Delay in project submissions
In the May trust fund meeting concerns were raised about the significant number of projects scheduled for submission during financial year (FY) 2013 that have not been submitted. It noted the calendar for 2014 and urged the MDBs and countries to submit the proposals within the proposed timeline. It also noted that a number of investment plans have been revised recently, with more expected to be updated or revised in the next six months, and asked for this to be done in a timely manner. To speed up approval of projects, a proposal to strengthen the project pipeline management was discussed and it was agreed to introduce a pipeline for projects in endorsed investment plans.
The committee also noted expressions of interest in joining CTF from Costa Rica, Jordan, Pakistan, Peru and Uruguay. The CIF administrative unit, with assistance from the MDB committee, was tasked to prepare “a paper on a range of approaches and criteria and a transparent process” to guide the committee in decision making on potential new pilot countries (see page 4).
Local currency lending near agreement
In the May meeting, the committee requested the MDBs “to explore options for deploying CTF resources for local currency lending in private sector programmes/projects in a cost efficient manner.” It advised that the paper should include a menu of tools and instruments to mitigate risks and the expected costs, fees and expenses, how these would be borne among the CTF contributors, whether amendments would be necessary to any legal documents, as well as a proposed process for approval. The subsequent August paper proposed that up to $50 million in CTF resources “may be used by MDBs for local currency lending without putting in place foreign exchange risk mitigation measures”. The CTF would bear “residual losses from foreign exchange rate fluctuation”, subject to conditions of the proposed tools outlined in further detail in the proposal. Whilst most donors were positive, due to several questions being raised about the details of the tools, the proposal will be further discussed in the October meeting.
Clean Technology Fund (CTF) explained
The objective of the CTF is to use minimum levels of concessional financing to catalyse investment opportunities that will reduce emissions in the long term. The CTF focuses on financing projects in middle-income and fast-growing developing countries.
The trust fund committee endorsed 13 investment plans in Phase I (2008-2010): Colombia, Egypt, Indonesia, Kazakhstan, Mexico, Morocco, South Africa, Thailand, Turkey, Ukraine, Vietnam, Philippines; and the Middle East and North Africa (MENA) covering Algeria, Egypt, Jordan, Morocco and Tunisia. A further three plans have been endorsed in Phase II (after 2010): Nigeria, India and Chile. Furthermore, expressions of interest to join CTF have been received from Costa Rica, Jordan, Pakistan, Peru and Uruguay.
As of end June, $5.2 billion had been pledged to the CTF, out of which $2.4 billion has been approved for projects and programmes. 16 investment plans had been approved for a total amount of proposed funding of $5.6 billion.
Private sector proposal to be discussed
The proposal for the establishment of a “global private sector programme” (see CIFs Monitor 7) was discussed in the May meeting where several concerns were raised, in particular regarding the suggestion to open up the programme to countries outside the CTF, leading one participant to ask whether a new CIF was being proposed. It was agreed that the proposal would be revised, to be discussed at the October meeting. This includes developing suggested sub-programmes for current CTF countries using $150 million of CTF funds. Issues to be considered include country ownership, governance and project selection criteria.
The subsequent October paper, renaming the proposal Dedicated Private Sector Programs (DPSP), outlines four sub-programmes and requests the committee to choose which ones to develop further:
- “Utility-scale renewable energy” to “catalyse a global funding effort to scale up renewable energy, starting with a focus on utility-scale geothermal energy”;
- “Risk capital to address regulatory risks for renewable energy” that will use “a targeted approach to address risks posed by uncertainties arising from a regulatory regime”;
- “Renewable energy mini-grids and distributed power generation … to leverage private investment to fill financing gaps and to promote the wide-spread development of renewable energy mini-grids to serve rural and under-served off-grid communities”;
- “Climate finance equity investments … to engage institutional and private equity investors to fill financing gaps encountered in climate change mitigation and low-carbon development.”
Extra funding for gender assessments questioned
Proposals to finance consultants to carry out gender assessments of CTF projects being implemented by the EBRD in Kazakhstan, Ukraine and Turkey were circulated by mail in September. The proposed additional funding amounted to $84,000 for Kazakhstan, $56,000 for Ukraine and $160,000 for Turkey. The requests were challenged by Canada, Sweden and Spain who asked the EBRD to withdraw the proposals as the EBRD seems already to have procedures in place for gender mainstreaming in those countries, so it was unclear why they were coming to the CTF for funding. While Germany “appreciated the efforts”, they asked for further details and emphasised that they did not want this to “set a precedent for future projects”, noting that “a gender differentiated approach should be included in all project designs from the beginning.”
