Developing bankable solar projects in Africa : addressing typical legal and regulatory risks


According to the United Nation’s predictions, the Africa’s population is expected to grow from 1.3 billion in 2020, to approximately 2.4 billion in 2050, making Africa the continent with the fastest demographic growth[1]. Such rapid growth will have an impact on energy demand in Africa. McKinsey[2] reveals that 48% of the global population with no access to electricity comes from Africa and they predict that energy need in Africa is very likely to evolve from 679 terawatt-hours today to a need close to 1,600 terawatt-hours by 2040. To answer this need, a better exploitation of solar energy could help meet the rising energy demand by households and industries.

In the case of Cameroon for instance which is ranked 7th most electrified country in sub-Saharan Africa with an access rate of 54%, only 17% of its rural areas are electrified, in contrast with the urban centers which are 88%electrified[3] and these statistics mirror those of other Sub-Saharan African countries[4].

This is due to the fact that most of the country’s electricity comes from hydropower, but combined with solar energy given the country’s high level of solar radiation estimated at 4.9kWh/m²/day[5], electricity production could help reduce the gaps.

Recourse to more renewable energy resources such as solar energy in the energy mix, will be necessary to help reduce the electricity gap faced by most Sub-Sahara African countries. But to accelerate solar market development, projects have to be bankable to receive the financing. Indeed, the World Bank has evaluated infrastructure financing needs at USD 93 billion per with 40% of financing needs related to the energy sector only. To have more solar projects reach financial close, stakeholders should apply an efficient risk allocation and most specifically when dealing with Africa, understand how to cover land, tariff and regulatory and political risks.


Bankability and Risk Allocation

Bankability is a moving concept but one of main factors of a project bankability is the risk allocation that will reassure the lenders providing the financing. Even if bankability from the perspective of a commercial bank providing debt financing is different from the perspective of a development finance lender providing limited recourse debt financing, the risk allocation is likely to impact their decision to provide financing.

Power projects in general require large scale investments with longer paybacks, and solar projects are no different. In emerging countries, whereas projects are often built on a build, own, operate (“BOO”) basis by Independent Power Producers (“IPPs”), it is important to note that the broad set of risks that these projects entail are well identified and properly allocated among the government and private sector.  The principle of risk allocation is that the party that is the ablest to manage a risk is the one that should hold it unless both parties agree to share the risk. For example, the general risks such as political, regulatory or economic risks are likely to be State’s risks whereas operational risks such as construction, completion or operation risks are likely to be private party’s risks. Bankability is always assessed through risk allocation among the Parties to the Project, hence why it is essential to set up a proper risk matrix when drafting project agreements.


Covering the Land Risk

In emerging markets, securing the land or the site envisaged for solar projects by acquiring land rights are less certain than in developed markets where established land registries and records exist. One solution in order to make projects more attractive for financial or lending institutions would be to have African States finance pre-feasibility studies in order to identify potential sites for solar projects. It has been observed that very often, developers run out of money at that stage without any certainty of the result of these studies.

In addition, we have observed that when a project is communicated while the sites are not secured, private individuals often acquire such land in advance, in order to receive high compensations when the State would want to allocate such sites to solar projects. Thus, African States should secure the land in advance and launch tenders to allocate the sites in addition to helping prevent from usual mafia around the project sites.


Addressing the Tariff Risk

Practice shows that attractive solar projects often fail to reach financial close because they fail to meet lenders’ expectations. One of the key elements is the tariff levels. African states should be able to determine in advance the proper tariff for the purchase of solar energy in the country on the basis of a typical risk matrix structure and guarantees granted to projects. With this standard tool, developers will have a common basis for setting up their financial models and it will bring down the costs of projects discrepancies in the electricity tariffs among projects.

On the other hand, bankability is closely linked to the capacity of the project to have stable revenues and prevent potential tariff payment failures of the off-taker. The profile of the off-taker is key in this assessment as well as appropriate guarantees such as letters of credit to minimize this risk.


Facing the Regulatory and Political Risks

The regulatory and political Risks included here are typical risks to be addressed under project agreements. The regulatory risk materialized by a discriminatory change in law which affect the project are usually covered by the State. Typical risk allocation will provide that to the extent the change in law adversely affects the general economic balance of the project, the private party is entitled to appropriate compensation or relief from the State. The political risk which is a change in the political framework of the host country which adversely affect the project is a State’s risk and an event of force majeure. In this scenario, the private party is usually entitled to issue notices to the State to remedy within a specified period of time, failing which it will be entitled to terminate and or to receive compensation from the State.

This article is a high-level summary of some of the aspects of bankability of a solar project. In addition to the risks highlighted below, other important risks to be tackled in the risk matrix of such type of projects include: solar resource or input risk, construction risk, design risk, completion (including delay and cost overruns) risk, demand risk, maintenance risk, force majeure risk, currency, exchange and interest rate risk, insurance risk, inflation risk, disruptive technology risk, early termination risk.

We’d be very happy to help you navigate through those risks and issues.


Lynda Amadagana
Lawyer – Managing Partner, CABINET Amadagana & Partners
Paris & Cameroon Bars





[1] Eurogroup Consulting. 2015. Energie Afrique Horizon 2050.

[2] McKinsey. 2015. Brighter Africa: The growth potential of the sub-Saharan electricity sector.

[3] USAID. 2017. (Online) Cameroon: Power Africa Factsheet. Accessed 2 April 2017 at:

[4] Njoh, A.J., Etta, S., Ngyah-Etchutambe, I.B., Enomah, L.E.D., Tabrey, H.T., Essia, U., 2019. Implications of institutional frameworks for renewable energy policy administration: Case study of the Esaghem, Cameroon community PV solar electrification project. Energy Policy 128.

[5] 2018. Assessment of renewable energy resources in Cameroon and special regards on energy supply. (Accessed 28 April 2018) ar:


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