Risk mitigation and transfer for renewable energy investments: case studies in the Southern Africa Development Community

This report explores the role of risk mitigation and transfer (RMT) instruments for enabling renewable energy investments in Southern Africa Development Community (SADC) countries by examining empirical evidence from several projects in the region.

Renewable energy has been one of the most successful sectors in using limited public funds to mobilize private finance and investment. However, progress has been uneven, with sub-Saharan Africa accounting for fewer than 1.5% of global renewable energy investments. One of the main barriers to greater investments is the perception of risk; when the probability of adverse events that damage the investment value of a prospective project is seen as high, investors either forgo the project or require higher returns, commensurate with the risk they perceive.

To tackle this problem, a variety of RMT instruments and programmes have been designed and tried by DFIs and other development partners. These combine policy interventions that reduce uncertainty – such as revenue support, guarantees and financial instruments (e.g. derivatives) – to modify the risk-return profile of a project and provide more comfort to investors and lenders. In return, they are expected to allocate capital at a lower cost and thus move more projects into the economic viability zone.

This report presents evidence from renewable energy investment case studies in SADC countries from the perspective of practitioners and project stakeholders to help uncover both RMT limits and potential for improvement.

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