Graph 2: CTF funding
CTF projects not attracting carbon finance
The May meeting reviewed two documents on carbon markets, which concluded that carbon market financing only forms a small portion of total CTF project co-financing. According to the papers, “CTF projects are operating in sectors and locations that are able to attract commercial finance but that are not routinely financed in [Clean Development Mechanism] operations.”
Mexico: scrapping energy efficiency project, boosting geothermal
At the committee meeting in May, Mexico put forward a proposal for revision of its investment plan, including reallocation of funds. This included decreasing the CTF allocation for the IFC private sector wind development programme from $30 million to $15.6 million. The proposal also suggested dropping the IFC private sector energy efficiency programme – which has an indicative allocation of $20 million – and reallocating $34.4 million from these programmes to a new IDB project on geothermal exploration risk reduction, scheduled for submission in December. The total CTF allocation remained at $500 million, but the potential for GHG emissions savings fell by almost half.
Germany requested a detailed explanation of the significant decrease of almost $1 billion in co-financing from the IBRD and the IDB, which is to be compensated by a $1.4 billion increase in private co-financing. It also questioned the transformational impact of the geothermal project, given that Mexico is already one of the leading producers of geothermal energy. The MDBs responded that the reduction was due to a number of reasons, including project amendments as well as an original miscalculation in one of the projects. On the geothermal project, the MDBs recognised Mexico’s role and clarified that the project “will be exclusively targeted at private sector projects and developers which are interested in developing geothermal energy projects but are reluctant to incur the extremely high first costs associated with exploration.”
Proposed changes to the investment plan also included an amendment to a private sector energy efficiency programme which was approved in early September. This included expanding the beneficiaries to include financial intermediaries other than commercial banks, and including behind-the-meter small-scale renewable energy as an additional eligible technology. In addition, $2 million of the funds were reallocated to the IDB FIRA (Fideicomisos Instituidos en Relación con la Agricultura, a group of agriculture related trust funds managed by Mexico’s central bank) green line project.
Furthermore, Mexico has put forward a request for $300 million in additional financing for a phase II investment plan including new areas on cogeneration, electricity generation from forest residues and vehicle substitution, which will be discussed in the October committee meeting.
Vietnam: shifting resources from private sector to urban transport, grid efficiency
Vietnam’s revised investment plan was approved in mid-October. The revised plan included dropping the $50 million ADB industrial energy efficiency project, to be reallocated to the urban transport programme, and decreasing the IFC private sector financing programme from $70 million to $8.6 million, with $60.4 million going to a new ADB grid efficiency project and $1 million for a new component on monitoring and evaluation. The UK noted the diversion of funds away from the private sector programme and asked that “the figures for private leverage associated with CTF investment plans be amended so that expected results from the CTF are as accurate and transparent as possible.” Germany broadly welcomed the revisions, but asked Vietnam to “explore opportunities for integrating a gender sensitive approach.”
Prior to this, a $49 million ADB urban metro project was approved in September. The UK raised a number of questions, including proposed actions to deal with the identified “increased risk of HIV/AIDS with the influx of construction workers for the project” and the need for an adequate budget for relocation of 65 businesses affected by the project. It also questioned whether the more user friendly metro line would in fact provide a lower carbon alternative means of transport, since the freed up road capacity is likely to “simply be taken by traffic that cannot currently fit on the road network.” ADB responded that “HIV/AIDS awareness and preventive guidance” will be included in contracts. It also confirmed that a resettlement plan according to ADB safeguards is in place and that “no delays are expected due to land acquisition”. The ADB acknowledged that it had attempted to analyse the impact of the freed up road capacity, even though “consideration of rebound effects are not required under the CTF guidance”, concluding that any induced traffic was likely to be offset by smoother traffic.
Colombia: questions raised over carbon savings
Colombia’s revised investment plan was approved in the May committee meeting. The amendments included an increase of $1 million for an IBRD urban transport system programme, a decrease of $200,000 million for IDB, $10.8 million for the IFC for an energy efficiency programme, and the addition of $10 million for the IDB renewable energy programme. The total CTF funding remains at $150 million, but with less than half of the previous estimate of reduction in GHG emissions. Furthermore, amendments to an IDB and IFC sustainable energy finance programme were approved, including modification of scope to go beyond commercial banks and also include other financial intermediaries, such as investment funds. Planned IFC funding of $4.6 million for investment, and $50,000 for project implementation and supervision, were cancelled.
