Rethinking Sovereign Risk Ceilings in EMDE Infrastructure

The cost of capital that’s embedded in the international financial architecture matters to the global energy transition. Africa's weighted average cost of capital in the power sector exceeds 18%, compared to below 5% in Europe and the US. This means that for EMDEs, while the technology is cheap, the financing is not. When credit rating agencies assess a domestic infrastructure project in an emerging market, the sovereign credit rating functions as a de facto constraint — regardless of the project's individual risk profile. A 20-year contracted solar IPP with mature and well-understood technology risk, MDB support, a strong operating track record, and more, would be rated identically to a speculative corporate with cyclical revenues and no structural protections. CCSI’s new research supported by the Environmental Defense Fund argues for a different approach: disaggregate sovereign risk into specific transmission channels and assess whether those channels are actually active and mitigated at the instrument level. MDB/DFI-supported EMDE infrastructure has shown default and recovery experience far stronger than sovereign-constrained ratings would imply — in energy and utilities, consistent with investment-grade default-rate benchmarks — yet no verified public global-scale above-sovereign precedent has been identified for domestic-revenue EMDE infrastructure. It’s time to change that.