How Pension Funds Can Help Electrify Africa

The policy brief examines how African pension funds can bridge the renewable energy investment gap in sub-Saharan Africa. It proposes the use of 'renewable energy-backed' (RE) bonds to align long-term pension obligations with energy infrastructure projects, reducing reliance on foreign currency and mitigating exchange risks. The author identifies a significant funding gap, noting that Africa requires approximately $70 billion in annual renewable energy investment until 2030, while actual investment in sub-Saharan Africa was only $10 billion in 2018 and $30 billion in 2019. To unlock this potential, the document recommends the creation of green banks to coordinate finance, the implementation of government-backed guarantee schemes to lower risk perceptions for regulators, and the removal of fossil fuel subsidies to improve the competitiveness of clean energy.

• Africa faces a substantial shortfall in renewable energy funding, requiring approximately $70 billion in annual investment until 2030, whereas sub-Saharan Africa received only $10 billion in 2018 and $30 billion in 2019.
• Heavy reliance on foreign investors and foreign currency capital for energy infrastructure creates foreign exchange risks because electricity tariffs are collected in local currency, while information asymmetry increases the perceived risk and cost of capital.
• African pension funds (excluding South Africa) have the potential to invest roughly $11.7 billion annually in infrastructure projects, making them a viable source of local capital if projects are structured as 'renewable energy-backed' (RE) bonds.
• To enable pension fund investment in RE bonds, three primary barriers must be overcome: the lack of appropriate investment vehicles (such as green banks), restrictive regulatory frameworks regarding liquidity and infrastructure limits, and fossil fuel subsidies that undermine renewable energy competitiveness.
• Local pension funds may accept returns as low as 2–5 percent for fixed-income assets, which is significantly lower than bank lending rates in countries like Nigeria (15%), Kenya (13%), and Malawi (25%).

APA

RMI (2021). How Pension Funds Can Help Electrify Africa. https://rmi.org/resources/how-pension-funds-can-help-electrify-africa/

Chicago

RMI. How Pension Funds Can Help Electrify Africa. 2021. https://rmi.org/resources/how-pension-funds-can-help-electrify-africa/.

Wikipedia

{{cite report |author=RMI |title=How Pension Funds Can Help Electrify Africa |date=16 August 2021 |url=https://rmi.org/resources/how-pension-funds-can-help-electrify-africa/ |access-date=17 August 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{rmi2021how, author = {{RMI}}, title = {{How Pension Funds Can Help Electrify Africa}}, institution = {RMI}, year = {2021}, month = aug, url = {https://rmi.org/resources/how-pension-funds-can-help-electrify-africa/}, urldate = {2026-08-17}, note = {Indexed by Climate Insights Directory} }