In late June, $200,000 in grants was approved by mail for an IDB project to promote the use of energy efficient technologies among small and medium enterprises, together with $10,000 in project implementation and supervision services. Moreover, in late July $40 million was approved for an IDB project on technological transformation for Bogota’s Integrated Public Transport System (SITP). Prior to approval both UK and Germany raised a number of questions, including on the accuracy of the estimated GHG reductions. The UK pointed out that the “carbon savings seems quite high” and contradictory to other related documents. The UK also questioned the cost-effectiveness assessment in several submissions, which led to an agenda item to discuss this topic further at the October meetings. It asked the IDB “to continue to ensure that the development outcomes are delivered, and that they look to improve these where possible, for example by ensuring that the buses support the mobility of women in Bogota, or supporting the most vulnerable people to access markets and jobs.”
Questions were also raised by CSO observer World Resources Institute, including on how the project calculated the estimated emissions directly attributable to CTF financing and how development impact was going to be ensured as many of the expected benefits depended on how the SITP as a whole was going to be implemented. It also raised several other requests, including that “the project should be able to demonstrate to [trust fund committee] members how stakeholder consultations, especially with public transport users, have taken place.” This issue was also raised by Germany, noting that the proposal “does not provide sufficient information on how/whether stakeholder consultations with both bus operators/drivers and users were conducted”. The IDB responded that “carbon savings are presented in the different formats required for the IDB and the CTF”. On user consultations it confirmed that SITP has been presented or the system design shown to a number of groups and that “user opinions have been incorporated in the system design and in key elements”.
India: hydropower projects challenged
A project to finance construction of state transmission infrastructure to be used for renewable energy from private sector projects in Rajasthan was approved by mail in July, with $198 million in loans and $2 million in grants, together with $95,000 for ADB project implementation and supervision services. Australia raised concerns about alternative uses for the proposed transmission line: “We would appreciate consideration of what fossil fuel potential exists in the Rajasthan region, and at what scale of investment this could be undesirably incentivised by this transmission infrastructure. Indeed, it would be a perverse outcome if CTF funding was invested in a transmission line that generated greater fossil fuel investment than renewable energy investment.” ADB responded that “project developers in theory can set up fossil fuel power generation projects” but that a review of Rajasthan’s electricity plan has indicated “low probability for fossil fuel generation capacity addition to significantly increase utilisation of the infrastructure built under the investment programme.”
The World Bank $100 million development policy loan (DPL) project to promote “green growth” and sustainable development in Himachal Pradesh (HP) (see CIFs Monitor 7) was discussed by mail, but approval has been postponed. Germany and France noted that the focus on sustainable development goals could make it difficult to assess the results of the DPL. Furthermore, since the proposal notes the fast pace in hydropower developments in HP in comparison to the rest of the country, “there appears to be little reason to believe that the mere speeding up/modification of (already conducive) permitting and commissioning procedures will trigger any major transformational impact”. In a September response, the Bank conceded that “India’s power generation continues to be coal dominated despite environmental concerns … any measure that obviates coal based generation and promotes cleaner form of energy is of immense importance”. It argued that “India’s march towards a low carbon economy will never be possible without up scaling hydropower in HP” and that the project will have “catalytic impact since HP does become a role model for other states and has significant hydro potential.”
In a follow up comment in early October the UK wrote “we still have some questions around the implementation potential and how the projects calculate results where renewable energy deployment may not be additional but is instead brought forward by a few years”. It noted conflicting information on carbon savings and that it is “unclear how the private sector leverage has been calculated”. While it supported the local benefit scheme included, it noted that “it would be useful to understand how the developers or authorities will engage with the affected communities to ensure that local groups are educated about the developments, as well as being compensated.” Furthermore: “Have the changes in precipitation and glacial melt water due to climate change mentioned in the proposal been factored into the long term productivity/economics of the proposals? The lifetime of the scheme is so long that the climatic impacts become relevant.” Brazil agreed that “run-of-river hydropower is on a number of cases the best approach, but building dams is also convenient in many cases” and asked for both models to be considered, however, France raised the risk of dams, “as large reservoirs are known to generate GHG emissions.” The IBRD clarified that the DPL will not directly support hydropower, but aims to create “an enabling environment through transformational policy shifts”, and confirmed that most hydropower projects are run of the river.
Ukraine: revised plan approved
Ukraine’s revised investment plan was discussed in the May committee meeting, including the cancellation of the zero emissions power from gas network project, with $100 million funds reallocated to the three other projects in the plan. The committee noted the request for $350 million in CTF funds to support the plan. Comments on the revisions included a request from Germany to amend the “residual risk” for “sector policies and institutions” from “moderate” to “high”, and add language “on severe administrative and legislative hurdles to wind projects in the Ukraine, that have to be tackled”. The EBRD responded that they agreed with the revision of the risk level, however, they suggested alternative language as they were “not in agreement that the issues are as severe as painted by the German comments”. After amendments, the final revised investment plan was approved in early August.
