Scandinavian Working Papers in Economics

Working Papers,
Copenhagen Business School, Department of Economics

No 15-2020: Assessing Private Investment in African Renewable Energy Infrastructure: A Multi-criteria Decision Analysis Approach

Kenny Baumli and Tooraj Jamasb ()
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Kenny Baumli: Department of Economics, Copenhagen Business School, Postal: Copenhagen Business School, Department of Economics, Porcelaenshaven 16 A. 1. floor, DK-2000 Frederiksberg, Denmark
Tooraj Jamasb: Department of Economics, Copenhagen Business School, Postal: Copenhagen Business School, Department of Economics, Porcelaenshaven 16 A. 1. floor, DK-2000 Frederiksberg, Denmark

Abstract: Energy poverty remains prevalent in many African countries, hindering economic development and exacerbating social inequalities. Simultaneously, population growth throughout the continent is expected to perpetuate the already high demand for basic energy services into the coming decades. Private sector finance is increasingly regarded as a necessary ingredient to remedy Africa’s energy challenges and to stimulate the adoption of renewable energy. However, investments remain insufficient for the burgeoning infrastructure requirements of the African economies. This paper seeks to delineate the financial and non-financial drivers of investment decisions to understand better the barriers to private participation in African renewable energy projects. Using a Fuzzy Technique for Order Preference by Similarity to Ideal Solution (TOPSIS) approach, we evaluate the attitudes and beliefs about country-level characteristics for investment decisions. Analysis of primary data from energy professionals highlights that perceptions moderate choices through evaluation criteria, which in turn predicate policy recommendations. Investor confidence in regulatory effectiveness is identified as the primary concern for investors. Local capacity building and policy instruments, designed to overcome institutional rigidities, are among the preferred solutions. The findings indicate that non-financial drivers contribute significantly to understanding Africa’s private energy investment challenges and provide a key to disentangling the determinants of these investments.

Keywords: Renewable energy; Investment; Multi-Criteria Decision-Making; Africa

JEL-codes: G10; G20; H40; Q20; Q40

28 pages, October 5, 2020

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