How International Capital Finances Commercial & Industrial Solar Projects in Sub- Saharan Africa A Qualitative Case Study of Frictions, Mechanisms, and Development Mandate in Kenya’s Intermediated Financing System

Sammanfattning

Across sub-Saharan Africa, the capital that finances commercial and industrial(C&I) solar PV projects stems primarily from international development finance institutions(DFIs). DFIs are publicly funded with a mandate to finance what privatecapital would not, called additionality. They primarily invest through an intermediatedchain in which intermediary funds finance developers, who build and operatethe projects for offtakers. Existing research focuses on DFI finance at the deal orportfolio level, so how capital and requirements move through the intermediary layerto the final beneficiary is poorly understood. This thesis uses a qualitative abductivemethod with the Kenyan C&I financing system as an instrumental case. It mapsthe actors in the chain, identifies the frictions arising between them, and evaluatesthe outcomes against the additionality mandate. The study draws on 23 interviewsand on information asymmetry and principal-agent theory to explain the underlyingmechanisms. The conditions DFIs impose at the top, such as environmental, social,and governance requirements and credit checks, cascade down the chain. Intermediariespass them on while adding their own monitoring and reporting costs at eachstep. The cumulative burden falls heaviest on developers, and the chain functionsas a filter, selecting those who can carry it and excluding those who cannot. Measuredagainst the mandate, financial additionality (lending where private capital willnot) holds deal by deal because local capital is absent. At the market level, it isweaker, held back by this filter and by capital that arrives after commercial investorshave priced the early risk. Developmental additionality (the standards DFI capitalbrings) holds through stronger environmental and social requirements, strongercredit discipline, and technical assistance. The two are linked, however, and cannotbe improved independently. The additionality framework is therefore more usefulfor describing trade-offs than as a separate test on each measure.