Reducing the Cost of Capital for Solar Projects in Africa
On 28 May, SolarPower Europe, supported by GET.invest, will host the webinar Reducing the Cost of Capital for Solar Projects in Africa. The event will gather African and European experts to shed light on how to reduce the levels of cost of capital for solar projects in Africa.
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.
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.