Tag Archives: development finance institutions

CPI analysis supports C40 call for action on increasing cities’ access to climate finance

October 19, 2016 | and

 

This week at Habitat III in Quito, Ecuador, C40 Cities Climate Leadership Group (C40) is making a call for action on municipal infrastructure finance, highlighting the financing needs of cities and their key role in driving sustainable, low-carbon and resilient growth.

Climate Policy Initiative (CPI) endorsed this call to action as part of our work to support cities’ access to climate finance and to help them achieve value for money. In the last year, we worked with the Cities Climate Finance Leadership Alliance to publish its State of City Climate Finance 2015 report and are currently analysing the green bond markets in order to develop guidelines for cities in developing countries to raise climate finance from this fast growing source of climate finance. This second piece of work is part of the Green Bonds for Cities project.

Our work supports C40 findings. For instance, C40’s call to action identifies multilateral and bilateral development banks as important actors in responding to city needs. Our analysis finds that taken together DFIs provide 94% of all green bond flows to cities in developing countries and multilateral and bilateral DFIs provide 82% of all green bond finance channelled to developing countries in general.

There are other possibilities for cities to tap green bond finance flows, however, aside from cities issuing their own bonds. National development banks provide an interesting option, for instance. While multilateral DFIs were the first to direct green bond flows to developing countries, domestic DFIs such as national development banks (NDBs) are now providing a growing share, now up to 18% of flows.

Green Bond DFI Flows to Developing Countries

The market is changing elsewhere too. Development finance institutions were the sole providers of green bond finance to developing countries from 2008-2013 but domestic corporates in the renewable energy sector have since begun to issue bonds. They have been joined by commercial banks from China and India which have linked the finance raised to green loans. City or municipal-based infrastructure development companies also commonly raise finance for cities in developing countries such as China, often with central government guarantees.

Global green bond market flows to developing countries

Our market analysis will feed into guidelines for city administrators and stakeholders in developing countries on how to access increased finance from the green bonds market. In the coming weeks, CPI and partners working on the Green Bonds for Cities project will provide toolkits and training sessions. The project is funded as part of the Low-Carbon City Lab (LoCaL) under Climate KIC.

CPI will also soon publish analysis looking into the role of NDBs in supporting implementation of nationally determined contributions. Sign up here for updates on these and other projects.

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Three ways international development partners can help Indonesia solve its land use challenges

February 24, 2016 | and

 

At least 25 major aid organizations have been actively engaged in efforts to reduce Indonesia’s greenhouse gas emissions from land use over the last five years. Several of these funders, including the UK Climate Change Unit Indonesia, and the Norwegian Agency for Development Cooperation, have even refocused a large portion of their programs in Indonesia on the land use challenge.

Land use challenges in Indonesia - Photo credit: Elysha Rom-Povolo

Photo credit: Elysha Rom-Povolo

This sharp focus isn’t surprising when you take into account that 44% of global land use and forestry emissions came from Indonesia in 2012 Last year saw unprecedented emissions from forest and peat fires in Indonesia, with emissions from fires alone expected to reach around 1750 MtCO2-eq., which is almost equal to Indonesia’s entire greenhouse gas emissions from all sectors in 2012.

The involvement of many international development organizations is also good news given that the Government of Indonesia has sent strong signals to the international community that their support is needed. Indonesia has committed to reduce greenhouse gas emissions by 26% by 2020, scaling up to 29% by 2030, and further extending their ambition to 41% with international support. Around 90% of that target is anticipated to come from reducing deforestation and peat emissions.

The question is, have the efforts been working?

We recently took on this question in a study that looked at international public climate finance flows to land use from major development partners, “Taking Stock of International Contributions to Low Carbon, Climate Resilient Land Use in Indonesia.”

We found mixed results.

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Driving geothermal development in developing countries

August 26, 2015 |

 

Geothermal has the potential to play a big role in a low-carbon energy transition but while deployment of wind and solar has taken off in recent years, deployment of geothermal has remained steady but unspectacular for decades. This despite the fact that it is broadly cost competitive with fossil fuel alternatives across the world and is the cheapest source of available power in some developing countries with rapidly growing energy demand.

Among developing countries, only Turkey and Kenya exceeded forecasts for geothermal deployment over the last five years. Elsewhere, over 3GW of power has been left in the ground, mainly in Indonesia and the Philippines but also in new markets such as Chile and Ethiopia.

We estimate that approximately USD 133 billion would be needed for investment in geothermal in developing countries if current plans to build 23 GW of capacity by 2030 are to be met. The scarcity of public finance available for geothermal in these countries is a barrier to achieving these targets but private investment could fill this gap. Many governments in countries with significant resources have liberalized energy and electricity markets and this could result in an investment opportunity of USD 60-77 billion, with average returns on equity of 14-16% if the main project related risks are addressed.

Our analysis, commissioned by the Climate Investment Funds to improve understanding of the role of public finance in different developing countries, suggests that governments and development finance institutions would need to provide the rest of the USD 133 billion in the form of financing and risk mitigation tools needed to attract private investment in these countries.

This requires a 7-10 fold increase in current allocations of public money to the sector for future development. In addition, while significant efforts at the global level to increase public finance commitments for the early stages of geothermal project development mean they now account for 11% of current commitments, in order to meet demand, finance allocated to this stage of projects should be up to 17% of public finance distributed and targeted particularly at the test drilling phase. Part of current public finance could also be refocused on the management of resource risk during the later stages of project operations.

In our most recent report, we draw lessons from a year of analysis of geothermal projects and markets in developing countries to identify how public finance from governments and development finance institutions can be used to best drive private investment. Key factors include:

  • Supportive regulatory frameworks for geothermal, the basic condition for growth together with well-designed feed-in-tariffs aligned with the project‘s lifetime or loan terms available in the local debt market
  • Differentiated public support during the exploration phase, supporting early public exploration and tendering of proven fields in markets with challenging investment environments, while incentivizing early stage exploration in more mature private markets
  • Favorable loan conditions and measures to unlock its provision

Following these recommendations could increase energy access and put those developing countries with geothermal resources on a path to green growth. Our case studies of geothermal projects suggest this can be done without increasing the levelized cost of electricity generated, and thus power tariffs for consumers. When national and international public measures lower financing costs and address specific political, currency and exploration risks relevant for the private sector, private development models can deliver power at similar or lower cost than public development models. This allows governments to increase energy supply and access while committing only 15-35% of what they would invest were they to develop the whole project through local public utilities, freeing resources for further investment. This is something that should be at the forefront of the minds of national energy policymakers and the development banks that support them.

A version of this blog first appeared as an opinion piece on Environmental Finance.

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