Sustainable financing for sustainable energy - Managing currency risk
Foreign Exchange Risk ("FX Risk") is a key inhibitor of capital inflows and deal progress in the Power sector particularly in developing countries.
In an effort to underscore the importance of managing foreign exchange risks in energy infrastructure projects in Sub-Saharan Africa, Sustainable Energy for All (SEforALL), Power Africa, The Currency Exchange Fund (TCX), Persistent Energy Capital and Barclays Africa Group hosted a webinar bringing together African utilities, IPPs, finance ministries, developers among others.
The webinar: “Sustainable Financing for Sustainable Energy - Managing Currency Risk” sought to increase participants’ awareness and understanding of the issue, offer risk mitigation techniques and existing solutions and resources. With the low commodity prices and fluctuating African currencies, the importance FX Risk is further heightened in the current deal climate for power projects in Africa.
"The first step to risk management is to quantify your risk. Then you want to understand how much it costs you to sell the risk. Only then can you make a decision to keep or sell," noted Dirk Muench of Persistent Energy Capital.
“Systematically ignoring FX risks and speculating that final customers will be able to carry its burden may seriously damage the growth prospects of renewable energy in poor countries,” said Harald Hirschhofer, a senior advisor at TCX, whose company works “with commercial and development banks to expand the offer of local currency financing and offer instruments to manage FX risks.”
SEforALL Director for Policy, Jane Ebinger, noted that very often the main challenge for energy practitioners is financing and managing the risks associated with foreign exchange. “At Sustainable Energy for All, we are delighted to work with Power Africa and others to co-host this first discussion of a planned webinar series that aims to provide insights on the challenges practitioners face in financing energy access solutions,” said Ebinger.
Lack of energy is a major impediment to economic growth particularly in Sub-Saharan Africa where 625 million people live without access to electricity. Private-Public-Partnership is critical for leveraging the continent’s energy resources to ensure shared prosperity.
"Power Africa has forged a great partnership with SEforALL, working together to unleash capital and drive the growth of the power sector in Africa. This webinar on foreign currency risk was the latest demonstration in our continued and fruitful collaboration," said Albert Osueke.
SEforALL and Power Africa will continue to partner and conduct a series of webinars on access to finance while offering measures to mitigate political and commercial risk among others.
Barclays (download here)
Persistent (download here)
TCX (download here)