The bankability of grid-connected power projects in Sub-Saharan Africa

Electric Man

Written by Kirtika Challa, Global Head of Power and Infrastructure Advisory, CrossBoundary

Historically, the bankability of grid-connected power projects in Sub-Saharan Africa relied on sovereign guarantees. However, with debt burdens growing to unsustainable levels, there has been a rise in IMF interventions, and countries are increasingly reluctant and unable to provide sovereign guarantees for power projects.

As a result, innovative models are emerging to address concerns around offtake security and project bankability. New energy intermediaries have emerged to facilitate access to power pools and balance the supply and demand for energy, including between countries. However, given that these business models are still nascent, they require support to attain the scale needed to ultimately achieve sustainability.

In parallel, local lending institutions and pension funds are increasingly interested in financing clean power generation. As such, we believe that development finance institutions (DFIs) are well positioned to shift their focus away from primarily lending to generation projects and instead to increase their risk appetite and support this new nascent sector of intermediaries.

In addition to enabling this emerging sector, DFI support could catalyze domestic financing for generation projects, improve the performance of critical power pools, and grow the amount of capital available for clean power projects, ultimately increasing the pace of electrification on the continent. We believe, and hope to see, DFIs evolve their role into enablers of the private capital that will be critical to closing the vast financing gap that impedes access to electricity on the continent.