Furthermore, €19.5 million ($26.6 million) to the IFC for administration of a private sector programme was approved in late May, together with provisional approval, contingent on the approval of the revised investment plan, of €19 million ($26 million) in loans and $200,000 in grants for the IFC and €11.5 million ($15.7 million) in loans and $100,000 in grants for the EBRD for advisory services and knowledge management. In addition, $500,000 for the IFC and $170,000 for the EBRD were approved for project implementation and supervision services.
Indonesia: geothermal project approved
In October, $149 million was approved for a private sector geothermal energy programme, together with $750,000 for ADB project implementation and supervision services. The programme will deploy financial products for “multiple private sector geothermal projects … which face common development and financing barriers”. The US raised concerns that “the geothermal industry in Indonesia has been struggling despite significant theoretical potential, in large part because of a complicated and fragmented institutional framework”. The US also emphasised the importance of ensuring “that institutional problems do not inhibit the gains from potential renewed private sector interest in geothermal.” Germany welcomed the project, but urged the “ADB to strictly implement its environmental safeguards procedures”. Civil society groups have earlier raised concerns about the focus on geothermal energy in Indonesia’s investment plan (see CIFs Monitor 7).
MENA: allocations modified, energy export still an option
The revised country investment plan for the MENA region was approved at the committee meeting in May. The amendments included a confirmation that Algeria will not request CTF funding. Furthermore, it proposed an increase of Egypt’s allocation from $95 million to $123 million, a decrease of Jordan’s allocation from $112 million to $50 million, an increase of Morocco’s allocation from $197 million to $415 million (including already approved project funding), a decrease of Tunisia’s allocation from $186 million to $62 million, and the addition of a technical assistance component of $10 million. The sub-committee agreed to release the outstanding $90 million to become available for other CTF projects in the pipeline.
Following the meeting, Germany submitted comments, including a reiteration that they “still aim to develop a joint project in Morocco, exporting electricity from renewable sources to Europe through existing interconnections between Morocco and Spain”, and welcomed “the pragmatic approach of not losing sight of the option to export electricity to Europe, while promoting that in the short term, projects should produce electricity primarily for local markets.” The UK asked for clarification “on whether carbon markets will be used to finance for these projects”.
Philippines: small hydropower approved
A $44 million IBRD project “to help finance renewable energy projects that are less likely to obtain commercial financing – especially in the small hydro sector – while also supporting supply-side energy efficiency in the rural electricity sector” was approved by mail in early August. Prior to the decision the US asked: “How likely is it that the sub-projects will have category A classification [with the highest environmental and social risks] IBRD responded that “at the moment we have no cat ‘A’ projects, and we do not think we will ever have too many that come up, partially because these by their nature will in most cases be more costly, and the project is very focused on financing of least-cost generation projects.” Furthermore, both UK and Germany questioned the calculation of GHG reductions, which according to Germany should be “significantly below” the current estimate. While the IBRD defended the assumptions behind its calculation, it agreed to also include calculations based on different assumptions.
Chile: shifts from solar to geothermal
A proposal to reallocate $33 million from a solar project to a new IDB and IBRD programme on geothermal risk mitigation in Chile’s 2012 investment plan was approved by mail in early October. The revisions were proposed after a new regulation came into force in early 2013, streamlining geothermal project concessions and providing “developers with long-term certainty over development rights to tap into Chile’s geothermal resource potential.” The project aims to “catalyse investments in geothermal energy using risk transfer mechanisms that reduce exploration and development costs and risks, and mobilise private capital to ensure sustainable, long term growth.” While Germany recognised Chile’s “huge but untapped geothermal potential”, it also noted the risks and asked for “an in-depth assessment” of the programme at a later stage.
Egypt: urban transport infrastructure project approved
A $1 million preparation grant for an urban transport infrastructure project was approved in early August, together with $50,000 for IBRD implementation and supervision services. Germany asked for further information on several details in the financing plans, while Japan noted overlaps with past projects that should be clarified. The UK also questioned the financial details, and asked that the preparation work should also look at identifying and quantifying emissions savings.
Turkey: energy efficiency project approved
Stage 2 funding (see CIFs Monitor 7) for a credit line project for residential energy efficiency was approved in late May, with $37 million in loans and $2 million in grants. Furthermore, $205,000 was approved for EBRD implementation and supervision services. Approval of subsequent tranches of up to $70 million was delegated to the MDB committee.
Kazakhstan: reallocation among MDBs
A revision to the 2010 investment plan was agreed at the May sub-committee meetings. This included reallocating $21 million from a renewable energy development programme from the EBRD to the IFC, increasing a municipal energy efficiency and district heating modernisation programme with $21 million and bringing the ADB on board as an implementing agency. It also meant dropping the $21 million IFC programme on energy efficiency financing through financial intermediaries. The changes did not have any impact on the overall $200 million budget.