De-risking Clean Energy Investment: Reducing Development Costs to Unlock Scaled Finance

By Dr Wirajing Muhamadu Awal Kindzeka, Dr Adeline Nembot, Dr Vessah Mbouombouo Salim Ahmed, Dr. Stephane Mbiankeu Nguea & Larissa Ntoubia Ngapmen

Executive Summary

Sub-Saharan Africa possesses abundant renewable energy resources, yet continues to attract only a small share of global clean energy investment. While attention often focuses on financing shortages, the more fundamental challenge lies in the high cost and uncertainty of project development. Delayed permits, weak project preparation, grid connection uncertainty, land acquisition disputes, and non-bankable power contracts significantly increase investment risks before projects reach financial close. These challenges discourage private investors, increase financing costs, and slow energy deployment. The consequences extend beyond electricity access. Despite significant investments in energy infrastructure, many projects generate limited domestic economic benefits because engineering, procurement, and construction activities are frequently dominated by foreign firms, while local supply chains and skills development remain weak. As a result, energy investment often fails to translate into sustained employment creation and industrial development. This policy brief argues that reducing development risks is one of the most effective ways to accelerate investment, lower electricity costs, and strengthen local economic participation. It recommends reforms to streamline project approval processes, strengthen procurement frameworks, improve grid planning, expand risk-sharing instruments, and integrate local content and workforce development strategies into clean energy investments. De-risking clean energy development should therefore be viewed not only as an energy policy priority, but also as a strategy for industrialization, job creation, and long-term economic transformation.

Key Messages

• The principal barrier to clean energy investment in Sub-Saharan Africa is often not a shortage of capital, but the high cost and uncertainty of project development.
• Foreign-led project delivery may limit domestic employment and local value creation
• Coordinated transmission planning and transparent interconnection frameworks can substantially reduce investment uncertainty.
• Risk-sharing instruments and project preparation facilities are essential to move projects from concept to financial close.
• Clean energy investment reforms can generate substantial employment opportunities in construction, engineering, operations, maintenance, and local supply chains.

1. Introduction: Africa’s Clean Energy Investment Paradox

Sub-Saharan Africa faces a paradox. The region accounts for some of the world’s highest solar, hydro, wind, and geothermal potential, yet remains home to the largest electricity access deficit globally with approximately 600 million people not having access to electricity. At the same time, global commitments to climate finance and clean energy transitions have expanded considerably. Despite these opportunities, investment flows remain insufficient to meet growing energy demand. The explanation extends beyond the availability of capital. Investors increasingly identify project development risks as the principal constraint. Many projects fail long before construction begins because of prolonged approval procedures, unclear regulatory frameworks, weak utility finances, and insufficient project preparation. Consequently, investors demand higher returns to compensate for uncertainty, increasing project costs and reducing affordability. The challenge facing African policymakers is therefore not simply how to mobilize more capital, but how to create an investment environment where capital can be deployed efficiently and predictably. Working in partnership under Mission 300, the World Bank Group aims to connect 250 million people to electricity, while the African Development Bank Group aims to connect 50 million people by 2030. The combined ambition of these development organs represents a major step toward expanding electricity access across Sub-Saharan Africa.

2. Why Development Costs Matter More Than Capital Costs

The debate on energy financing often focuses on interest rates and investment volumes. However, development costs accumulated before financial close, frequently determine whether a project proceeds. These costs include feasibility studies, environmental assessments, legal reviews, permitting procedures, land acquisition processes, grid connection negotiations, and contract preparation. When these processes become lengthy, fragmented, or unpredictable, developers face substantial financial exposure without any guarantee that projects will proceed. This creates a “development premium” that investors incorporate into project pricing. Ultimately, these additional costs are transferred to consumers through higher electricity tariffs or result in project cancellations. Reducing development risks therefore represents one of the fastest and most cost-effective ways to improve investment attractiveness. The World Bank estimates that low- and middle-income countries host 89 percent of the approximately $1 trillion in global coal-fired power generation at risk of being stranded. One of the challenges is that funding a just power transition will require much higher capital flows than are being mobilized today in order to meet the growth needed in lower carbon electricity production in Africa. Despite progress in expanding renewable capacity, least developed countries and sub-Saharan Africa had only 40 watts per capita in installed renewables capacity, compared to developed countries which had over 1,100 watts installed.

