Scaling up green finance Jan-Willem van de Ven , Head of Carbon Market Development

Austrian Climate Change Workshop 30 March 2017

EBRD region of operations:

Caucasus

and Eastern

Europe

Central Asia

and Mongolia

Central and

Eastern

Europe

Cyprus

Greece

Southern and

Eastern

Mediterranean

Turkey Western

Balkans

Russian

Federation

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• €30 billion capital base

• €41 billion portfolio

• €8.9 billion average annual

business in the past 3 years

• Multilateral financing institution established in 1991 to support

transition to market economies

• Owned by 67 countries, the EU and the EIB

What is the EBRD

3 key operational principles

• Sound banking

• Transition impact

• Environmental sustainability

GET IMPLEMENTATION OVERVIEW THE GREEN ECONOMY TRANSITION STRATEGY

17 March 2017 3

The Green Economy Transition aims to address

market opportunities, as well as market failures,

related to resource use and environmental

degradation. GET aims to:

• further scale-up the Bank’s operational and policy

activities to accelerate transition to low-carbon and

climate resilient economies

• broaden the environmental dimension of

investments supported by the Bank including

elements of environmental compliance and

remediation

• align the transition impact rating of the Bank with

the objectives of promoting a green economy,

including recognising scale of impact and related

elements of policy change and innovation.

• innovation and new areas: promoting green

technology transfer and innovation and engaging

in new areas like green logistics, irrigation,

bioeconomy.

• flexible financing channels: engage private as well

as public financing channels when opportune to

accelerate low-carbon transition.

GET IMPLEMENTATION BIS

Mainstreaming green financing:

Results in 2006 - 2016

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FINANCED

1,200+ projects and credit lines

>900 directly financed

projects with green

components, and

>280 credit lines to locals

financial institutions for on-

lending to smaller projects

SIGNED

€22.2 billion of green financing

For projects with a total value

of €1,122 billion

In 2014-2016 green financing

represented 36% of EBRD’s

total business, up from only

15% in 2006.

REDUCED

84 million tonnes of CO2/year

Emission reductions equal to

twice the annual energy

emissions of Sweden

Plus annual water savings of

62 km3 since 2013 equal to

2/3 Prague’s water needs

Mainstreaming green financing:

The EBRD business model

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EBRD

(+OTHER) COMMERCIAL

FINANCING

DONOR

CO-FINANCING

POLICY

DIALOGUE

TECHNICAL

ASSISTANCE

• Directly from EBRD: loans, equity

investments or guarantees.

• Mobilising additional

commercial sources.

• Indirectly via local partner

financial institutions:

lending, leasing.

• Working with

governments on

legislation that creates

optimum conditions for

green investments

• Supporting the

development of legal

instruments and best

practice guidelines (e.g.

contract templates,

tenders).

ON A SELECT BASIS

• Lending facilities with

concessional pricing

• Partial investment grants or

incentives payments for eligible

technologies which face

affordability barriers

• First-loss cover or (carbon pricing)

guarantees.

• Resource efficiency audits

• Capacity building for local

financial institutions (staff

training, marketing, green retail

lending products)

• Climate vulnerability assessment

• Project structuring support

(e.g. tendering, investment

guidelines)

• Support to adopt operational

or CSR-type standards (energy

management, buildings

certification, reporting).

GET IMPLEMENTATION OVERVIEW 2016 POLICY DIALOGUE AND CLIMATE FINANCE

17 March 2017 6

2016 Policy Outcomes

Egypt Cement Sector Policy Roadmap

Ukraine ESCO Legislation

EE regulations throughout Western

Balkans

Morocco RE connection rules to MV grid

Green Climate Fund

$1.6 billion pipeline under development

EBRD has largest GCF project approved

($378 million for SEFFs)

Close co-ordination with recipient

countries

2016 Policy Innovation

Full integration of policy work with

investment in e.g. Green City Action Plans

Implementation of Regional Frameworks

for accelerated procurement

ESCO/EnPC work in Western Balkans

Other Donors

Substantial support from:

Continued EU support

Austria supports GEFFs

Sweden for EE in Ukraine

Japan for industrial EE and RE in Ukraine

GET IMPLEMENTATION BIS

• CAPEX investment appraisal is the essential to identify opportunities for energy efficiency improvements.

Energy efficiency audits (several donors)

• Lowering transaction costs by automatization of technology selection through Lists of Eligible Equipment and Materials.

Scale-up Green Econonomy Financing Facilities (several

donors)

• The programme aims to improve deployment rates of the best available climate technologies in markets which lag behind.

FINTECC programme (Donors GEF, EU, EBRD)

• R&D financing support mechanism for SMEs to develop innovative resource efficient technologies. Serbia and Ukraine

Innovation vouchers scheme (donor: DRIVE fund/NIF)

• Addressing energy and resource efficiency along product value chains is of critical importance and VCC programme assists SMEs in these chains.

