Computation of Weighted Average Cost of Capital (WACC) in the Power Sector for African Countries and the Implications for Country-Specific Electricity Technology Cost

The study finds that WACC in Africa's power sector remains high compared to global benchmarks, driven primarily by a cost of equity that is on average double the cost of debt. While WACC is projected to decrease from 18% to 13% by 2070, significant regional disparities persist, with Eastern Africa facing the highest costs and Northern Africa the lowest. The authors argue that using uniform cost of capital assumptions leads to underestimation bias in energy costs and misguides policy, particularly for capital-intensive clean energy projects.

• The Weighted Average Cost of Capital (WACC) for African countries is projected to decrease from 18% in 2023 to 13% by 2070, with an overall average of 15.60% over this period.
• WACC values in Africa remain significantly higher than global benchmarks, such as those in Japan (2.4%), Western Europe (4.2%), the USA (5.1%), and China (6.6%).
• There are notable regional disparities in WACC across the continent; Northern Africa has the lowest values (between 8.6% and 15.88%), while Eastern Africa has the highest (between 15.95% and 19.63%).
• The high cost of capital in Africa is primarily driven by the cost of equity, which is on average twice as high as the cost of debt.
• Countries classified by Fragility, Conflict, and Violence (FCV) status and those in low-income groups exhibit higher WACC values than non-FCV and upper-middle-income countries.
• The study identifies a negative correlation between GDP per capita and both the Risk-Free Rate (RFR) and the Equity Risk Premium (ERP), suggesting that economic growth reduces capital costs.
• Using a uniform cost of capital for energy transition planning in Africa can lead to an underestimation bias of energy costs and may cause policymakers to overweigh capital-intensive projects like wind and solar while under-weighing less capital-intensive options like natural gas.

APA

Dato, P., Dioha, M., Hessou, H., Houenou, B., Mukhaya, B., Okyere, M. A., & Odarno, L. (2024). Computation of Weighted Average Cost of Capital (WACC) in the Power Sector for African Countries and the Implications for Country-Specific Electricity Technology Cost. Clean Air Task Force. https://cdn.catf.us/wp-content/uploads/2024/10/24090700/wacc-report.pdf

Chicago

Dato, Prudence, Michael Dioha, Hélyoth Hessou, Boris Houenou, Brian Mukhaya, Michael Adu Okyere, and Lily Odarno. Computation of Weighted Average Cost of Capital (WACC) in the Power Sector for African Countries and the Implications for Country-Specific Electricity Technology Cost. Clean Air Task Force, 2024. https://cdn.catf.us/wp-content/uploads/2024/10/24090700/wacc-report.pdf.

Wikipedia

{{cite report |last1=Dato |first1=Prudence |last2=Dioha |first2=Michael |last3=Hessou |first3=Hélyoth |last4=Houenou |first4=Boris |last5=Mukhaya |first5=Brian |last6=Okyere |first6=Michael Adu |last7=Odarno |first7=Lily |title=Computation of Weighted Average Cost of Capital (WACC) in the Power Sector for African Countries and the Implications for Country-Specific Electricity Technology Cost |publisher=Clean Air Task Force |date=October 2024 |url=https://cdn.catf.us/wp-content/uploads/2024/10/24090700/wacc-report.pdf |access-date=23 October 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{dato2024computation, author = {Dato, Prudence and Dioha, Michael and Hessou, Hélyoth and Houenou, Boris and Mukhaya, Brian and Okyere, Michael Adu and Odarno, Lily}, title = {{Computation of Weighted Average Cost of Capital (WACC) in the Power Sector for African Countries and the Implications for Country-Specific Electricity Technology Cost}}, institution = {Clean Air Task Force}, year = {2024}, month = oct, url = {https://cdn.catf.us/wp-content/uploads/2024/10/24090700/wacc-report.pdf}, urldate = {2026-10-23}, note = {Indexed by Climate Insights Directory} }