend is the push to mobilise domestic savings. Nigeria’s pension industry, with over ₦20 trillion ($15 billion) in assets under management, is seen as a sleeping giant. The National Pension Commission (PenCom) has encouraged pension funds to invest in infrastructure bonds, including those funding power projects. In 2026, the first tranche of a ₦500 billion infrastructure fund backed by pension assets was deployed to support gas-fired plants in the Niger Delta.

Similarly, Ghana’s Social Security and National Insurance Trust (SSNIT) has invested in renewable energy projects, including a 100MW solar plant in Nzema. But scaling this requires better risk-sharing mechanisms. “Pension funds are conservative,” said Kofi Asomani, CEO of Social Security Bank (SSB), in a 2026 interview. “They won’t invest in a project unless government or multilateral guarantees cover a significant portion of the risk.”

Lessons from Outside Africa: What Works Elsewhere

Looking beyond Africa, successful models offer clues. In India, the Ultra Mega Power Projects (UMPPs) were tendered with government guarantees and long-term power purchase agreements (PPAs). This attracted global investors like Tata and Reliance. In Vietnam, the government used feed-in tariffs (FiTs) to rapidly scale solar and wind, creating a substantial industry in a short time. Both models relied on predictable policy frameworks and currency stability.

For Africa to replicate such success, three things must change: predictable tariff regimes, currency hedging instruments, and enforceable contracts. Until then, funding power projects in Africa will remain a high-risk, low-reward endeavour—no matter how rich the continent’s resources.

What Needs to Change Now: A 2026–2027 Action Plan

If Africa is to close its energy gap by 2030, stakeholders must act decisively. Here’s what needs to happen in the next 12–18 months:

1. Stabilise Tariff Regimes

Governments must commit to multi-year tariff frameworks that allow investors to model returns over 15–20 years. This means resisting the urge to freeze tariffs during election years or under public pressure. Nigeria’s Multi-Year Tariff Order (MYTO) should be revived and made legally binding for at least five years. In South Africa, the National Energy Regulator (NERSA) must resist political interference in tariff reviews.

2. Launch Currency Hedging Facilities

Central banks and development finance institutions (DFIs) should create pooled currency hedging funds to protect dollar-denominated investors from local currency depreciation. The AfDB and African Union could pilot such a facility in 2027, backed by guarantees from regional central banks. Nigeria’s central bank could also explore a naira-dollar swap window for energy projects, with longer tenors than previous schemes.

3. Fast-Track Mini-Grid Regulations

Countries should adopt standardised mini-grid regulations that simplify permitting, reduce connection fees, and allow third-party ownership. Nigeria’s Mini-Grid Regulations 2023 are a good start but need enforcement. Kenya’s Energy and Petroleum Regulatory Authority (EPRA) should finalise its mini-grid tariff methodology to give developers clarity on pricing.

4. Scale Up Local Currency Financing

Pension funds, insurers, and commercial banks must be incentivised to invest in local currency energy bonds. Governments can offer tax breaks or partial credit guarantees. In Ghana, the government is considering a 10-year tax holiday for energy infrastructure bonds. Nigeria’s Debt Management Office (DMO) could issue a 15-year green infrastructure bond in 2027, with a 50% guarantee from the Infrastructure Credit Guarantee Company (ICGC).

5. Strengthen Regional Power Pools

Africa’s power pools must move from memoranda of understanding to operational reality. The West African Power Pool (WAPP) should accelerate the completion of the 330kV Nigeria-Benin-Togo-Burkina Faso interconnector, stalled in recent years. The Southern African Power Pool (SAPP) must resolve payment delays that have left some countries unable to import enough power.

Case Study: Nigeria’s Gas Revolution—Why It’s Not Enough

Nigeria, Africa’s largest economy and top gas producer, epitomises both the promise and the pitfalls of energy funding. With substantial gas reserves, the country launched the Nigeria Gas Flare Commercialisation Programme (NGFCP) in 2018 to monetise flared gas and fund new power plants. By 2026, over 40 projects have reached financial close, promising new capacity.

Yet funding remains uneven. While multilateral institutions have provided concessional loans, commercial banks are reluctant to lend due to forex risks. The Nigerian National Petroleum Company (NNPC) has stepped in with equity stakes, but this diverts public funds from critical social sectors. “We are trading one crisis for another,” said a Lagos-based energy analyst who requested anonymity. “Gas is cleaner than diesel, but we still can’t fund it sustainably.”

