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Many African countries face high financing costs as a result of high risk considerations, hindering the expansion of renewable energy and electrification.
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The IEA argues that reducing cost of capital in EMDEs could unlock large investment gains and significantly lower the cost of clean energy deployment [7] . But in SSA, the e ectiveness of these tools depends critically on addressing utility fundamentals and currency risk alongside project-level de-risking. Key insight for policymakers and industry Sub-Saharan Africa does not primarily face a renewables financing problem. It faces an electricity system financing problem. Until the cost of capital for grids, utilities, and local-currency infrastructure declines, electrification and decarbonisation will remain slower and more expensive than they should be – regardless of how cheap solar panels or wind turbines become. As collective energy sector reforms, tari reform, utility governance, FX risk solutions, and credible contracting frameworks create climate policy and electrification policy at the same time. The bridge between electrification and decarbonisation in SSA is the cost of capital. References : [1] https://www.iea.org/reports/financing-clean-energy-in-africa?utm_ [2] https://www.iea.org/reports/reducing-the-cost-of-capital?utm [3] https://documents.worldbank.org/en/publication/documents-reports/ documentdetail/099092923144024459 [4] https://documents.worldbank.org/en/publication/documents-reports/ documentdetail/099912211102516982 [5] https://www.irena.org/Publications/2023/May/The-cost-of-financing-for- renewable-power [6] https://www.climatepolicyinitiative.org/publication/managing-currency- risk-to-catalyze-climate-finance/?utm [7] https://www.iea.org/reports/reducing-the-cost-of-capital?utm
thermal generation,-not because renewables are costly, but because financing clean alternatives is risky.
Inside the SSA risk premium Financing costs for renewable power projects vary widely across countries. IRENA documents substantial di erences in weighted average cost of capital across markets, with many African countries facing significantly higher financing costs than OECD markets [5] . Several factors drive this premium: * o taker risk (utilities with poor cost recovery and weak balance sheets) * currency risk (local-currency revenues versus hard-currency costs) *sovereign risk (debt stress limiting government guarantees) * shallow capital markets (limited long-tenor local-currency finance) * and policy and contract risk (concerns about enforce- ment and predictability). The Climate Policy Initiative highlights currency mismatch as a particularly important constraint, arguing that FX risk management is central to unlocking private capital for climate investment in EMDEs [6] . Three broad schools of thought have emerged in the policy debate:
Perspective Prescription
Limitation
Fix utilities first Improve governance, reduce losses, reform tari s
Takes years; investment delayed Fiscal space and contingent liabilities
De-risk with guarantees and MDB* tools
Use public balance sheets to cut WACC*** now
For more information visit www.africaenergyindaba.com .
Solve FX** risk Local-currency finance, hedging facilities
Requires scale and global support
* Multilateral development banks ** Foreign exchange risk *** Weighted average cost of capital
32 Electricity + Control MARCH 2026
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