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Group of workshop participants posing for a photo in Accra, Ghana.
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Examining risk mitigation for renewable energy investment in West and Central Africa

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Feature

Examining risk mitigation for renewable energy investment in West and Central Africa

In October 2023, SEI’s Finance for Sustainable Development programme, together with the International Renewable Energy Agency (IRENA) and the Ministry of Energy of Ghana, hosted a workshop in Ghana for experts in renewable energy finance from West and Central Africa.

This workshop aimed to analyse risk mitigation and transfer measures essential for the sustainability of renewable energy projects, especially given current economic challenges.

Carly Evaeus, Daniel Duma / Published on 22 November 2023

Private investors in renewable energy require viable projects with reasonable risk adjusted returns. However, most countries in Sub-Saharan Africa (SSA) face significant challenges, including high indebtedness, which heightens investor risk and hinders project viability. Identifying ways to mitigate and transfer those risks is therefore crucial for financing and constructing more renewable energy projects.

Daniel Duma, Project Lead and Research Fellow at SEI Headquarters, and SEI US Senior Scientist Miquel Muñoz Cabré, are engaged in a multi-year project on risk mitigation and transfer instruments. Their research, initially focused on Southern Africa and culminating in a report, continues to investigate renewable energy finance in West and Central Africa, contributing insights towards achieving financial closure for utility-scale renewable projects. This work relies on gathering insights from practitioners: developers, lenders and utilities.

Daniel Duma emphasizes that private finance is attracted to viable projects, which depend on factors like a credible electricity buyer, adequate transmission and system operation, land access and effective regulation. He highlights that mitigating or transferring risks associated with these aspects is crucial. By collecting and sharing insights from practitioners, SEI aims to support lenders, particularly Development Finance Institutions (DFIs), developers, regulators and policymakers in adopting or adapting policies that accelerate renewable energy deployment in the region.

Miquel Muñoz Cabré underscores that the workshop’s purpose was to facilitate genuine knowledge exchange among practitioners. He points out the importance of understanding both effective strategies and the challenges in project finance, as well as the need for improved communication between practitioners. This, he believes, is vital for ensuring that climate finance policies are well informed by on-the-ground realities.

The workshop yielded three key insights into the challenges of financing renewable energy in SSA:

  • Financial health of utilities: The financial stability of utilities emerged as a major barrier. High indebtedness significantly impacts sovereign debt, hindering the ability to finance renewable energy projects.
  • Policy and regulatory frameworks: Countries with a history of commissioned renewable energy projects must update their policy and regulatory frameworks. This ensures that the market and the energy system operation can accommodate new projects.
  • Challenges for less experienced countries: Countries new to renewable energy often face difficulties securing initial financing and establishing the necessary legal and regulatory frameworks. DFIs are often instrumental in these processes.

Going forward, the researchers will synthesize information gathered from the workshop to develop risk mitigation and transfer models in West and Central Africa and formulate policy recommendations.

This initiative, part of SEI’s Finance for Sustainable Development programme, is funded by the Swedish Ministry for Foreign Affairs.

Featuring

Daniel Duma
Daniel Duma

Research Fellow

SEI Headquarters

Miquel Muñoz Cabré

Senior Scientist

SEI US

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