{"id":15758,"date":"2026-06-17T17:32:17","date_gmt":"2026-06-17T17:32:17","guid":{"rendered":"https:\/\/siliconvalleymovingpost.com\/?p=15758"},"modified":"2026-06-17T17:32:17","modified_gmt":"2026-06-17T17:32:17","slug":"africas-clean-energy-projects-face-financing-barrier-from-credit-rating-rules","status":"publish","type":"post","link":"https:\/\/siliconvalleymovingpost.com\/?p=15758","title":{"rendered":"Africa\u2019s clean energy projects face financing barrier from credit rating rules"},"content":{"rendered":"
\n

By ALLAN OLINGO<\/strong><\/p>\n

NAIROBI, Kenya (AP) \u2014 Billions of dollars have been pledged for Africa\u2019s clean energy transition, yet many renewable energy projects across the continent are still failing to get off the ground as countries struggle with soaring financing costs driven by a financial rule known as the \u201csovereign ceiling,\u201d experts say.<\/p>\n

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Analysts and development finance specialists say the rule, which ties the creditworthiness of projects to the sovereign rating of the country where they operate, is making commercially viable renewable energy projects appear far riskier to international investors than they actually are.<\/p>\n

Sovereign ratings hinder financing<\/h4>\n

Of Africa\u2019s 54 countries, only Botswana and Mauritius currently hold investment-grade sovereign ratings.<\/p>\n

So the rule is hindering governments\u2019 efforts to expand access to electricity and meet climate commitments under the Paris Agreement. Nearly 600 million people across Africa still lack access to electricity, according to the International Energy Agency.<\/p>\n

\u201cThe financing environment is the problem,\u201d said Dr John Asafu-Adjaye, a senior fellow at the African Center for Economic Transformation. \u201cA project with strong fundamentals, a long-term power purchase agreement and predictable cash flow ends up being priced as if it were inherently dangerous. Not because it is, but because of where it sits on a map.\u201d<\/p>\n

The sovereign ceiling rule prevents companies or projects operating within a country from receiving a credit rating significantly higher than the country\u2019s sovereign rating.<\/p>\n

In practice, analysts say, that means renewable energy projects in African countries with weak sovereign ratings inherit the perception of sovereign risk even when projects themselves are commercially sound and backed by international guarantees.<\/p>\n

\n<\/div>\n

Kenya\u2019s Menengai Geothermal project, Zambia\u2019s IFC-led Solar Scaling programme and Nigeria\u2019s Solar IPP pipeline all struggled to get adequate funding as investors raised concerns over sovereign guarantees, creditworthiness, and concessional financing terms.<\/p>\n

The cost to African development is steep<\/h4>\n

According to the United Nations Development Program, subjective credit rating assessments cost African countries up to $74.5 billion annually through higher borrowing costs and lost investment opportunities. Analysts say renewable energy projects in Africa often face financing costs two to four times higher than similar projects in Europe or North America.<\/p>\n

\u201cThe sovereign ceiling functions as a binding constraint that raises costs across all projects and limits scaling of clean energy deployment regardless of fundamentals,\u201d said Dr Sibusisi Nkomo, the program director of the University of Cambridge Institute for Sustainability Leadership\u2019s (CISL) Africa Program.<\/p>\n

\u201cOur recent work on private finance and investment in Africa shows that international credit rating systems often overstate risk relative to actual project fundamentals, leading to inflated risk premiums and higher costs of capital.\u201d<\/p>\n

\n<\/div>\n

International credit ratings limit African access to bond financing<\/h4>\n

The dominance of credit rating agencies such as Moody\u2019s, S&P and Fitch and other Western financial institutions also shapes how investors perceive African markets, potentially limiting their access to bond markets, another important source of financing, analysts say.<\/p>\n

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Many countries view solar, wind and transmission projects as vital for their economies and industrialization.<\/p>\n

\u201cElectricity is the backbone of all modern economies and is therefore essential for development,\u201d said Malango Mughogho, managing director of ZeniZeni. But she added that much of the financing for projects is in the form of loans that countries cannot afford.<\/p>\n

Maria Nkhonjera, a climate and development finance specialist at the Stockholm Environment Institute, said international credit ratings and \u201crisk mispricing\u201d disproportionately inflate borrowing costs, despite relatively low default rates for African clean energy projects.<\/p>\n

\u201cThe sovereign ceiling rule is an outdated credit rule that penalizes commercially viable clean energy projects for sovereign risks,\u201d Nkhonjera said.<\/p>\n

Clean energy projects are also hindered by complex approval systems, fragmented funding and limited local institutional capacity.<\/p>\n

\u201cAfrica does not lack investable opportunities,\u201d said Asafu-Adjaye. \u201cWhat it faces is a system in which risk is systematically overestimated.\u201d<\/p>\n

There is room for improvement<\/h4>\n

Expanding low-cost finance, increasing local-currency lending and reforming international debt systems could significantly lower borrowing costs, said Nkhonjera.<\/p>\n

Multilateral institutions such as Afreximbank and the Trade and Development Bank could play a larger role by offering guarantees and credit enhancements that partially separate projects from sovereign risk.<\/p>\n

\u201cIn many African countries, the cost of capital is now one of the most important determinants of the pace of economic transformation,\u201d Asafu-Adjaye said. \u201cFixing that system is not peripheral to the development agenda. It is central to it.\u201d<\/p>\n

The Associated Press\u2019 climate and environmental coverage receives financial support from multiple private foundations. AP is solely responsible for all content. Find AP\u2019s standards for working with philanthropies, a list of supporters and funded coverage areas at AP.org.<\/em><\/p>\n

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Billions pledged for Africa\u2019s clean energy transition are failing to translate into projects on the ground as high financing costs deter investors.<\/p>\n","protected":false},"author":1,"featured_media":15757,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[5],"tags":[],"class_list":["post-15758","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-environment"],"yoast_head":"\nAfrica\u2019s clean energy projects face financing barrier from credit rating rules - Silicon Valley Moving Post<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/siliconvalleymovingpost.com\/?p=15758\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Africa\u2019s clean energy projects face financing barrier from credit rating rules - 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