Evaluating the Weighted Average Cost of Capital (WACC) in the Power Sector for African Countries

The study finds that the average WACC for African countries (15.6%) is significantly higher than the 10% uniform value often used in planning, with Eastern Africa facing the highest costs. This high cost of capital, driven by low economic development and high risk premiums, disproportionately affects capital-intensive clean energy projects. The authors argue that relying on uniform WACC values misguides policy and recommend localized data and risk-mitigation instruments to attract private investment.

• The average WACC for African countries is 15.6%, which is substantially higher than the 10% uniform value frequently used in assumptions and far exceeds rates in developed regions such as Japan (2.4%), Western Europe (4.2%), the USA (5.1%), and China (6.6%).
• WACC varies significantly by sub-region, with Northern Africa having the lowest rates (between 8.6% and 15.88%) and Eastern Africa having the highest.
• Significant disparities exist between individual countries within the same region; for example, in Western Africa, Ghana's WACC ranges from 20.47% to 22.87%, while Côte d’Ivoire's ranges from 5.99% to 17.26%.
• Equity is generally twice as expensive as debt on average across the continent, although this varies by sub-region, with Central Africa showing a higher cost of debt than equity.
• The cost of capital is highest in scenarios with a higher proportion of equity, with the 80% equity/20% debt scenario being the most expensive, followed by 70/30, 50/50, and 30/70 splits.
• There is an inverse relationship between GDP per capita and both the risk-free rate and equity risk premium; for every dollar increase in GDP per capita, the risk-free rate and equity risk premium decrease by 0.03% and 0.04%, respectively.

APA

Dato, P., Dioha, M., Hessou, H., Houenou, B., Mukhaya, B., Okyere, M. A., & Odarno, L. (2024). Evaluating the Weighted Average Cost of Capital (WACC) in the Power Sector for African Countries. Clean Air Task Force. https://www.catf.us/resource/evaluating-weighted-average-cost-capital-wacc-power-sector-african-countries/

Chicago

Dato, Prudence, Michael Dioha, Hlyoth Hessou, Boris Houenou, Brian Mukhaya, Michael Adu Okyere, and Lily Odarno. Evaluating the Weighted Average Cost of Capital (WACC) in the Power Sector for African Countries. Clean Air Task Force, 2024. https://www.catf.us/resource/evaluating-weighted-average-cost-capital-wacc-power-sector-african-countries/.

Wikipedia

{{cite report |last1=Dato |first1=Prudence |last2=Dioha |first2=Michael |last3=Hessou |first3=Hlyoth |last4=Houenou |first4=Boris |last5=Mukhaya |first5=Brian |last6=Okyere |first6=Michael Adu |last7=Odarno |first7=Lily |title=Evaluating the Weighted Average Cost of Capital (WACC) in the Power Sector for African Countries |publisher=Clean Air Task Force |date=24 October 2024 |url=https://www.catf.us/resource/evaluating-weighted-average-cost-capital-wacc-power-sector-african-countries/ |access-date=23 October 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{dato2024evaluating, author = {Dato, Prudence and Dioha, Michael and Hessou, Hlyoth and Houenou, Boris and Mukhaya, Brian and Okyere, Michael Adu and Odarno, Lily}, title = {{Evaluating the Weighted Average Cost of Capital (WACC) in the Power Sector for African Countries}}, institution = {Clean Air Task Force}, year = {2024}, month = oct, url = {https://www.catf.us/resource/evaluating-weighted-average-cost-capital-wacc-power-sector-african-countries/}, urldate = {2026-10-23}, note = {Indexed by Climate Insights Directory} }