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Africa’s clean energy projects are typically financed by international capital in US dollars on short five-year loan tenors, at borrowing rates up to three times higher than in advanced economies. Solar plants meant to last 30+ years must refinance every five years at the prevailing rate, while repaying dollar debt from revenues earned in a weakening local currency. An African response is underway. Africa Finance Corporation this year disbursed €43 million under a dual-currency green bond, in euros and CFA francs, to finance what will become Côte d’Ivoire’s largest solar plant. While capital for solar, hydro and wind projects is readily available, how can financing be better adapted to the projects it is meant to fund?
Key points
- Why is a solar project with two decades of contracted revenues still capped by its sovereign ceiling?
- How can DFI guarantees go further to cover risks such as late payment by state utilities and FX exposure?
- What would lower the risk enough for commercial lenders to extend tenors?