3. Major Sources of Development Risk

Regulatory and Permitting Delays: Many African countries maintain complex approval systems involving multiple ministries, agencies, and regulatory bodies. Developers often face overlapping requirements, unclear responsibilities, and lengthy decision-making processes. The absence of standardized procedures increases transaction costs and creates uncertainty regarding project timelines. Investors are less concerned about regulations themselves than about unpredictability in their application.

Weak Procurement and Contracting Frameworks: Private investment depends heavily on the credibility of power purchase agreements (PPAs). In many markets, concerns regarding tariff adjustments, contract enforcement, and utility payment capacity continue to undermine investor confidence. When procurement frameworks are inconsistent or politically influenced, projects struggle to secure financing because lenders cannot accurately assess future revenue streams.

Grid and Interconnection Uncertainty: Generation projects are frequently approved without adequate coordination with transmission infrastructure. Developers may complete project preparation only to discover that transmission capacity is unavailable or that interconnection costs are significantly higher than anticipated. Poor coordination between generation planning and grid expansion remains one of the most significant barriers to scaling renewable energy investments.

Limited Early-Stage Financing: Many projects fail because developers cannot secure financing for feasibility studies, technical assessments, and project preparation activities. Commercial lenders are often reluctant to finance high-risk development stages. This creates a weak project pipeline, limiting the number of investments capable of reaching financial close.

4. The Missing Employment Dividend

The clean energy transition is often promoted as a source of employment creation. However, the employment benefits generated by many large-scale projects in Africa have been relatively limited. A significant share of renewable energy infrastructure projects continues to rely on imported equipment, foreign engineering expertise, and international contractors. Large portions of project expenditure therefore leave domestic economies through imported technology, consultancy services, and construction contracts. While local workers are frequently employed during construction phases, these jobs are often temporary and concentrated in low-skilled activities. Opportunities for technology transfer, engineering development, equipment manufacturing, and long-term operations remain limited. The result is a paradox similar to Africa’s commodity-export model: energy investments increase infrastructure stocks but generate limited domestic value addition. To maximize economic benefits, governments must move beyond viewing energy projects solely as infrastructure investments and instead treat them as catalysts for industrial development and skills upgrading. As a contribution to the job market and by prioritizing scalable solutions today, the World Bank’s Mission 300 catalyzes job creation and economic transformation, while building systems that can be extended to the hardest-to-reach communities in the future

5. Policy Priorities for De-risking Investment and Expanding Jobs

Short-Term Priorities: Governments should establish one-stop investment platforms that consolidate licensing and permitting procedures under a single institutional framework. Standardized approval requirements and legally defined timelines would significantly reduce uncertainty. In addition, procurement systems should prioritize transparency and consistency through standardized PPAs and clear procurement guidelines.

Medium-Term Priorities: Governments and regulators should strengthen utility financial sustainability and introduce credit enhancement mechanisms to improve investor confidence.  Integrated energy planning should also align generation investments with transmission expansion strategies. This would reduce interconnection risks and improve project sequencing. Dedicated project preparation facilities should be expanded to support feasibility studies, environmental assessments, and transaction advisory services.

Long-Term Priorities: Long-term success requires building domestic energy ecosystems rather than simply importing energy infrastructure. Governments should support local manufacturing of selected renewable energy components where economically feasible, promote domestic engineering services, and strengthen technical education programs linked to clean energy sectors. In addition, as a long-term priority, local content frameworks should focus on capability development rather than rigid procurement quotas. The objective should be to increase domestic participation in engineering, operations, maintenance, and energy services while preserving investment competitiveness. Regional cooperation can also support larger markets, shared infrastructure, and integrated power systems capable of attracting larger investments.

6. Conclusion

Sub-Saharan Africa’s clean energy challenge is often described as a financing problem. In reality, it is equally a development risk problem. The high cost of project preparation, regulatory uncertainty, weak procurement systems, and grid constraints continue to discourage investment and increase electricity costs. Reducing these risks offers one of the most practical pathways for attracting larger volumes of private capital. Yet investment alone is not sufficient. The region must also ensure that clean energy development generates domestic economic value through local supply chains, skills development, and productive employment. The ultimate objective should not merely be building more power plants. It should be building an energy transition that strengthens competitiveness, supports industrialization, creates jobs, and accelerates structural transformation. The future of Africa’s clean energy sector will depend not only on how much investment is mobilized, but on how effectively that investment contributes to long-term economic development.