a public private partnership approch to climate finance

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Page 1: A Public Private Partnership Approch to Climate Finance
Page 2: A Public Private Partnership Approch to Climate Finance

Existing Body of Work

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Page 3: A Public Private Partnership Approch to Climate Finance

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Why a New Approach!

Private sector willing to invest but finds interface with “greening” mechanisms too complex with high transaction costs.

Methodologies often based on “barrier removal” concepts with uncertain or unclear baselines or outcomes.

CDM only provides payments on performance and does not address the specific financing challenges of RE investments.

MRV protocols not PS friendly and rely on costly international accreditation and monitoring.

What’s Needed:

Barrier Removal through policy dialogue Supportive domestic policy frameworks that recognize and reward domestic

externality benefits Efficient mechanisms for closing the financial viability gap for cost efficient

technologies that generate global benefits Flexibility to tailor green funds to maximize leveraging effect of private financing

structures

Page 4: A Public Private Partnership Approch to Climate Finance

The Prototype Facility

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Page 5: A Public Private Partnership Approch to Climate Finance

Private Structured Finance Foundation

Economic (Climate Change) Rationale for Public Finance Support

Explicitly Prices Global and Local Externality Benefits

+ Quantifies Disadvantage of Fossil Fuel Subsidies + Equitably Allocates Public Finance Support to Host

Government and International Community+ Guides in the Financial Structuring and Avoids Additional

Distortions+ Closing the Gap Places Project at Cost of Lowest Polluting

Alternative, Creating Incentives for Government Buy-in

&

Viability Gap MethodologyClosing the Gap By Equitably Allocating Responsibilities

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Page 6: A Public Private Partnership Approch to Climate Finance

Combining Instruments forEffective Financing Solutions

• The Roles of Various Stakeholders

- Contributions of the international community

- Contribution of national governments

• Public Sector Policies and Instruments

- A number of instruments are already available

- Need to improve their effectiveness

- Need to develop new instruments

Carbon Markets

Loans & Risk-Sharing Facilities(e.g. GEF &CTF)

Grants ODA Concessional Loans

FiTs Capital Grants

Tax Credits & Other Tax Incentives

Financial and Other Incentives

Int’l √ √ √

Govt √ √ √ √ √

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Page 7: A Public Private Partnership Approch to Climate Finance

Flexible Instruments to Increase Leverage of Limited Public Funds

• The FiT provides its contribution over the life of the project, instead of an upfront payment, where it’s needed the most.

• A Green Finance facility could securitize the subsidy portion of the FiT at a lower discount rate thus resulting in an upfront grant of as high as $64 million. This securitization would help increase the leverage for concessional loan ($59 instead of $100mil).

• Providing an additional guarantee can further increase the leveraging factor to 2.1 to 1.

Parameters Financing Scenarios

FiT subsidy paid over useful life

(in $ mil)

FiT subsidy securitized

(in $ mil)

FiT subsidy securitized plus loan

guarantee

(in $ mil)

Source of Capital

Sponsors’ Equity 18 11 13

Commercial Debt 42 26 30

Concessional Loan 100 59 52

Up-front Value of FiTSubsidy 0 64 64

Leverage by CTF loan 1 : 0.60 1 : 1.71 1 : 2.10

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Page 8: A Public Private Partnership Approch to Climate Finance

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Regulatory & Institutional ComponentAnchored on Country’s PPP Framework

Effective Regulatory Framework of Enforceable Contracts Backed up by Sanctions for Non-Performance

Efficient MRV of Environmental Benefits

Ex-post Audits for Certifiable Credits

+ Assurance to Third Parties that Performance is Achieved or Remedies are Available

+ Allows For Up-Front Financing of Investments Where It’s most Needed

+ Can Deal With Multiple CER Requirements of Emerging Carbon Markets in the Region

+ Incremental & Cost Effective

=

MRV

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Page 9: A Public Private Partnership Approch to Climate Finance

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Financing & Advisory Interface

Participating Governments Monetize Local Externalities & Rebalance Distortions

International Participants, Donors & Emerging Carbon Markets Monetize Global Externalities

Financial Advisor Acts as Market Maker on Investment Proposals Uses Array of Funding Sources and Instruments to

Maximize Leverage of Limit Public Financing Develops Workable Financing Arrangements Interfaces on MRV Requirements & Regulation Sources Additional Funding Pledges

Page 10: A Public Private Partnership Approch to Climate Finance

Green Investment Climate AssessmentsEmphasis on Policy Environment

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Natural Resource Endowments

Doing Business

Environment

Development & Competitiveness Strategy

Green Policies & Incentives

Identifies Investment Opportunities Develops Action Plan for Improving the

Policies and Incentives to Expand Scope

Page 11: A Public Private Partnership Approch to Climate Finance

The Prototype Green Infrastructure Finance Facility

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Objective: Provide public gap financing support in order to

1. de-risk investments in green technologies,

2. maximize leveraging effect of limited public finance, and

3. incentivize participating countries to continue greening their energy mix.

Description: The facility would monetize the GHG benefits of eligible projects in order to reach financial closing. The facility would be implemented on a pilot basis to provide financing and transaction support and other services.

Project Eligibility: Renewable energy technologies (i.e. solar, wind, hydro, geothermal, biogas, etc.) that are justifiable from a climate change perspective against their natural low cost polluting alternative for both on and off-grid configurations.

No. of Projects: Aim to reach closing on 12 to 15 projects across a number of technologies and in selected country settings.

Capitalization: Between $250-$300 million consisting of a combination of loans, grants and guarantees.

Sponsoring Governments: Governments must agree to cost sharing responsibilities for eligible projects, particularly for fossil fuel distortions. In addition, they would need to oversee the MRV and regulatory functions during implementation.

Certifiable GHG Benefits: The Facility will pay for the GHG benefits in exchange for closing the financial viability gap. The project sponsors will release any claim on certifiable GHG benefits that their projects will ultimately produce over its operational life.

Fund Management: TBD during design phase.

Page 12: A Public Private Partnership Approch to Climate Finance

Current Work Plan

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Phase I Plan - Facility Design and Promotion (Completion by 2/2014)

• Task1 - Initial Design of Facility Concept.

• Task2 - Conducting Internal Consultations and Consensus Building within the WBG

• Task3 - Concept Design for the Funding Window

• Task4 - Internal Endorsement for Formalization of Client and Donor Commitment.

Phase II Plan - Formal Fundraising and Development of Operational Strategy and Guidelines, Contract Clauses and Certification Requirements (Estimate d Completion by 6/2014)

• Task5 - External Road Show

• Task6 - Development of Facility’s Operational Guidelines for the Screening, Selection and Financial Structuring of Candidate Projects and for Market Maker Functions

• Task7 – Developments of PPP Contract Clauses for the Service Obligations of Project Sponsors in terms of GHG Benefits and Certification requirements

Estimated Launch of Facility: December 2014