NAIROBI — Renewable energy developers across Africa are facing continued difficulties securing affordable financing as credit rating practices raise borrowing costs and limit access to capital, according to researchers, financial institutions and industry officials speaking this month.
Despite international commitments to support clean energy investment in Africa, many solar, wind and geothermal projects remain delayed or struggle to reach financial close because lenders and investors often assess projects through the credit profile of the host country, according to a report published on Thursday by the Associated Press. Under the so-called “sovereign ceiling” rule, a project's credit rating generally cannot exceed that of the country where it is located.
Analysts and researchers said the practice can make commercially viable projects appear riskier than their underlying revenues and contracts would suggest. Renewable energy projects frequently operate under long-term power purchase agreements, but developers in countries with lower sovereign ratings often face significantly higher financing costs than comparable projects in developed markets.
“One of the biggest barriers to clean energy investment in Africa is the way projects are rated,” researcher Ana M. Camelo Vega wrote in analysis published in April, arguing that current rating practices can restrict borrowing even when projects have stable contractual income.
Credit rating agencies and financial institutions maintain that sovereign ratings remain an important measure of political, economic and currency-related risks that can affect project performance. S&P Global Ratings noted in recent research that many African issuers continue to face elevated borrowing costs because of credit and foreign-exchange risks, limiting access to long-term financing.
The financing challenge comes as African governments seek to expand electricity access and increase renewable energy generation. The African Development Bank said last month that the continent faces a substantial annual funding gap across key sectors, including energy and climate-related infrastructure.
Several proposals have been advanced to address the issue, including broader use of guarantees, increased local-currency lending and reforms to credit assessment methodologies. Financial institutions such as the African Export-Import Bank have also been cited by industry experts as potential providers of risk-mitigation tools that could help attract private investment.
Renewable energy investment activity has continued in parts of the continent, but industry observers said financing remains concentrated in a limited number of markets. Efforts by governments, development banks and investors to expand funding mechanisms were ongoing as of June, while details on any changes to global credit-rating practices remained unclear.
