Africa’s clean energy projects face financing barrier from credit rating rules

Billions of dollars have been pledged for Africa's clean energy transition, yet many renewable energy projects across the continent are still failing to get off the ground as countries struggle with soaring financing costs driven by a financial rule known as the "sovereign ceiling," experts say. Analysts and development finance specialists say the rule, which ties the creditworthiness of projects to the sovereign rating of the country where they operate, is making commercially viable renewable energy projects appear far riskier to international investors than they actually are. Of Africa's 54 countries, only Botswana and Mauritius currently hold investment-grade sovereign ratings. So, the rule is hindering governments' efforts to expand access to electricity and meet climate commitments under the Paris Agreement. Nearly 600 million people across Africa still lack access to electricity, according to the International Energy Agency. "The financing environment is the problem," said Dr. John Asafu-Adjaye, a senior fellow at the African Center for Economic Transformation. "A project with strong fundamentals, a long-term power purchase agreement, and predictable cash flow ends up being priced as if it were inherently dangerous. Not because it is, but because of where it sits on a map." The sovereign ceiling rule prevents companies or projects operating within a country from receiving a credit rating significantly higher than the country's sovereign rating. In practice, analysts say, that means renewable energy projects in African countries with weak sovereign ratings inherit the perception of sovereign risk even when projects themselves are commercially sound and backed by international guarantees. Kenya's Menengai Geothermal project, Zambia's IFC-led Scaling Solar program, and Nigeria's Solar IPP pipeline all struggled to get adequate funding as investors raised concerns over sovereign guarantees, creditworthiness, and concessional financing terms. This article was provided by The Associated Press.