Risk Mitigation Instruments for Renewable Energy in Developing Countries

The Bujagali Hydropower Project in Uganda serves as a case study for the use of combined risk mitigation instruments—specifically the International Development Association's (IDA) partial risk guarantee (PRG) and the Multilateral Investment Guarantee Agency's (MIGA) political risk insurance (PRI)—to attract private capital in high-risk environments. The project mobilized nearly $300 million in commercial loans and private equity, achieving a ratio of almost one U.S. dollar of private capital for every two U.S. dollars of public financing. These instruments enabled commercial banks to offer loans with maturities of 16 years and lower interest rates, which reduced the required initial electricity tariff by between 7% and 60%. The resulting levelized cost of energy (LCOE) was approximately 107 USD/MWh, significantly lower than the cost of the emergency thermal power it replaced. While effective, such complex structures have been underutilized due to high transaction costs and restrictive DFI policies, though recent World Bank Group modernizations aim to expand these tools to smaller-scale renewable energy projects like solar and wind.

• The combined use of a partial risk guarantee (PRG) and political risk insurance (PRI) enabled the Bujagali Hydropower project to attract an unprecedented level of private finance in a low-income country, raising close to $300 million in commercial loans and private equity.
• The project's financial structure mobilized nearly one U.S. dollar of private capital investment for every two U.S. dollars of public financing, outperforming comparable hydropower projects in the region which are typically funded solely by public resources.
• The IDA partial risk guarantee allowed commercial banks to provide loans with 16-year maturities and interest rates lower than those of the development finance institutions (DFIs) involved, which reduced the required initial electricity tariff by at least 7% and up to 60%.
• De-risking instruments reduced the cost of power produced to approximately 105-110 USD/MWh, which is less than half the cost of the thermal fossil fuel power it displaced and one third of the economic cost to Uganda of failing to meet electricity demand.
• MIGA's political risk insurance (PRI) can reduce equity losses by more than 70% in high-risk scenarios and more than halves expected losses to net present value (NPV) compared to strategies without WBG risk mitigation.
• Risk mitigation instruments are often underutilized for climate-related investments; guarantees represent less than 5% of total financing provided by the six main multilateral development banks since 2004.
• High transaction costs and complex implementation policies have limited the use of these instruments primarily to large-scale infrastructure, such as large hydropower and geothermal investments.
• Modernization of World Bank Group guarantee policies and new MIGA products could potentially triple the market size for these instruments from 500GW to nearly 1,500GW over 20 years by expanding eligibility to smaller projects and technologies like solar PV and wind.

APA

Frisari, G., & Micale, V. (2015). Risk Mitigation Instruments for Renewable Energy in Developing Countries. Climate Policy Initiative. https://www.climatepolicyinitiative.org/wp-content/uploads/2015/07/Risk-Mitigation-Instruments-for-Renewable-Energy-in-Developing-Countries-–-A-Case-Study-on-Hydropower-in-Africa.pdf

Chicago

Frisari, Gianleo, and Valerio Micale. Risk Mitigation Instruments for Renewable Energy in Developing Countries. Climate Policy Initiative, 2015. https://www.climatepolicyinitiative.org/wp-content/uploads/2015/07/Risk-Mitigation-Instruments-for-Renewable-Energy-in-Developing-Countries-–-A-Case-Study-on-Hydropower-in-Africa.pdf.

Wikipedia

{{cite report |last1=Frisari |first1=Gianleo |last2=Micale |first2=Valerio |title=Risk Mitigation Instruments for Renewable Energy in Developing Countries |publisher=Climate Policy Initiative |date=July 2015 |url=https://www.climatepolicyinitiative.org/wp-content/uploads/2015/07/Risk-Mitigation-Instruments-for-Renewable-Energy-in-Developing-Countries-–-A-Case-Study-on-Hydropower-in-Africa.pdf |access-date=23 October 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{frisari2015risk, author = {Frisari, Gianleo and Micale, Valerio}, title = {{Risk Mitigation Instruments for Renewable Energy in Developing Countries}}, institution = {Climate Policy Initiative}, year = {2015}, month = jul, url = {https://www.climatepolicyinitiative.org/wp-content/uploads/2015/07/Risk-Mitigation-Instruments-for-Renewable-Energy-in-Developing-Countries-–-A-Case-Study-on-Hydropower-in-Africa.pdf}, urldate = {2026-10-23}, note = {Indexed by Climate Insights Directory} }