This paper investigates the impacts of high cost of capital and debt burdens on the energy transition in low- and middle-income countries (LMICs), with a special focus on Africa. It highlights different approaches proposed and employed to address these issues and unlock the financing LMICs need to drive just energy transitions.
While global investment in the energy transition has grown rapidly in recent years, from $ 1.2 trillion in 2021 to $ 2.1 trillion in 2024 (Bloomberg, 2025), the share of this investment reaching low- and middle-income countries remains small, at around 14 % in 20231 (IRENA, 2024). Though African countries are home to 40 % of the world’s potential for solar energy, just $ 40 billion was invested in energy transitions on the continent in 2024; in the same year, investment in fossil fuels in the region amounted to $ 70 billion (Hill, 2025; IEA, 2024b).
The primary reason why renewable energy investments remain costly in African countries and other LMICs, compared to fossil fuels, is the high cost of capital (CoC) these countries face. Renewable energy generation projects require higher upfront costs but have much lower running costs than fossil fuel-based generation. A high CoC raises the cost of that upfront investment; as a result, renewable technologies such as solar and wind remain economically uncompetitive in some LMIC markets, while in countries with lower CoC they are already considerably cheaper than fossil fuels.
Read the full Cost of Capital and the Energy Transition report, written by independent consultant Maria van Veldhuizen, below:
To read the report in full, download the file below.
