Written by: Salma El-Saqqa
The Information and Decision Support Center of the Cabinet reviewed a report addressing the issue of financing the equipping of electricity networks for data centers in Africa, posing a question to the World Economic Forum regarding which entity bears the cost if actual consumption is lower than expected. This comes in light of the International Energy Agency's expectations that data center electricity consumption will double globally by 2030, while approximately 600 million people in Africa still lack electricity.
The Dilemma of Pre-investment and Demand Guarantees
A number of African countries seek to attract Artificial Intelligence and data center investments due to the capital and digital services they provide; however, major projects may require the construction of generation plants, transmission lines, and substations. This places electricity companies in a position where they must spend before consumption reaches expected levels, while investors condition their funding on the availability of electricity. The experience of the Microsoft and "G42" initiative in Kenya illustrates this challenge, where a $1 billion project involving a geothermal-powered data center was announced in 2024, followed by delays in 2026 related to discussions regarding the project's scale, its electricity needs, and payment guarantees.
Models for Sharing Costs and Risks in South Africa
The report cited a hypothetical example of a project that requests 300 MW of capacity but only uses 100 MW, leaving electricity assets underutilized while their cost remains recoverable. If an electricity company borrows to finance these assets and revenues are insufficient, the company may bear the cost, pass it to consumers via tariffs, or pass it to the government if the financing is backed by public guarantees. In South Africa, "Teraco" is developing a 120 MW solar plant that transmits its electricity through "Eskom" networks and municipalities to its data centers, while "Africa Data Centres" has concluded a 20-year agreement to obtain 12 MW of solar electricity.
Contractual Mechanisms for Distributing Burdens
The report indicated that contracts allow for the distribution of costs and risks through connection fees, developer contributions to infrastructure financing, and implementing grid expansions in stages that align with project development, in addition to setting minimum demand or payments, concluding long-term contracts, and providing credit guarantees. In an example from another market, "AEP Ohio" imposes long-term obligations and a minimum billing amount linked to the contracted capacity, and may require significant financial guarantees from certain customers.
Currency Risks and the Role of International Financing Institutions
The report warned that borrowing in foreign currencies may expose electricity companies to exchange rate fluctuations, while government guarantees may reduce financing costs and transfer part of the private investment risk to public finances. Tariff rules determine the extent to which a project bears its costs or passes them on to other consumers. In the context of cost-sharing, the International Finance Corporation (IFC) has provided up to $100 million to support the development of ten data centers belonging to "Raxio" with a total capacity of 13.5 MW across seven African markets.
Conclusion: The Necessity of Defining Responsibilities
The report concluded that the benefit African countries derive from these investments depends on defining the responsibility of each party regarding infrastructure financing, connection costs, and demand risks, in a way that protects electricity companies, public finances, and consumers from disproportionate burdens, and allows the broader economy to benefit from the development of electricity networks and the expansion of capacities, skills, and digital services.
