Read a pdf version of CIFs Monitor 10

SREP expanding

Following the October 2013 agreement to invite countries eligible for SREP funding to submit expressions of interest to join the programme (see CIFs Monitor 9), fourteen new countries were accepted in the June sub-committee meetings: Bangladesh, Benin, Cambodia, Ghana, Haiti, Kiribati, Lesotho, Madagascar, Malawi, Nicaragua, Rwanda, Sierra Leone, Uganda and Zambia.

Prior to the meetings, the UK raised concerns regarding funding for the new countries “given the costs associated, the creation of expectations, and the expected shift to the GCF etc. We would appreciate discussion in the meeting on how any such investment would be future proofed against potential changes in the climate finance architecture.” It also expressed “some concerns regarding the inclusion of very small states with narrow projects, and would welcome discussion on whether such countries could be bundled with others in a regional programme”.

In response and following the meeting discussion, the sub-committee stated that the decision “does not prejudice the discussion of the CIF sunset clause”. It was further agreed that up to $300,000 would be provided to each country for them to work with the MDBs to develop their full investment plans. However, availability of further funds is unclear. The sub-committee recognised “that at present there is not sufficient funding under SREP to finance the projects and programmes that may be proposed in the investment plans but notes its expectation that there will be climate finance available to fund high-quality projects and programmes.” Furthermore, it was agreed that the CIF administrative unit will prepare an independent technical review of each investment plan, including steps for how to make them more effective “in light of the findings of the independent evaluation” (see Introduction).

Allocation of funds

A June update to the March semi-annual operational report noted that the largest share of SREP funding continues to go to geothermal energy, but with an increased share for solar. Over half of the projects are in Africa, just over a third in Asia and the remainder in Latin America. It further noted that expected co-financing had dropped for four out of five investment plans, and that programme implementation on the ground is steady but slower than anticipated. Furthermore, the political situation in some countries has caused delays. The October semi-annual report elaborated further on the delays. On Kenya it noted that some delays referred to “the apparent lack of financing gap based on confirmed resources.” An updated investment plan will be discussed at the November sub-committee meetings.

Furthermore, a proposal for reporting on the enabling environment for promoting energy investment has been launched as a pilot in 17 countries, including 13 SREP countries and four other countries for comparison (Chile, Denmark, India and the US). It has been renamed Readiness for Investment in Sustainable Energy (RISE), with “significant resources … mobilised for global scale-up”. Following a presentation in the June sub-committee meeting the World Bank was invited to present further details on the outcomes, followed by a discussion on next steps, in the November meeting.

Private sector funding

Prior to the June sub-committee meeting three projects were approved for the second round of the SREP private sector set-aside (see CIFs Monitor 9):

• Kenya: Olkaria VI geothermal power plant (AfDB), requested funding $20.5 million
• Kenya: Climate venture facility project (IBRD), requested funding $6.8 million
• Honduras: Self-supply renewable energy guarantee programme (IDB), requested funding $5.5 million

In the meeting it was agreed that the MDBs and the project proponents will prepare a detailed document to be submitted to the sub-committee for funding approval. There was no decision regarding future private sector set aside rounds.

Updates on investment plans

Armenia investment plan

Armenia’s investment plan was originally scheduled for approval in May, however, due to the short notice period and questions raised from donor countries, approval was postponed to the sub-committee meetings in June (see CIFs Monitor 9). In advance of the meeting, the government of Armenia responded to the questions raised, the majority referring to geothermal energy: “Geothermal energy has always been and will continue to be risky. This is precisely the reason why globally, successful geothermal development has systematically required some form of risk sharing with public support at the exploration stages.”

Solomon Islands investment plan

Key donor questions and concerns prior to approval

Switzerland: “As noticed also by the independent expert, the project preparation costs for the solar power development project seem high (1’000’000 USD). At the stage of the project application, such costs will have to be detailed and justified.”

The ADB responded: “The proposed budget ($1 million) is consistent with standard budgets for similar project preparation budgets for similar projects in the Pacific.”

Selected project updates

Maldives: questions on diesel support

Project details

The project will “replace inefficient fossil fuel based power generation grids on the islands” and “transform the existing mini grids through physical investments in renewable energy, energy management and control systems, storage and improvements in distribution networks.” The technical assistance grant is an extension of an earlier grant to “develop the capacity of the Maldives Energy Authority” and “to support development of key regulations, private sector investment and meet key sector objectives.”

Key donor questions and concerns prior to approval

The UK: “Given that the SREP funds are to be on-lent, why is it necessary that SREP provide grant resources to the ADB and why would loan resources not be applicable here?” Furthermore, the document “implies that 20MW of diesel will be replaced, however it is not clear if this is with more diesel.”

Switzerland also asked for clarification on diesel, adding: “How many people will gain access to renewable energy through the programme? In the objectives, only the 4,600 inhabitants of the pilot islands are included. Why?”

On the issue of loans the ADB responded: “To meet co-financing and leverage goals of SREP as well as ADB, the availability of ADF [Asian Development Fund] and SREP grants became instrumental in facilitating cofinancing from European Investment Bank (EIB) and Islamic Development Bank (IsDB). … The government determined that a package of loans (overall concessional in nature) would generate re-flows back to the government that could be utilised for investing in future RE [renewable energy] projects”.

The ADB confirmed that “SREP funds will be used only for the RE investments”, but “financing from ADB’s own ADF funds, EIB and IsDB will be used for supply side efficiency investments including upgrading inefficient diesel generator sets … as well as for distribution grid upgrades to reduce losses.” On the number of beneficiaries: “This number will grow as additional islands are supported under a sector wide programme … in 2015 and 2016 to cover a larger number of islands (up to 160+ outer islands).”