Risk mitigation and transfer for renewable energy investments

The report examines how risk mitigation and transfer (RMT) instruments, provided largely by development finance institutions (DFIs), enable renewable energy projects in SADC countries. While RMTs have been essential for reaching financial close in high-risk markets like Malawi and Mozambique, they are proving insufficient for new projects in countries facing severe debt distress, such as Zambia. The report highlights the 'halo effect' of the World Bank Group as a deterrent against payment defaults and recommends that debt restructuring packages explicitly protect climate investments.

• Risk mitigation and transfer (RMT) instruments are often decisive for the viability of renewable energy projects in SADC; many developers and lenders state that projects in the analyzed countries would not have reached financial close without them.
• The effectiveness of RMTs during the operational phase often stems from the 'halo effect' or 'umbrella of deterrence' provided by the World Bank Group, which incentivizes state-owned utilities to honor payment commitments to avoid jeopardizing other financing sources.
• In countries with high creditworthiness and financially sustainable utilities, such as Namibia, RMT requirements are minimal, and projects can be financed through local currency lending and commercial banks.
• Current RMT instruments are insufficient to overcome the perceived risks in countries experiencing severe macroeconomic shocks and sovereign default, as evidenced by the GET FiT projects in Zambia which failed to reach financial close despite competitive tariffs.
• The use of hard currency lending for renewable energy in vulnerable economies creates a 'hidden' currency devaluation risk that is ultimately borne by the host government or the consumer, contributing to cyclical debt crises.
• While RMTs can facilitate the first utility-scale projects in a country (the 'demonstration effect'), the ad hoc and complex nature of some arrangements, such as those in Malawi and Mozambique, limits their replicability and scalability.
• Debt relief and restructuring packages, such as the IMF arrangement in Zambia, can unintentionally stall renewable energy development by limiting the government's ability to provide necessary sovereign guarantees.

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} }