Making climate-smart infrastructure bankable

There are many drivers of climate change, but few would disagree that energy infrastructure built according to “business-as-usual” standards is a major one. Meeting the lofty goals set at the 2015 Paris Climate Accords requires powering our homes, businesses, and government agencies with a cleaner mix of energy that includes more renewable sources. It also requires promoting standards that encourage energy efficiency—for example, for appliances or building codes—as a low-cost and high-impact way to reduce greenhouse gas (GHG) emissions.

The Global Infrastructure Facility (GIF) is playing a positive role by preparing bankable, climate-smart projects that help countries build low-carbon energy infrastructure and encourage greater energy-efficiency measures. The GIF both drives and leverages private sector investments in climate-smart projects by promoting good governance and standardization in project preparation and has a sizeable portfolio of climate-smart projects in the pipeline.

This is such a high priority that investment in climate-smart infrastructure was a key theme at last month’s GIF Advisory Council meeting. We convened key private sector investors in infrastructure with donor governments and International Financial Institutions (IFIs) to discuss what it would take to drive more private investment towards such projects. The consensus was that private sector investors are interested in projects with climate-friendly credentials, yet those credentials are not enough—projects must still be well-prepared and “bankable.”

The panel on climate-smart infrastructure laid out the roadmap for how IFIs can increase long-term investment in the sector. This involves combining better-prepared projects with well-defined contracts and blending the capital stack, which involves combining different types of capital to cover potential risks that might hinder investment. Another important point agreed by the panelists is the need for better mechanisms for aggregating smaller projects (which are typical in energy-efficient and renewable energy projects).

Unlocking financing through aggregation will drive growth in small-scale and energy efficiency projects, which typically have the least cost and will contribute a large part to reducing GHG emissions and promoting climate-smart infrastructure.

Going strong on climate-smart infrastructure investment

Today, after only three years, the GIF’s portfolio is going strong on climate-smart projects. At present, the GIF is developing 38 projects that are expected to unlock a further $33 billion in total investment, of which potentially $19 billion will be from private sources. Of these, 21 are climate-smart. We highlighted three of these projects during deep-dive sessions at the Advisory Council meeting:

  • In Colombia, the GIF is working alongside the World Bank and Financiera de Desarrollo Nacional (FDN, the national development bank) to support the transition and scale-up of renewable energy and energy efficiency. Renewable energy makes up only one percent of the country’s power capacity. The government is seeking to diversify from its reliance on hydroelectric and thermal generation. GIF support will focus on assisting FDN in developing financial products to both stimulate private investment in utility-scale and aggregate small-scale projects to attract investment. While there is a deep set of best practices for utility-scale investments, the GIF’s value is to help FDN explore innovative models to bring investment to small-scale projects.
  • In Tunisia, the GIF is supporting the Tunisia-Italy Interconnector, or the El-Med Project, which will run a 200-kilometer undersea power cable with a capacity of 600 megawatts under the Mediterranean Sea between Sicily and Tunisia. Once complete, the project will allow a cleaner energy mix to be exported from Europe to Tunisia at competitive rates and secure supply, potentially meeting up to 16 percent of the country’s energy needs. Eventually, the project will also allow Tunisia to export its abundant renewable energy resources back to the European market.
  • Next fiscal year, the GIF is planning to support the World Bank with funding and access to its Advisory Council to lead the development of a credit and risk mitigation facility to target barriers in scaling up the development of renewable energy worldwide through standard project preparation and credit enhancement instruments. The Common Risk Mitigation Mechanism, created under the International Solar Alliance, aims to address risks that are common across emerging markets, such as foreign exchange risk and off-taker credit risk.

The GIF and our partners appreciate the feedback and ideas from our Advisory Council Partners to move these projects forward. We continue to welcome and appreciate ideas and feedback on these and other GIF projects. Please send us an email with your feedback.

Given its strengths and track record, the GIF expects to increase its engagement in climate-smart, energy efficient, and renewable energy projects. To keep updated on these projects and the GIF’s portfolio, please sign up for the GIF Newsletter.

Housed within the World Bank Group, the GIF facilitates the preparation and structuring of complex infrastructure projects, typically through public-private partnerships (PPPs) to enable mobilization of private sector and institutional investor capital in developing countries. Its close relationship with developmental institutions, investors, and governments puts it in a good position to push the climate agenda forward.