Foreign Exchange Risk The Silent Obstacle to Africa's Energy Revolution
This project explores Africa’s slow pace of electrification by examining two emerging shifts: the rising impact of foreign exchange (FX) risk on renewable energy investment, and a growing focus on energy service access—what electricity enables—rather than electricity access alone. By addressing these underexplored dynamics, the research aims to uncover new pathways for scaling sustainable energy solutions across the continent.
This project takes a multidisciplinary approach to understanding the persistent challenges of electrification in Africa by addressing two major paradigm shifts. First, it examines the growing prominence of foreign exchange (FX) risk—currency fluctuations that significantly reduce investor revenues and create barriers to renewable energy investment. Second, it shifts the focus from electricity access alone to energy service access, emphasizing the value of what electricity enables (such as lighting, refrigeration, or connectivity) rather than solely its source. This perspective opens new opportunities for scaling off-grid energy technologies tailored to local needs.
One of the major barriers to electrification in sub-Saharan Africa is limited investment, driven in large part by high financing costs. A key contributor to this is FX risk, which arises from the mismatch between hard currency investments and local currency revenues. Despite its impact, FX risk remains largely unaddressed—due to underdeveloped capital markets, the high cost of hedging, and a lack of local financial expertise.
This project will develop a technology-focused analysis of cost-effective strategies to mitigate FX risk for energy service investments in Africa. By identifying practical solutions to reduce investment risk, it aims to unlock significant private capital and contribute to more sustainable, scalable electrification across the continent.