Value chain competitiveness assistance and financing

• E.g. dealing with scarcer resources as a result of climate change Embedding climate resilience

(Donors UKAID, CIF)

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Innovative finance instruments

INNOVATION: GEFF FROM SEFF TO GEFF

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The established EBRD SEFF model is

being developed to a new EBRD

GEFF model with TC supported by

the Austrian Federal Ministry of

Finance. New facilities will be

presented under the GEFF brand.

This comes from several

developments:

• Recognising the challenges of

green economy transition

• Implementation of a new

consistent approach

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INNOVATION: GEFF EBRD GREEN FINANCE EXPERIENCE

17 March 2017 9

The GEFFs build upon strong operational SEFF experience.

more than 10 years of experience

implemented in 24 countries

more than 120 financial institutions have participated

supported by almost €4 billion of EBRD finance

over 112,000 clients (businesses and individuals)

equivalent of over 6 million tonnes CO2 emissions avoided per year

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INNOVATION: GEFF PRODUCT EVOLUTION

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GEFFs continue to focus on the systematic implementation of energy

efficiency and small-scale renewable energy technologies.

In addition, GEFFs support GET implementation by originating

investment opportunities in technologies and services that:

• lessen the degradation of the environment; and

• reduce the linear consumption of materials with related

environmental impact.

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INNOVATION: GEFF ENABLING ENVIRONMENT

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INCUMBENT

TECHNOLOGY

ALTERNATIVE

TECHNOLOGY Op

era

tin

g C

osts

Reduce height

of barrier

• Awareness of alternative

• Awareness of benefits

• Access to finance

• Administrative burden

• Technical risk

• Implementation risk

Po

ten

tia

l

co

st

red

ucti

on

Time

Market barriers (e.g. early-mover costs, entrenched behaviour and information

asymmetries), may increase transaction costs affecting the rate of adoption of

high performance technologies.

Access to broad knowledge base is often the greatest transaction cost to

making an informed investment decision.

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INNOVATION: GEFF EBRD GEFF PERFORMANCE CRITERIA

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The technical eligibility criteria of EBRD GEFFs are ambitious (visibly performing

beyond current market practice) to positively influence the uptake of high

performance technologies. The level of ambition needs to be market appropriate

to avoid promoting a market niche that is prohibitively expensive.

Distribution

Performance Support

programme for high

performance

technologies

Prohibitively

expensive

technologies

Market

transformation

Technologies below

reference baseline

Time

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Increasing resilience to climate change via the

financial sector in Tajikistan

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PROGRAMME Launched in 2016, ClimAdapt provides financing to enterprises and household in Tajikistan via local banks and microfinance institutions for improved water and energy use and sustainable land management measures.

EBRD financing is blended with concessional longer-term finance from the Pilot Programme for Climate Resilience, to overcome affordability barriers to action on climate resilience.

ClimAdapt has two windows: one targeting businesses, especially in the agricultural sector, and another for households.

FINANCING STRUCTURE EBRD credit lines US$ 2.5 million

Concessional credit lines from the Pilot Programme for Climate Resilience US$ 2.5 million

Technical assistance support from UK DFID and the EBRD ETC Fund € 2.25 million

CLIMATE VULNERABILITY Tajikistan is highly vulnerable to future changes in river runoff and glacier melt, via impacts on its agricultural sector, its hydro-based electricity system and soil erosion.

The facility impact metrics will therefore account for reduced water consumption, energy efficiency gains and reduction in soil erosion loss.

PROJECT EXAMPLE • Climadapt loan of 500,000 €-equivalent in local currency for

the construction of a new greenhouse complex with advanced insulation and hydroponic and drip-irrigation to grow tomatoes.

• IRR of 37%, water consumption per kg yield of tomatoes is 46% below the level of the company’s existing greenhouses.

Increasing water efficiency in fruit plantations

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CLIENT Tunisian branch of an international agribusiness specialised in producing fruits and vegetables for European and North African markets.

EBRD SUPPORT Supporting the establishment and operation of an 80ha agricultural plantation in Bizerte Governorate, focused on cultures of raspberries and other fruits.

Agricultural producers in North Africa face increasing water shortages and deteriorating water quality. Thus the investment includes advanced water harvesting and water recycling systems.

ADVANCED SOLUTIONS Some of the advanced water efficiency solutions supported with EBRD finance were:

• Rainwater drainage for collection

• UV & chlorine treatment for disinfection

• Nutrient control and computerised drip irrigation.

INVESTMENT PLAN EBRD loan € 4 million of which climate resilience finance € 1 million

PROJECT IMPACT • Rainwater harvesting reduces the company’s water

consumption by over 30%

• Reduced loss of soil fertilisers (P, Fe, K) through water recycling and introduction of hydroponic cultivation

• Wastewater treatment reduces the environmental impact caused by discharge of effluents.