African countries are in a unique position to reap the socio-economic and environmental benefits of renewable energy resources to meet their increasing energy demand in a sustainable way. However, the difficulty of attracting sufficient and affordable finance is an obstacle to building more solar projects in Africa.
The financing costs of a solar project are a function of the capital needs from investors and the returns demanded by these investors, and usually consist of a mix of debt and equity. The weighted average cost of capital (WACC) is a measure to express the average financing cost of a project.
Policies needed to reduce investment barriers
Studies show that the WACC in African countries can be several times higher than in European countries. Therefore, counter-intuitively, solar electricity might be cheaper in a low-sun and low-risk country in Europe than in an African country with a higher level of solar irradiation. De-risking policies and financing mechanisms can reduce the perceived or actual investment risks and barriers and bring the cost of capital down, ultimately leading to a boost in the construction of new solar projects.
Also interesting: The potential of Solar & Storage in Sub-Saharan Africa
The webinar, happening on 28 May 2.30 to 4pm CEST and organised by SolarPower Europe and supported by GET.invest – a European programme supported by the European Union, Germany, Sweden, the Netherlands, and Austria – will gather African and European experts to shed light on how to reduce the levels of cost of capital for solar projects in Africa. (mfo)
