Date of Graduation

Spring 5-15-2025

Document Access

Project/Capstone - Global access

Degree Name

Master of Science in Energy Systems Management

College/School

College of Arts and Sciences

Department/Program

Energy Systems Management

First Advisor

Jalel Sager

Abstract

Energy poverty persists as a critical challenge in Emerging Market and Developing Economies (EMDEs). Despite the urgent imperative to electrify these nations, investment in the deployment of renewable energy projects remains comparatively low, a phenomenon reflected in risk allocation within Power Purchase Agreements (PPAs). The prevailing explanations for this trend often cite a scarcity of bankable projects, inconsistent political commitment, and regulatory frameworks in power markets that fail to adequately address the fundamental factors hindering investor confidence. To gain deeper insights, we utilized data from surveys and interviews conducted with industry stakeholders to identify the primary risk factors encountered within EMDEs. Complementarily, data from the World Bank's UPBEAT (Interactive utility data platform) database was employed to analyze the correlation between these identified risks and the specific contexts of EMDEs. Our research findings indicate that currency mismatch and off-taker payment risk constitute the major risk components embedded within Power Purchase Agreements (PPAs), significantly contributing to reduced financial commitments for clean energy projects in EMDEs. Alarmingly, over 50 utilities within these countries were found to be operating at negative net profit margins, struggling to service debts denominated in hard currencies. This precarious financial situation is often attributable to challenges in revenue collection, substantial transmission and distribution (T&D) losses, and the economic impacts of energy curtailment. Several solutions and opportunities are emerging to mitigate these challenges. The strategic deployment of financial instruments such as partial risk guarantees and blended finance, alongside the trend towards market decentralization, is enabling growth in the renewable energy sector within EMDEs. Notwithstanding these positive developments, utilities in these countries, acting as principal off-takers, will need to implement more robust operational, commercial, and technical innovations to effectively reduce existing losses. Concurrently, the wider adoption of hedging solutions and the expansion of local currency financing options are crucial to diminishing financial risks. The synergistic implementation of these actions promises to yield significant economic, social, and technological benefits for all stakeholders involved in the energy transition within EMDEs.

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