mobilising private finance in emerging economies - the uk approach lcedn workshop 25 june 2013
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Mobilising private finance in emerging economies - the UK approach
LCEDN Workshop
25 June 2013
• £2.9 billion 2011- 2015• Split between adaptation (c.50%), low carbon development
(c.30%) and forests (c.20%)• Delivering transformational change• Priorities:
– Demonstrate that building low carbon, climate resilient growth at scale is feasible and desirable
– Support the international climate negotiations, particularly through supporting adaptation in poor countries and building an effective international architecture
– Drive innovation and new ideas for action, and create new partnerships with the private sector to support low carbon climate resilient growth
– Results and measurement – MW, private finance £, CO2, jobs etc Importance of evaluations
UK’s International Climate Fund
Reduce cost and raise returnsReduce actual and perceived riskDevelop enabling environments, build capacity
Considerations in designing programmes:• Additionality • Target market failure• Careful use of subsidy• Sustainability & exit• Risk appetite• Priority countries
UK approach to mobilising private finance
Private sector is not homogenous
Pension funds behave quite differently to angel investors or project finance debt in infrastructure
UK Government must be more hands off further along the development cycle or where institutional finance. Can be more involved with start up finance.
Maximise expertise so focus on energy, not agriculture
Consultation with business via CMCI and DFID focus groups
UK approach to mobilising private finance
Spread of programmes
Two new commercially run private equity funds that will make investments in to climate friendly sub-funds and projects in developing countries. UK “hands off” approach.
Aims• Drive new types of private money into climate
investments e.g. pension funds, SWFs• Speed up the development of private equity market in
climate change/climate friendly projects• Show climate investments are profitable by building
network of sub-funds with good investment track records
UK project – Climate Public Private Partnership “CP3”
UK investment of £110 million + circa £11m technical assistance
UK project – CP3
IFC Catalyst Fund CP3 Asia
IFC AMC as fund managers CFIG + Asian Development Bank as fund managers
Global focus Asia only
70% sub funds (with a focus on first time fund managers)
70-80% direct investments20% sub funds
First close: USD $281.5 million(UK $80, IFC $75 , Azerbaijan $50, Canada $76.5) Second close later
Larger fund
Multi-donor project (UK contribution of £20 million plus), providing top up grant to renewables Feed in Tariff, support to regulator, use of World Bank Guarantees 1MW to 20MW plants– bagasse, hydro, biogas etc
Aims• Demonstrate to private sector developers that
investment in renewable energy in countries like Uganda is financially attractive
• Demonstrate to Ugandan and regional governments that incentivising investment in renewable energy can mobilise private sector investment.
Get Fit Uganda
UK project – Green Africa Power
New Private Infrastructure Development Group (PIDG) facility
Aim: to demonstrate the commercial and technical feasibility of larger renewable energy projects in Africa
5 – 200MW projects All renewable technologies
75% to the poorer countries in Africa
Uses patient (up to 15 year) capital, subordinated to other lenders but above equity (Debt equity hybrid)
UK - minigrids (in development)
Off grid infrastructure.
Mini grids in Tanzania and Kenya
Financing support – guarantees, loans etc for developers
Technical support for development of regulations e.g. tariffs.
Prizes versus Challenge Funds
Prizes – specific problemWill be launching later in year/early 2014. Tender out now for consultancy.
Challenge Funds – themes with merit based awardExamples – REACT, EEP, IDEAS
Climate Innovation Centres
. Hubs in Kenya, Vietnam, Ethiopia
Supporting innovation
Results Based Financing
Off grid market. Projects which are close to financial viability.
Uses demand led concepts from vaccines – agree to pay top up subsidy for results.
Flexible Fund – in progress
Recognises “valley of death” after the challenge fund/initial grant before the VCs will come in.
Working capital loans, grants, equity – i.e. “flexible”
Getting innovations to market and to scale
Working with supply chains
Top ups for non viable activities and shifting from greenfield to brownfield
Equity investments to propel sustainability
Demonstration effect
Forestry fund (in preparation)
Policy risk – UK work
Readiness activity - to develop the policy and regulatory environments in developing countries
e.g. Climatescope, India smart grids etc
Local finance
Cities
Adaptation
Suggestions for future focus
UK Government Web site
Enter “International Climate Fund”
Also “Funding and partnerships with businesses in the UK and developing countries”
Sign up for DFID Low carbon newsletter (includes information about other donor projects) and to join contacts list
Email – [email protected] or [email protected]
More information?