Using Climate Finance to Reduce Currency Exchange Risks

This brief discusses how climate finance can de-risk renewable energy projects in Africa by shielding existing and future investments from exposure to currency exchange rate risks. By de-risking existing and future renewable energy projects from exposure to currency movements, climate finance can play an important role in strengthening the case for renewables in Africa and supporting the role public-private partnerships can play in this market. All three strategies presented in this brief reduce or eliminate the economic ‘damage’ that currency exchange risk may cause, decreasing the possibility that electricity off-takers attempt to re-negotiate ‘unfavorable’ PPAs. Reduced political risk will improve investor confidence, reduce the cost of capital and facilitate the crowding in of private capital.