Guarantees, local currency, project preparation, results-based financing: the mechanisms changing access to finance for power projects.
Financing a power project in West Africa remains difficult: counterparty risk, currency risk, high preparation costs. Yet new mechanisms are emerging. Here are the ones changing the game.
Guarantees to reduce risk
Partial risk guarantees, provided by development institutions, allow commercial banks to lend to projects they had judged too risky. They cover, for example, payment default by a public buyer. The cost is real, but it opens access to local lenders.
Local currency financing
Borrowing in euros or dollars to sell electricity in CFA francs exposes the project to currency risk. Hedging mechanisms and local currency credit lines are developing, notably through regional funds. They improve the balance of the financial model, at the price of sometimes higher rates.
Project preparation funds
Many good projects fail before reaching a lender, for lack of means to fund the feasibility study, the legal file or the modelling. Preparation facilities advance these costs, repaid if the project is financed.
Results-based financing
In rural electrification, grants are paid after households are actually connected. The risk of non-delivery is thus borne by the operator, and public spending is better targeted.
Co-investment platforms
- Impact funds bring public and private investors together around project portfolios
- Regional platforms make it possible to share due diligence costs
- Blended finance structures combine concessional debt and commercial debt
What this means for project developers
A solid file remains the condition for everything: a clear power purchase agreement, permits, a credible financial model. The mechanisms above reduce risk, they do not replace the quality of the file.
Financiers are not short of money, they are short of well-prepared projects.
Are you developing a project? The ỌYA Invest programme helps you qualify it and present it to financiers at the Summit deal rooms.
