Risk Clustering as a Finance Concept for Rural Electrification in Sub-Suharan Africa to attract international private investors

Creators: Steurer, Elmar and Manetsgruber, David and Jouego, Esther P.
Title: Risk Clustering as a Finance Concept for Rural Electrification in Sub-Suharan Africa to attract international private investors
Item Type: Conference or Workshop Item
Event Title: (Proceedings of the) Africa-EU Symposium on Renewable Energy Research and Innovation (RERIS)
Event Location: Tlemcen, Algeria
Event Dates: March, 8-10, 2016
Projects: ILR
Page Range: pp. 183-190
Additional Information: In: Energy Procedia ; 93 Under a Creative Commons License
Date: 2016
Divisions: Wirtschaftswissenschaften
Abstract: Projects in the energy sector in Africa suffer from a number of barriers. Especially the combination of political instability and an unclear regulatory framework hampers the private sector to realize the investment possibilities in the field of decentralized rural electrification. For debt based projects these barriers result in prohibitively high interest rates – roughly 15% while the return on investment does not exceed the low 10% area. This situation leads to strong reluctance from private investors to provide equity. A possibility to encourage private investors to step in could be a separation of the different risks, especially separating the typical high sovereign risk of a country from the commercial risk of the energy project. As a result, the separated risks can be clearly allocated to different investor groups looking for investment opportunities going along with distinct risks. A structured approach is proposed through which private international investors are exposed only to the general political risk while international development banks cover mainly the regulatory risk. Finally, the newly invented financial instrument convertible grant by the electriFI initiative of the EU provides an equity substitute to take over the commercial risk. With this additional financial support, decentralized electrification projects in Africa have the possibility to be implemented and the potential to be scaled up.
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Steurer, Elmar and Manetsgruber, David and Jouego, Esther P. (2016) Risk Clustering as a Finance Concept for Rural Electrification in Sub-Suharan Africa to attract international private investors. In: (Proceedings of the) Africa-EU Symposium on Renewable Energy Research and Innovation (RERIS), March, 8-10, 2016, Tlemcen, Algeria, pp. 183-190. ISBN / ISSN 1876-6102

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