Zimbabwe needs reliable, affordable and sustainable energy. Chronic electricity shortages has affected industrial growth, economic instability and infrastructure development. At the time there is need to move away from fossil fuels towards the use renewable energy resources, such as small-scale hydro, wind and solar power, to address global climate commitments. This has prompted the policymakers and international actors to suggest derisking as a way to get private companies to invest in renewable energy. While this has been successful in some countries, its long term effects for Zimbabwe can be questionable. In this context, this blog will study opportunities, challenges and policy of implications of derisking as a means to encourage investment in renewable energy in a country like Zimbabwe that is facing financial constraints, economic volatility and financialised climate governance.
Derisking and Zimbabwe’s Energy Sector
Derisking refes to the action or measures taken by the government and/or donors to mitigate the risks that are encountered by private investors. This can be done through sovereign guarantees, long-term power purchase agreements or other means of agreements The logic is the lower the risk of investment, the lower the cost of the capital for private investors therefore they will invest in more renewable energy initiatives. Derisking therefore helps make renewable energy projects more attractive to investors. In Zimbabwe, where energy insecurity, macroeconomic instability and sovereign debt distress limit public investment capacity, multilateral development banks and international partners have promoted derisking instruments as mechanisms to accelerate the energy transition.
Given that energy is the backbone of industrial production, public services and household welfare, its reliability and affordability is central to economic development. Zimbabwe, like many countries in sub-Saharan Africa, has considerable renewable energy potential such as solar, hydro and biomass yet these resources remain largely untapped. Growing concern about climate change has pushed governments and industries to reconfigure their energy systems and adopt policies to cut greenhouse gas emissions. As a result, renewable energy has consequently emerged as a core component of national energy strategies around the world . African countries, in particular, are positioned to use renewables to meet rising energy demand while also pursuing broader sustainable development goals. However, attracting investment for renewable projects in developing countries remains particularly challenging because of high financial and political risks.
The UNDP Derisking Framework
To address these challenges, the United Nations Development Programme launched the De-risking Renewable Energy Investment framework in 2013 . The framework provides a structured way to improve the risk–return profile of renewable energy investments in developing countries. It identifies three complementary strategies for governments: lowering risk through policy and regulatory reform, shifting risk using financial tools such as guarantees, and compensating for risk with targeted incentives. Over the past decade, derisking has therefore gained prominence as a policy approach to mobilise private finance through public interventions. These interventions including loan guarantees, concessional lending, foreign exchange hedging instruments and blended finance structures backed by multilateral development banks and climate finance institutions.
The Hidden Cost of Derisking in Zimbabwe.
Zimbabwe’s energy transition is occurring in a challenging macroeconomic environment characterised by debt distress, limited access to concessional finance and currency volatility. In such conditions, derisking instruments often shift financial risk from private investors to the public sector. For example, long-term power purchase agreements can include take-or-pay clauses that require the national utility to pay for electricity regardless of demand levels.
Likewise, foreign exchange guarantees protect investors from current depreciation but it also introduces contingent liabilities in foreign currencies to the State. As much as these mechanisms can improve project bankability, they also generate fiscal commitments that can build up over time. Such liabilities can become a threat to the budget stability especially for a country with limited public finances compromising the government’s ability to provide basic services to its citizens.
The other issue is currency risk. Revenues for renewable energy projects are generally generated in local currency. Given Zimbabwe’s history of volatile exchange rate , investors tend to require tariff indexing or hard currency payments. This diminishes investor uncertainty, but carries over the currency risk to public utilities and, ultimately, taxpayers. Rather than address structural macroeconomic issues, derisking arrangements can be incorporated into long-term contracts.
Then there is also a distribution issue. Derisking strategies are often geared toward large-scale utility projects. Smaller projects that often support communities may struggle to get funding. In the process, investments can focus on viable projects instead of those that would be most beneficial. Without careful design, renewable energy can therefore become hardly affordable for the low income households.
Those who support derisking argue that public resources are not enough for renewable energy transition. This is true. It takes considerable capital to invest in renewable energy, and private companies are often reluctant to put in that kind of investment if their financial returns are not guaranteed. Private sector participation is therefore essential. But the important thing is that the process should be structured and governed in a way that the the risks incurred by both the state, private players and the citizens will be minimized.
Policy Solutions
Zimbabwe’s renewable energy policy needs to shift its focus from a purely risk-based approach transfer. A more balanced approach would be to increase the role of public leadership within the private sector. This involves monitoring capital invested in a transparent and responsible manner as well as ensuring long-term policy flexibility.
Regional development finance institutions and domestic public banks to be more assertive in fnancing RE projects. Greater concessional and grant-financing for climate change would also ease the pressure on the need to rely on sovereign guarantees. In addition, investing in local capacity building in renewable energy skills development and technical education as well as improving energy technologies will go a long way in decreasing reliance on foreign expertise and enhancing domestic skills and knowledge value chains therefore ensuring energy security.
Energy transition cannot only be achieved using a financial engineering approach. It is also a developmental transformation for a country like Zimbabwe’s that has long-term development aspirations to achieve an energy system that is reliable, socially-inclusive and affordable. Contracts & guarantees , though they support in investments should not restrict fiscal sovereignty or put rigid commitments on the country to restrict future policy options. Climate finance models need to strike a balance between investor assurance and equity.
In economies that are in debt distress like Zimbabwe, too much reliance on risk transfer mechanisms can have a negative effect of increasing financial dependency. Instead of continuously expanding and prioritise concessional financing with international partners financing mechanisms must support to increase country’s fiscal space. Zimbabwe’s renewable energy transition is a challenge and an opportunity. It’s a chance to increase electricity availability, encourage industrial development and mitigate greenhouse gas emissions. It is also a test of the capacity of climate finance frameworks to be designed in a way that is fair and just.
Keywords: Climate Finance; Derisking; Financialisation; Fiscal Sovereignty; Renewable Energy; Zimbabwe
Primrose Mutema 
Reston Dennis Juah 
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