Cape Verde is recognized as one of Africa's leaders in energy regulation, particularly in the management of its electricity sector. However, the nation faces challenges in integrating renewable energy into its existing grid and must contend with climate vulnerability that poses a significant threat to its critical infrastructure.

Cape Verde and Portugal have signed a debt-conversion deal to finance the expansion of the Palmarejo solar power plant in Praia, the capital.

The agreement, announced on Nov. 4, will convert about $7.3 million of Cape Verde’s $152 million debt to Portugal into investments for renewable energy projects.

The project will nearly double the plant’s capacity, from 4.4 MW to almost 10 MW,  and reflects a growing trend of green-finance partnerships between creditor nations and African countries seeking to accelerate their energy transition.

Debt-for-Nature Swaps Power Green Finance

The approach builds on the “debt-for-nature” swaps that emerged in the 1980s, allowing developing nations to trade portions of their debt for local investments in conservation.

The World Bank defines such mechanisms as the exchange of external debt for local-currency payments used to fund environmental projects. The UN Development Programme (UNDP) notes that modern debt conversions also channel debt-relief savings into climate and renewable-energy initiatives.

African Adoption of Debt Swaps

Several African countries have already used debt conversions for environmental or climate purposes.

In 2015, the Seychelles converted $21.6 million of external debt, with support from The Nature Conservancy, to finance marine protection efforts. In 2023, Kenya began talks with the UK on a debt-for-nature swap for reforestation, according to Bloomberg. Zambia has also worked with the World Bank on a partial debt swap to strengthen its climate resilience.

Cape Verde still depends largely on imported fossil fuels. According to IRENA data published in July 2024, renewable energy supplied only 20% of the country’s primary energy in 2021.

The agreement with Portugal supports the government’s goal, detailed in a 2024 European Investment Bank report, to generate at least 50% of its electricity from renewable sources by 2030. Expanding the Palmarejo plant marks a concrete step toward that target.

Scalability and Risks

The World Bank says debt conversions can ease fiscal pressure on indebted countries while funding climate projects with measurable results. A 2024 note from the institution explained that the mechanism promotes local climate investment without worsening public debt.

Yet the Climate Policy Initiative (CPI) reported in February 2025 that such operations account for less than 1% of global climate finance. Their impact remains limited, depending on how much debt is converted, funding transparency, and effective project oversight.

The IMF, in a December 2022 analysis, added that debt swaps can strengthen the climate resilience of vulnerable countries if supported by sound governance and shared monitoring of expenditures.

Abdel-Latif Boureima