Environment

Analysis

Scaling Up Renewable Energy Program (SREP)

CIFs Monitor 14

30 November 2016

Solar panels in Rohertek, Bangladesh. Credit: Dominic Chavez, World Bank

Solar panels in Rohertek, Bangladesh. Credit: Dominic Chavez, World Bank

Read a pdf version of CIFs Monitor 14

See below for general information about SREP

 

Funding constraints

Following a discussion on the May joint committee paper, Strategic directions for the Climate Investment Funds (see CIFs Monitor 13), the June SREP sub-committee meeting agreed “on the need to enhance cooperation between the SREP and other entities and mechanisms in the climate finance architecture”, in particular the GCF, including through “improved coordination on a country level”. While recognising that SREP “is still in an early stage of implementation of its investment plans and projects”, the sub-committee expressed concerns over “the delays in project approvals and related disbursements” and encouraged pilot countries, supported by MDBs, “to take measures to expedite implementation.” It asked the CIF Administrative Unit to work with the MDBs and the trustee to prepare a pipeline management policy for SREP. Moreover, the meeting called for further financial support from donor countries for the implementation of the new pilot countries’ investment plans, and asked the pilot countries, in cooperation with the MDBs, “to design and/or adapt investment plans and projects in a manner that enables access to other funding channels, in particular the GCF.”

According to the November SREP operational and results report, the eight per cent decline in value of the GBP between end of May and end of June resulted in a $26.1 million loss in value of unredeemed pledges. Expected funding available for programming was approximately $404 million, however, the remaining pipeline amounts to $555 million plus $43 million in projected administrative costs, leaving a gap of $194 million. Should currency reserves not be needed to address the decline in the value of unredeemed pledges, and the outstanding pledges be received, the gap would decline to approximately $120 million. Assuming all projects in the pipeline would be submitted for funding approval, as of end June there were sufficient resources to support funding commitments until February 2017. New investment plans will be approved regardless of funding availability, however, additional resources will be necessary for the projects to enter the pipeline.

New private sector mechanism

The June sub-committee meeting asked the CIF Administrative Unit to “explore modification to the SREP private sector mechanism to increase the mobilisation of private sector investments in SREP pilot countries.” A paper on a new proposed Enhanced Private Sector Program (EPSP), building on the lessons learned from SREP as well as the CTF’s Dedicated Private Sector Program, will be discussed in the December meeting. One of the aims of the new mechanism is to allow more flexibility to capture market opportunities.

Updates on investment plans

Cambodia investment plan

Investment plan Amount and date approved MDB services Key project documents
Cambodia

 

 

 

 

$30 million request noted (up to $13.5 million in grant)

 

17 June 2016

ADB

 

 

Investment plan
Accelerating solar power through private sector $650,000

(preparation grant)

 

$128,000

(first tranche of $428,000)

 

Solar energy development $650,000

(preparation grant)

 

$214,000

(first tranche of $428,000)

 

Biomass power project

 

$400,000

(preparation grant)

 

$214,000

(first tranche of $428,000)

Key donor questions and concerns prior to approval

UK commented on the investment plan, however, the comments were not publically available at the time of writing.

Selected project updates

Nicaragua: questions on geothermal financial, social and environmental risks

Project name Amount and date approved MDB services Key project documents
Geothermal exploration and transmission improvement program under the PINIC $7.5 million (0.75 million grant, 6.75 million contingent recovery grant)

 

2 August 2016

IDB

 

Decision

Project document

Project details

The project has two components out of which SREP funds the first: “to diversify Nicaragua’s energy matrix by developing additional geothermal capacity through supporting early exploration activities”. The component consists of “feasibility exploration activities at the Cosigüina geothermal field, including drilling of five commercial diameter explorations wells, road infrastructure and a feasibility evaluation report.” The government of Nicaragua and the IDB are also seeking an additional $10 million from the CTF’s Dedicated Private Sector Program for the same component, through a separate submission.

Key donor questions and concerns prior to approval

A number of questions were raised in relation to the project. The Netherlands raised concerns about funds being shifted from the rural energy access component to the geothermal component, with the risk that “the rural energy component would become too marginal to have a meaningful impact on energy access”. IDB responded that they are no longer seeking this reallocation, but that the two components have been separated with the rural energy component due to be approved in 2017.

Switzerland asked about the contingent recovery grant part of the funding: “Please explain why a mechanism had to be constructed in this programme to transfer the SREP (and CTF) resources to Nicaragua in ‘non-reimbursable status’. Who will be responsible for its reimbursement if no private investors can be found or if the resource confirmation is not successful?” IDB in its response pointed to the need “to invest substantial resources under a high level of risk during the exploration stage”, leaving geothermal development “virtually always contingent upon public support … This particularity of geothermal power has led the MDBs to propose innovative ways to use concessional reimbursable resources from the Climate Investment Funds. This means in particular the use of targeted risk mitigation financial instruments such as contingent recovery grants that allow CIF resources to mitigate the resource risk.”

Switzerland raised the significant risks associated with the project “including habitat fragmentation as well as effects on forests, soils and water resources in an area classified as a natural reserve” and asked: “did an independent panel of environmental experts assess the programme with regards to risks vs expected benefits relation.” Moreover, the US asked how IDB plans to address breaches identified in the environmental and social impact assessment (ESIA) for stage 1 and why no ESIA is planned for stage 2. SREP CSO observer Centro Humboldt added a number of further questions regarding social and environmental impacts. They also called for more openness about the consultation process.

The IDB responded that they rely on their own environmental and social safeguards specialists, as well as some independent consultants, but have not set up an independent panel. It clarified that there is no ESIA for stage 2, as it does not introduce additional sub-projects. It further stated that the environmental and social management plan would be made public.

Scaling up Renewable Energy Program in Low Income Countries (SREP) explained

SREP was launched in 2009 and aims to catalyse scaled up investment in renewable energy markets in low-income countries by enabling government support for market creation and private sector implementation.

SREP is piloted in 25 countries and one region. Six countries were selected in 2010: Ethiopia, Honduras, Kenya, the Maldives, Mali and Nepal. All the investment plans of the original pilot countries have been approved and a reserve list for new pilot countries has been agreed, including Tanzania, Liberia, Armenia, Solomon Islands, Vanuatu, Mongolia and Yemen. Tanzania and Liberia’s investment plans were approved in 2013 and Armenia, Solomon Islands and Vanuatu’s plans in 2014. In 2014 a further 14 countries were invited to join SREP as pilot countries: Bangladesh, Benin, Cambodia, Ghana, Haiti, Kiribati, Lesotho, Madagascar, Malawi, Nicaragua, Rwanda, Sierra Leone, Uganda and Zambia. The investment plans for Ghana, Haiti and Nicaragua were approved in May 2015, and the investment plans for Bangladesh, Rwanda, Uganda and Mongolia in November 2015.

As of end October 2016, SREP pledges were worth $716 million. As of end June, a total of $822.2 million had been allocated to 68 projects and programmes including $85.6 million for six projects and programmes under the SREP private sector set-aside. Out of the allocated funds $263.9 million had been approved for 23 projects and programmes.

Donors: Australia, Denmark, Japan, Korea, Netherlands, Norway, Spain, Sweden, Switzerland, UK, US