Financial risk management instruments and performance of hydro-power projects in Kenya

Amolo Elvis Juma Amolo,Charles Mallans Rambo,Charles Misiko Wafula

doi:10.20525/ijrbs.v10i4.1210

Abstract

This paper aims (i) to establish the extent to which alternative risk transfer influence the performance of hydroelectric energy projects in Kenya, (ii) to examine how Contingent capital influence the performance of hydroelectric energy projects in Kenya, (iii) to To assess the extent to which Credit enhancement influence performance of hydroelectric energy projects in Kenya, (iv) to determine the extent to which Hedging derivatives influence performance of hydroelectric energy projects in Kenya, (v) to examine how Insurance influence performance of hydroelectric energy projects in Kenya. The study adopted the pragmatism paradigm, mixed-method approach, and descriptive correlational survey design while questionnaires and interview guide were used to collect quantitative and qualitative data from a census of 94 participants. This study recommends that project management and policymakers should integrate appropriate financial risk management instruments to improve the performance of hydroelectric energy projects besides developing targeted policies for strengthening the implementation of the financial risk management instruments to boost investors and lenders confidence

Highlights

In spite of Africa's endowment with substantial renewable energy resources, most of it is under-exploited for instance only approximately 7% of the massive hydro potential has been harnessed (Frisari, Hervè-Mignucci, Micale, and Mazza, 2013) while in Kenya in spite of having an estimated hydropower potential of about 6,000MW for large hydros, only 823.8 MW has been exploited (Ministry of Energy, 2020).Expanding economic demand has necessitated investment in power infrastructure in Sub-Saharan Africa and this if well implemented, can increase the estimated average regional GDP from the current 4% to more than 10% (Rosnes and Vennemo, 2009)
H0: There is no significant relationship between Alternative Risk Transfer and performance of hydroelectric energy projects in Kenya H0: There is no significant relationship between Contingent capital and performance of hydroelectric energy projects in Kenya H0: There is no significant relationship between Credit enhancement and performance of hydroelectric energy projects in Kenya H0: There is no significant relationship between Hedging derivatives and performance of hydroelectric energy projects in Kenya H0: There is no significant relationship between Insurance and performance of hydroelectric energy projects in Kenya H0: There is no significant relationship between the combined financial risk management instruments and performance of hydroelectric energy projects in Kenya
The small p-values (0.000

Summary

Introduction

In spite of Africa's endowment with substantial renewable energy resources, most of it is under-exploited for instance only approximately 7% of the massive hydro potential has been harnessed (Frisari, Hervè-Mignucci, Micale, and Mazza, 2013) while in Kenya in spite of having an estimated hydropower potential of about 6,000MW for large hydros, only 823.8 MW has been exploited (Ministry of Energy, 2020).Expanding economic demand has necessitated investment in power infrastructure in Sub-Saharan Africa and this if well implemented, can increase the estimated average regional GDP from the current 4% to more than 10% (Rosnes and Vennemo, 2009). Due to investors negative perception of Kenya’s high investment risk and low creditworthiness, the degree of private capital penetration has generally remained low (OECD, 2013). For this massive infrastructural investment to be realized the financial markets must play critical role in stimulating private investments into the renewable energy development to bridge the scarce resources at disposal of the public sector (Rezec and Scholtens, 2017). Utilization of financial risk management instruments to de-risk renewable energy infrastructure projects is essential for reducing private investment cost. Based on market statistics by IEG (2009), reluctance of investors and financial institutions has impeded the financial risk management instruments wide-spread provision and implementation due to the perceived high transaction cost

Objectives

Results

Conclusion