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FEATURE STORY

Mobilizing Greater Private Sector Engagement Critical to Solving the Climate Puzzle

October 10, 2015

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IFC supported Karadzhalovo SPP solar photovoltaic power plant in Parvomay, Bulgaria.


STORY HIGHLIGHTS
  • A $400 million - financing package from IFC, the World Bank Group’s private sector arm, to Itaú Unibanco S.A. – one of the largest banks in Brazil, will help finance renewable energy, water treatment and energy efficiency projects, while helping reduce greenhouse gas (GHG) emissions in a country that has a large untapped potential for clean energy.
  • A new $4.5 million financing package by IFC Cleantech Innovation Facility and $2.5 million mobilized by Cordiant Capital of Canada will help expand the reach of Off Grid Electric in Tanzania – a low cost model for switching from kerosene to solar, aiming to reach 200,000 households by end of 2015 in a country where less than 5 percent of rural areas are electrified.
  • And in Turkey a $44.5 million IFC loan, $22.5 million in syndicated funds from investors, coupled with $14.7 million in concessional funds from the Clean Technology Fund to Odea Bank will help finance green mortgages shows a new and promising area for climate change mitigation for building construction, impact on the feasibility and impact of green mortgages.

With the climate negotiations in Paris only a few months away, it is obvious that the private sector’s ingenuity and innovation will be critical to helping  the world move  on a low-carbon and resilient path. Public funds alone can’t meet the challenges of the future.

But for the private sector to succeed and deliver on its potential both for driving greater volumes of investments and mobilizing climate finance, it’s vital to have both sound economic incentives and the right government policies.  

Leveraging its convening power both with the public and the private sector, the World Bank Group is uniquely positioned to help address this problem as governments do not have the resources to address it alone, and the private sector cannot make headway without the needed regulatory environment.

IFC – the World Bank Group’s private sector arm, started tracking its climate-smart investments in 2005 and since then has invested a total of $13 billion in long-term financing for renewable power, energy efficiency, sustainable agriculture, green buildings and private sector adaptation to climate change.

Last fiscal year alone, a total of $4.5 billion was invested through IFC’s direct involvement. This includes $2.3 billion of IFC’s own account, coupled with a record $2.2 billion mobilized from other investors, reflecting a growing appreciation that clean energy, resource efficiency and climate change adaptation represent immense areas of opportunity for the private sector.

Most importantly, the IFC’s  work with the private sector translated into 9.69 million metric tons of GHG emissions reductions last year - equal to taking more than 2 million passenger vehicles off the road.  


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Wind Park near Kavarna, Bulgaria.

Ivelina Taushanova/World Bank.

Innovation – the promise of the future

Innovation is the driving force for clean energy, renewables and energy efficiency. Countries need to diversify their sources of energy and – where possible – deploy local power sources rather than using foreign exchange to import fuel.

In some countries, renewable technologies are becoming competitive in energy markets without the need for subsidies or incentives. As power grids evolve, renewables can also be grid-connected, enabling greater private sector investment in renewable energy markets.

IFC is one of the world’s leading private investors in emerging market renewable energy with a robust pipeline in the sector that consistently accounts for two-thirds of IFC’s direct power investments.

IFC invested close to $900 million in renewable energy in fiscal year 2015, of which 30 percent was in wind and 40 percent was in solar.

Another area that holds great promise is green buildings, offering huge potential financial savings by lowering utility costs through efficiency practices.

Last year IFC invested $391 million in green building finance through its own account and through financial intermediaries, bringing IFC’s total green building business to over $1 billion over the last five years.

IFC has also provided support on the regulatory front, working with governments to launch green building codes in Colombia, Indonesia, the Philippines and Vietnam.

Investments in energy efficiency and low-carbon infrastructure have shown outstanding results to date generating important GHG emissions reductions.

This year, IFC’s largest greenhouse gas benefit came from a low-carbon infrastructure project, China Gas, which is estimated to reduce 2.4 million tons of CO2e/year by developing natural gas distribution infrastructure and refilling stations that will reduce polluting coal and other fuels in industrial, residential and transportation use. 

Catalyzing Public Funds to Unlock Private Investment

In cases where IFC identifies high-impact projects that would not attract financing on strictly commercial terms,  blended finance comes into play. It’s a a tool that uses concessional funds from donors to stimulate investments with a strong transformational potential but that may not otherwise happen.

Since 2010, IFC has deployed close to $300 million of concessional funds and catalyzed close to $5 billion in other financing, utilizing finds from the Global Environment Facility, the Climate Investment Funds, and governments such as Canada.

Another effective way to unlock private funds has been the IFC Catalyst Fund, managed by IFC’s Asset Management Company. The fund  has raised close to $418 million from institutional investors and sovereign funds interested in investing in green-growth opportunities.

Green bonds have been another innovative way  to have private sector funds for climate action, with  both the World Bank and IFC issuing bonds, a total of $8.5 billion and $3.8 billion respectively.

Proceed  have been directed to a variety of high-impact projects ranging from infrastructure development, to water and irrigation systems, to sustainable agribusiness, to renewable energy.

And a recent auction to help cut methane emissions demonstrates the quest to try new ways to try and draw in private sector funding.

The Pilot Auction Facility – an innovative World Bank-managed facility developed jointly with IFC that auctions carbon credit price guarantees to private sector companies to cut their methane emissions.

Twenty-eight companies participated in the first auction, held in July, the proceeds of which raised more than $2.5 million and allocated almost 9 million metric tons of carbon dioxide equivalent of put options.

“Looking forward there are several areas where we have already done well but also see opportunities for substantially increasing our portfolio. These include clean energy – renewables as well as utility energy efficiency, telecommunications, sustainable cities, green buildings, waste management, transportation, sustainable agribusiness, and greater industrial efficiencies,” said Christian Grossmann, IFC Director of Climate Change, speaking at a forum organized by GreenInvest – a G20 initiative, as part of the World Bank Group – IMF 2015 Annual Meetings in Lima, Peru.

His comments point to both the challenges and opportunities of the future.



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