De-risking climate-smart investments

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 CIF / World Bank
The city of Ouarzazate in Morocco will host what will become one of the largest solar power plants in the world. Photo: CIF / World Bank

The investment needs for low-carbon, climate-resilience growth are substantial. Public resources can bridge viability gaps and cover risks that private actors are unable or unwilling to bear, while the private sector can bring the financial flows and innovation required to sustain progress. For this partnership to reach its full potential, investors need to be provided with the necessary signals, enabling environments, and incentives to confidently invest in emerging economies.  

The Climate Investment Funds (CIF) is unique in its ability to mobilize climate finance. Through offering concessional resources, the CIF helps climate-smart investments get off the ground. Specifically, CIF’s concessional resources have helped lower high capital costs of capital, absorb risks that other financiers would not bear, and extend repayment rates to better match project cash flows. This in turn has unlocked additional finance from multilateral development banks’(MDBs) own balance sheets and the private sector.
The CIF’s portfolio of USD 8.1 billion is expected to leverage an additional USD 55 billion in finance for low carbon development, adaptation, and forestry. And the CIF is able to use a variety of financial products (senior loans, subordinated debt, guarantees, convertible grants, contingent recovery loans, and even equity) and lend through MDBs on least concessional terms to the private sector. This allows the CIF to explore and finance projects in frontier markets such as concentrated solar power and geothermal exploration drilling, which are too risky to get financing from commercial banks or MDBs alone.
Here’s why it works so well: blending loans, grants, equity investment, and credit guarantees, are channeled through the multilateral development banks to recipient countries. These investments are driving down technology costs, supporting first-movers, and creating markets. CIF concessional financing then bears the risks and expenses that would otherwise scare off private investors and stall renewable energy projects.
For example, in Turkey, the CIF’s Clean Technology Fund channels CTF USD 270 million to drive investment in renewable energy and energy efficiency through complementary programs with Turkish financial intermediaries. Three programs implemented by the European Bank for Reconstruction and Development (EBRD), International Finance Corporation (IFC), and the World Bank each worked with different local institutions (private sector banks, private leasing companies, and national development banks, respectively) to address common barriers to renewable energy and energy efficiency finance.
In Morocco, the Moroccan Agency for Solar Energy secured over $3 billion needed for the Noor-Ouarzazate complex from the World Bank, the CIF, the African Development Bank and European financing institutions. For phase 1 of the Noor-Ouarzazate complex, the low-cost debt provided by the CTF and other international financial institutions reduced Phase 1 project costs by about 20 percent compared to financing available from commercial banks. The World Bank is supporting phase 2 of the complex with financing of $400 million and $119 million from CTF.
And in Thailand, the CIF along with the IFC helped one of the country’s first solar developers mobilize financing from local banks who weren’t yet sold on the idea. Today, Solar Power Company Group, led by female entrepreneur Wandee Khunchornyakong, has built 36 solar farms, created 20,000 jobs, and helped light up a country.
The CIF is not only helping to mobilize climate finance for mitigation projects, but for climate resilience projects too. In Tajikistan, the CIF’s Pilot Program for Climate Resilience (PPCR), EBRD, and other donors are supporting the first application of climate resilience measures in the hydropower sector to maximize investment in the aging 126 MW Qairokkum hydropower system upon which half a million people depend. This project takes an innovative approach which integrates climate resilience information into the design of the upgrade by modelling future hydrology (movement of water) outcomes under a range of climate change scenarios. Totaling more than $75 million in loans, concessional finance, and grants, the repair and rehabilitation of the hydroelectric power plant shows that climate change adaptation can be addressed on a commercial and transformational scale.

​These stories - and many more - have made it clear that climate finance is critical to make low carbon projects happen across the globe. Climate finance is a springboard for change. It give countries and companies that extra lift they need to replace dirty technologies with clean technologies that are initially more expensive but hold the promise of being economic game-changers in the medium and long-term.


Rachel Stern

Consultant, Private Sector

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