Risk mitigation in Power Purchasing Agreements (PPAs) for renewable energy projects in developing markets

In emerging markets and developing economies (EMDEs), limited investment in renewable energy remains a major obstacle to electrification efforts. This article explores the risks that deter investments in renewable energy projects in EMDEs. It analyzes data from surveys and interviews with key stakeholders involved in renewable energy development, complemented by data from the World Bank’s Utility Performance and Behavior in Africa Today (UPBEAT) database. Beyond the commonly cited risks and barriers, including a shortage of bankable projects, inconsistent government policies, and weak regulatory frameworks, the findings reveal that off-taker payment risk and currency mismatch are the most significant factors undermining investor confidence. Over 50 utilities in these markets operate with negative net profit margins and face difficulties servicing hard currency debt, largely due to poor revenue collection and substantial technical and commercial losses. Despite these challenges, promising solutions are emerging. Financial instruments such as partial risk guarantees and blended finance are helping to mitigate risks, while the growth of decentralized power markets is creating new investment opportunities. Nevertheless, achieving a sustainable energy transition will also require utilities to improve operational and technical performance, alongside broader adoption of hedging strategies and local currency financing to reduce financial risks across the sector.