The Human Cost: When Light Stays Off

Behind every unmet energy target is a human story. In Kano, Nigeria, small businesses like tailoring shops and welding workshops operate only during daylight hours due to unreliable power. In Nairobi’s informal settlements, families spend a significant portion of their income on kerosene and rechargeable batteries. In South Africa’s townships, children study by candlelight, risking fire hazards.

The World Health Organization estimates that indoor air pollution from traditional fuels causes hundreds of thousands of premature deaths annually in Africa. Without reliable electricity, health clinics cannot refrigerate vaccines, and farmers cannot refrigerate produce, leading to substantial post-harvest losses. The economic cost of energy poverty is significant across the continent—money that could fund education, healthcare, and infrastructure.

Looking Ahead: Can 2027 Be the Turning Point?

There are glimmers of hope. In mid-2026, the African Union adopted the African Energy Transition Strategy, which calls for substantial energy investment by 2030, with a significant portion from private sources. The AU also launched the African Energy Guarantee Facility, a risk-sharing mechanism to de-risk projects for private investors. Nigeria and South Africa have both committed to pilot the facility in 2027.

Meanwhile, the private sector is innovating. In Nigeria, Starsight Energy raised $100 million in 2026 to expand its solar mini-grid network. In Kenya, M-KOPA secured $200 million to scale pay-as-you-go solar systems. These are not enough to bridge the gap, but they prove that where policy is stable, capital will follow.

Conclusion: The Funding Paradox—and How to Break It

The paradox of funding power projects in Africa is this: the continent has the resources, the demand, and even the capital—just not the trust. Trust in policy, trust in currency, and trust in contracts. Until governments, investors, and communities align on these fundamentals, Africa’s energy gap will remain a chasm. But as Dangote and Ramaphosa’s debate shows, the conversation is finally shifting from blame to solutions.

The next 18 months will determine whether Africa can turn its energy potential into reality. Success will require bold leadership, innovative financing, and a willingness to prioritise long-term stability over short-term politics. For hundreds of millions of Africans living without reliable power, the stakes could not be higher.

FAQ: Funding Power Projects in Africa

Why is it so hard to fund power projects in Africa compared to other regions?

Africa faces unique challenges: policy instability, currency volatility, weak local capital markets, and high perceived political risk. Unlike other regions, many large projects are financed in dollars but earn revenues in local currencies, creating a mismatch that erodes returns when currencies weaken. Additionally, many African governments struggle to enforce contracts or maintain consistent tariff regimes, making investors wary.

What role can pension funds play in funding energy projects?

Pension funds manage long-term capital and are ideal for financing infrastructure. In Nigeria, pension assets under management exceed ₦20 trillion ($15 billion), but only a fraction is invested in energy due to regulatory limits and risk aversion. By relaxing investment rules and offering partial guarantees, governments can channel pension funds into local currency energy bonds. Ghana’s SSNIT has already invested in solar projects, proving the model works when risks are mitigated.

How can mini-grids help solve Africa’s energy crisis?

Mini-grids provide fast, scalable access to electricity in rural and peri-urban areas where national grids are weak or non-existent. They bypass the bureaucracy of large utilities and can be powered by solar, wind, or biomass. However, mini-grids require patient capital due to high upfront costs and long payback periods. Support from development banks, streamlined regulations, and blended finance models can help scale mini-grids across the continent.

Is currency hedging a realistic solution for African energy projects?

Currency hedging can help, but it is expensive and often unavailable for long tenors. Most African currencies are not liquid enough for hedging beyond a few years. Development finance institutions like Afreximbank and the AfDB are exploring pooled hedging facilities to reduce costs. In the meantime, governments can issue local currency bonds indexed to inflation or use partial guarantees to attract investors willing to take on currency risk.

What is the African Energy Guarantee Facility, and how will it work?

Launched by the African Union in mid-2026, the African Energy Guarantee Facility is a risk-sharing mechanism designed to de-risk energy projects for private investors. It will provide partial guarantees, political risk insurance, and currency hedging support. Nigeria and South Africa have agreed to pilot the facility in 2027, with a focus on solar, wind, and gas projects. The goal is to unlock significant private investment over a few years.

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