Financial Risk Management Instruments, Communication Strategy, Contract Management and Performance of Hydroelectric Energy Projects in Kenya

Abstract

Renewable energy investment has been under exploited in Africa in spite its ability to increase the estimated average regional Growth Domestic Product from the current 4% to more than 10%and Kenya in specific due to investor‘s negative perception of the regions high investment risk and low creditworthiness which retards the degree of private capital penetration. The purpose of the study was to establish the influence of financial risk management instruments, communication strategy, and contract management on performance of hydroelectric energy projects in Kenya. The objectives of the study were: to establish how Alternative Risk Transfer influence performance of hydroelectric energy projects in Kenya; to examine how Contingent capital influence performance of hydroelectric energy projects in Kenya; to assess how Credit enhancement influence performance of hydroelectric energy projects in Kenya; to determine how Hedging derivatives influence performance of hydroelectric energy projects in Kenya; to examine how Insurance influence performance of hydroelectric energy projects in Kenya; to assess how the combined financial risk management instruments influence performance of hydroelectric energy projects in Kenya; to assess the moderating influence of Communication strategy on the relationship between financial risk management instruments and performance of hydroelectric energy projects in Kenya; to assess the mediating influence of Contract management on the relationship between combined financial risk management instruments and performance of hydroelectric energy projects in Kenya. The study was grounded on Prospect theory, Goal-Setting theory, Diffusion of innovation theory, and Agency theory. The study was underpinned on pragmatism paradigm, mixed method approach, descriptive survey and correlational research design. Structured questionnaires and interview guide were used to collect quantitative and qualitative data from a census of 94 participants. Validity test was done on the instruments and a coefficient of 0.775 obtained while reliability coefficient was 0.781. Analysis involved both descriptive statistics of mean and standard deviation and inferential statistics of Correlation and Regression at a significance level of 0.05 with the aid of SPSS version 25 and thematic content analysis of qualitative data for triangulation. Eight hypotheses were tested at α=0.05 and the results were: 1. H0: There is no significant relationship between Alternative Risk Transfer and performance of hydroelectric energy projects in Kenya was rejected since P=0.000<0.05; 2. H0: There is no significant relationship between Contingent capital and performance of hydroelectric energy projects in Kenya was rejected since P=0.000<0.05; 3. H0: There is no significant relationship between Credit enhancement and performance of hydroelectric energy projects in Kenya was rejected since P=0.000<0.05; 4. H0: There is no significant relationship between Hedging derivatives and performance of hydroelectric energy projects in Kenya was rejected since P=0.000<0.05; 5. H0: There is no significant relationship between Insurance and performance of hydroelectric energy projects in Kenya was rejected since P=0.000<0.05; 6. H0: There is no significant relationship between the combined financial risk management instruments and performance of hydroelectric energy projects in Kenya was rejected since P=0.000<0.05; 7. H0: Communication strategy does not significantly moderate the relationship between financial risk management instruments and performance of hydroelectric energy projects in Kenya was rejected since P=0.000<0.05;and 8. H0: Contract Management does not significantly mediate the relationship between financial risk management instruments and performance of hydroelectric energy projects in Kenya was rejected since P=0.000<0.05. Therefore the study concluded that Alternative Risk Transfer, Contingent Capital, Credit Enhancement, Hedging Derivatives and Insurance have a significant influence on performance of hydroelectric energy projects. Equally, the moderating effect of Communication Strategy and mediating effect of Contract Management have a significant influence on the relationship between financial risk management instruments and performance of hydroelectric energy projects. It is recommended that Project management and policy makers should integrate appropriate financial risk management instruments to improve performance of hydroelectric energy projects besides developing targeted policies for strengthening implementation of the financial risk management instruments to boost investors and lenders confidence.