Building the investable pipeline for Africa’s energy transition

The scale of Africa’s energy transition financing requirement is well understood. Across the continent, significant investment will be needed in renewable generation, transmission, storage, cleaner fuels and sustainable transport if countries are to meet rising energy demand while progressing towards their climate objectives.

Yet describing the challenge primarily as a shortage of capital risks overlooking an equally important constraint. In many parts of the African infrastructure market, substantial pools of capital are looking for opportunities. The harder challenge is creating enough investable businesses and projects capable of absorbing that capital at scale.

The constraint is not capital alone

This becomes particularly important when considering how infrastructure markets develop. Capital can respond relatively quickly when investable opportunities emerge, but those opportunities depend on the regulatory frameworks, transmission capacity, experienced management teams and development ecosystems that sit behind individual assets.

Market reform can unlock investment

The renewable energy market provides a useful example. For many years, private investment in African power generation was largely structured around long-term power purchase agreements with government-owned utilities. These transactions could attract institutional capital, but they were often complex and slow to execute. The liberalisation of electricity markets changes that dynamic by allowing private generators to contract directly with private offtakers and, where regulations permit, wheel electricity through national or regional grids.

South Africa demonstrates how quickly investment can accelerate when the market structure evolves. The expansion of private generation has created a much broader market for renewable energy developers and investors. Similar potential is emerging through the Southern African Power Pool, where greater regional electricity trading could expand the addressable market for generation projects beyond individual national borders.

Transmission is becoming the next constraint

Liberalisation, however, also reveals the next constraint. Renewable resources are often strongest in locations far from major centres of electricity demand. As generation capacity grows, transmission infrastructure can therefore become a limiting factor. Much of Africa’s grid infrastructure has historically been developed by state-owned utilities over long timeframes, while the financing requirements associated with transmission expansion can be considerable. Greater private sector participation in transmission has the potential to complement public investment and support the development of larger electricity markets.

The development challenge extends beyond individual projects. Large infrastructure funds generally need to deploy sizeable amounts of capital efficiently. This naturally directs many investors towards established businesses with operating assets, visible cash flows and sufficiently large investment requirements. At the other end of the market, grants and development finance can help fund feasibility studies, environmental assessments and other early project costs.

Between those two pools of capital sits a less well-served part of the market: businesses that have moved beyond the idea stage and demonstrated genuine commercial potential, but which have not yet reached the scale required by traditional infrastructure investors.

This is the segment the African Transition Acceleration Fund, or ATAF, has been designed to address.

ATAF is AIIM’s dedicated blended finance strategy targeting early-stage, asset-heavy energy transition infrastructure businesses across Africa. The fund is focused on three areas: clean electrons, including renewable generation, storage and transmission and clean molecules as well as sustainable transport, including electric mobility, charging infrastructure and associated logistics.

Building platforms rather than individual projects

Our investment approach is centred on backing platforms rather than simply financing individual assets. A strong infrastructure platform can develop several projects simultaneously, build specialist capabilities internally and recycle experience from one development into the next. Instead of creating a single yielding asset, the objective is to help build a business capable of becoming a repeatable engine for infrastructure development.

That requires a different form of capital. Development funding alone can cover technical, environmental or legal work associated with a specific project, but building a company requires working capital, experienced employees, development expenditure and eventually equity for construction. Without access to that capital, smaller developers can be forced to sell projects once they reach financial close because they cannot fund the equity required to retain ownership. Over time, this can prevent capable development teams from building institutional-scale businesses.

ATAF therefore seeks businesses that already have experienced management teams, strong local market knowledge and evidence of commercial traction. It is not intended to provide the earliest stage of venture funding. Instead, it provides the flexible scale-up capital required to move from an emerging developer or operating business towards an institutionally investable infrastructure platform.

Managing early-stage infrastructure risk

The approach also recognises that early-stage infrastructure should not be confused with venture capital. Capital is deployed progressively as companies and projects achieve defined milestones. In a power platform, for example, initial development capital may be followed by substantially larger investment once a project reaches financial close and is supported by a long-term contract with a creditworthy offtaker. This allows investors to manage the amount of capital exposed to development risk while continuing to participate in the value created as projects move into construction and operation.

Blended finance can strengthen that model further. ATAF has been structured with a 25% first-loss junior equity tranche, creating an additional layer of risk mitigation for senior investors while helping mobilise institutional capital into an earlier part of the infrastructure development cycle.

Expanding the investable universe

The opportunity is also broader than renewable generation alone. Clean electricity is likely to represent a significant portion of the investable pipeline because the market is larger and more established, but technologies and business models in electric mobility, sustainable fuels, battery storage and other transition infrastructure are continuing to develop across African markets.

In electric mobility, for example, the commercial proposition is increasingly being shaped by total cost of ownership rather than environmental considerations alone. Supportive policies can accelerate adoption further, as Kenya has demonstrated through measures affecting vehicle assembly and electricity tariffs for charging.

Africa’s energy transition will ultimately require substantially more capital. But mobilising that capital effectively also requires attention to what it is being asked to fund. Policy reform must expand the markets in which private infrastructure can operate. Transmission investment must keep pace with new generation. Most importantly, capable developers and management teams need access to the capital required to transform individual projects into scalable businesses.

Building that layer of investable platforms can help create the pipeline that larger institutional investors need. In doing so, early-stage infrastructure capital can play a catalytic role not only in financing the next generation of assets, but in expanding the investable universe for Africa’s transition itself.