Credit rating rules hinder Africa clean energy financing, analysts say
7 reported
A single-source report from the Associated Press states that billions of dollars pledged for Africa’s clean energy transition are failing to translate into projects on the ground, as high financing costs deter investors. Analysts and development finance specialists say a financial rule known as the “sovereign ceiling” ties the creditworthiness of projects to the sovereign rating of the country where they operate, making commercially viable renewable energy projects appear riskier to international investors than they actually are. Of Africa’s 54 countries, only Botswana and Mauritius currently hold investment-grade sovereign ratings. The report notes that nearly 600 million people across Africa still lack access to electricity, according to the International Energy Agency. Experts quoted in the article say the sovereign ceiling rule prevents companies or projects from receiving a credit rating significantly higher than the country’s sovereign rating, leading to inflated financing costs. The United Nations Development Program estimates that subjective credit rating assessments cost African countries up to $74.5 billion annually through higher borrowing costs and lost investment opportunities.
What’s reported
Billions pledged for Africa’s clean energy transition are failing to translate into projects due to high financing costs.
The “sovereign ceiling” rule ties project creditworthiness to the country’s sovereign rating.
Only Botswana and Mauritius among Africa’s 54 countries hold investment-grade sovereign ratings.
Nearly 600 million people in Africa lack access to electricity, per the International Energy Agency.
Subjective credit rating assessments cost African countries up to $74.5 billion annually, according to the United Nations Development Program.
Renewable energy projects in Africa often face financing costs two to four times higher than similar projects in Europe or North America.
Kenya’s Menengai Geothermal project, Zambia’s IFC-led Solar Scaling programme, and Nigeria’s Solar IPP pipeline struggled to get adequate funding.
Key figures
Dr John Asafu-Adjaye, senior fellow at the African Center for Economic Transformation
Dr Sibusisi Nkomo, program director of the University of Cambridge Institute for Sustainability Leadership’s (CISL) Africa Program
Malango Mughogho, managing director of ZeniZeni
Maria Nkhonjera, climate and development finance specialist at the Stockholm Environment Institute
Sources: abcnews.com
