Risk mitigation and transfer for renewable energy investments

This report examines the use of risk mitigation and transfer (RMT) instruments to enable utility-scale renewable energy investments in the Southern Africa Development Community (SADC). Through case studies in Malawi, Mozambique, Namibia, and Zambia, the authors analyze how financial instruments from development finance institutions (DFIs) help projects reach financial close by addressing offtaker, political, and currency risks. While RMTs have successfully protected existing projects during recent economic shocks, the report finds they are currently insufficient to enable new projects in countries facing severe debt distress, such as Zambia.

• Risk mitigation and transfer (RMT) instruments are often essential for renewable energy projects in SADC countries to reach financial close, as many developers would not consider projects without them. The level of RMT required is primarily determined by the credit rating of the sovereign and the state-owned utility offtaker.
• Existing RMT instruments have generally been effective in protecting the investment value of operational projects during recent economic crises, including the Covid-19 pandemic and currency depreciations. This effectiveness is partly attributed to the 'umbrella of deterrence' provided by the World Bank Group and other DFIs, which incentivizes state-owned enterprises to honor payment commitments.
• In Namibia, the financial sustainability and investment-grade rating of the public utility, NamPower, allowed for the development of utility-scale solar projects with minimal RMT, including the use of local currency lending and commercial hedging.
• The World Bank's Scaling Solar programme successfully delivered operational projects in Zambia with competitive tariffs, but its replicability has been limited because each new round or country presents unique challenges that require significant time and effort to resolve.
• Current RMT instruments are insufficient to enable new projects in countries experiencing severe debt distress and sovereign default. In Zambia, despite competitive tariffs and a need for capacity, projects under the GET FiT programme have failed to reach financial close because lenders are deterred by the country's 'highly speculative' credit rating.
• Renewable energy investments in the region are highly vulnerable to currency depreciation because they are typically financed in hard currency while revenues are generated in local currency. The report suggests that DFIs should establish currency risk safeguards and subsidize hedging to prevent the accumulation of hidden currency risks for fragile economies.
• Debt restructuring and relief packages, such as those from the IMF, can inadvertently stall renewable energy development by limiting the government's ability to provide sovereign guarantees, which are often required by lenders for project financing.
• The fragmentation of DFI products in sub-Saharan Africa leads to high transaction costs for developers. The report recommends greater coordination, standardization of due diligence, and leveraging local private financial institutions to reduce these costs.

APA

Duma, D., Cabré, M. M., & Kruger, W. (2023). Risk mitigation and transfer for renewable energy investments. Stockholm Environment Institute. https://www.sei.org/wp-content/uploads/2023/06/risk-mitigation-renewable-energy-sadc-sei2023.034.pdf

Chicago

Duma, Daniel, Miquel Muñoz Cabré, and Wikus Kruger. Risk mitigation and transfer for renewable energy investments. Stockholm Environment Institute, 2023. https://www.sei.org/wp-content/uploads/2023/06/risk-mitigation-renewable-energy-sadc-sei2023.034.pdf.

Wikipedia

{{cite report |last1=Duma |first1=Daniel |last2=Cabré |first2=Miquel Muñoz |last3=Kruger |first3=Wikus |title=Risk mitigation and transfer for renewable energy investments |publisher=Stockholm Environment Institute |date=June 2023 |url=https://www.sei.org/wp-content/uploads/2023/06/risk-mitigation-renewable-energy-sadc-sei2023.034.pdf |access-date=17 August 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{duma2023risk, author = {Duma, Daniel and Cabré, Miquel Muñoz and Kruger, Wikus}, title = {{Risk mitigation and transfer for renewable energy investments}}, institution = {Stockholm Environment Institute}, year = {2023}, month = jun, url = {https://www.sei.org/wp-content/uploads/2023/06/risk-mitigation-renewable-energy-sadc-sei2023.034.pdf}, urldate = {2026-08-17}, note = {Indexed by Climate Insights Directory} }