Blended Finance key to unlocking billions for Africa’s Climate Tech Startups
15 August 2024, Cape Town – Africa is at a pivotal moment in its fight against climate change, with the continent increasingly vulnerable to its impacts. Recent years have seen a rise in extreme weather conditions, and South Africa faces significant environmental challenges related to water scarcity, extreme weather events, and energy transitions.
Rising sea levels and storms are eroding Western Cape and KwaZulu-Natal coastlines, threatening properties, ecosystems, and infrastructure, and driving calls for improved coastal management and climate adaptation.
“The need for innovative climate solutions is urgent, and climate tech offers a path towards resilience and sustainability. The South African government has recognised this need, and there is a growing focus on fostering innovation in climate technology to address the adverse effects of climate change. For example, Cyclone Eloise, which affected Mozambique, brought heavy rains and strong winds to parts of Limpopo and Mpumalanga in January 2021, resulting in flooding, infrastructure damage, and disrupted agriculture,” says Buntu Majaja, CEO of the SA Innovation Summit.
“Innovative climate tech solutions are essential to mitigate these effects, and startups in the climate tech sector can increase public awareness about climate change and the importance of sustainability. Blended finance, which combines public, private, and philanthropic capital, is a powerful tool in achieving the Sustainable Development Goals, particularly those related to climate action (SDG 13), affordable and clean energy (SDG 7), and industry, innovation, and infrastructure (SDG 9). By leveraging different funding sources, blended finance structures can unlock significant opportunities for scaling climate tech innovations,” says Josh Romisher, Holocene – CEO.
However, building a climate tech business in Africa comes with its own challenges, particularly in terms of financing. Unlike more mature markets, Africa has a nascent venture capital ecosystem, which means limited access to funds needed for early-stage climate tech startups. This, coupled with inadequate infrastructure, such as unreliable power supply, poor internet connectivity, and the lack of efficient transportation and logistics’ networks, hinders the development and deployment of climate tech solutions.
In this context, investors often view African markets as high-risk due to political instability, regulatory uncertainty, and economic volatility – all of which lower the appetite for local investment. The prohibitively high cost of borrowing locally makes it challenging for start-ups to finance their operations through traditional debt. Additionally, a highly fragmented regulatory landscape across African countries presents complexities in cross-border operations and scale-up strategies.
“Successful cleantech solutions require local tailoring, raising costs and complexity. Entrepreneurs and investors must consider collaborative strategies like blended finance models, local partnerships, and innovative financing mechanisms to empower local start-ups to innovate. At a regulatory level, engaging with policymakers to advocate for supportive regulations and incentives can create a more favourable environment for cleantech businesses,” adds Majaja.
Blended finance combines public, private, and philanthropic funds to de-risk investments in climate tech. Collaborating with governments and communities and using crowdfunding, green bonds, and impact investing can attract additional funding.
Blended finance has mobilised significant capital for tech start-ups. According to a report by the OECD, blended finance transactions attracted over $140 billion in private sector capital for development projects between 2012 and 2018. In Africa, blended finance initiatives are contributing to closing the funding gap for start-ups. For instance, the African Development Bank (AfDB) has partnered with various entities to leverage $100 billion in private sector capital by 2030.
“Providing funding to climate tech startups is essential for quickly addressing critical gaps and driving measurable impact. It helps overcome shortages in R&D facilities, local STEM talent, and fosters a supportive ecosystem through education and training,” concludes Majaja.
Success Stories:
Zimi Charge, a Cape Town-born electric vehicle (EV) startup is playing a crucial role in driving South Africa’s transition to a greener economy by providing accessible and sustainable electric vehicle (EV) charging solutions. With over 350 charging stations in SA, Zimi Charge enables EV owners to charge their cars anywhere, sing the mobile app to find, charge and pay at any of their charging stations, as well as other public charging stations. Zim Charge clients can reduce fuel costs by up to 90% while enhancing their market differentiation through improved consumer perceptions of their commitment to sustainability and innovation.
Plentify is a start-up focusing on smart energy management solutions designed to optimise energy usage and reduce carbon footprints. The company’s flagship product -“HotBot,” is a smart water heating solution that integrates with the electrical grid to manage and control energy consumption efficiently. Plentify solutions allow customers to reduce peak energy by 40% and maximum monthly demand by 50% through intelligent coordination of geysers. For many, the solutions have helped minimise insurance claims with advanced leak detection, identifying over 99% of known geyser leaks.
Blended finance enabled both start-ups to scale their operations more rapidly with Zimi Charge expanding its EV charging network across South Africa, while Plentify deployed its smart energy management systems more widely to achieve impact such as reducing carbon emissions and promoting sustainable energy use.
About The SA Innovation Summit (SAIS)
The SAIS is an organisation devoted to entrepreneurs in all tech industries, all stages, from incubation, throughout the entrepreneurial lifecycle. The SAIS mission is to catalyse economic growth on the African continent by connecting tech entrepreneurs to capital, skills and markets. The vision is to be the go-to entrepreneurship community on the African continent, facilitating and enabling the growth of tech and tech-enabled start-ups.
About Holocene
Holocene is a co-sponsor for the SA Innovation Summit’s Climate tech programming track and will be speaking at the summit powered by the Technology Innovation Agency to showcase opportunities for startup climate tech businesses in Africa.
Register to attend and learn more at the SA Innovation Summit hosted in the City of Cape Town on September 19-20, 2024, here.