In recent years, many developing countries have established supportive regulatory frameworks for private investment in renewable energy projects. However, finance for these projects remains a challenge: Projects can fail or face severe delays due to lack of expertise and prolonged negotiations with financiers; because renewable energy projects involve high amounts of capital expenditure, debt costs at construction can have a disproportionate effect on their financial viability; and finally, attracting new investors remains a challenge.
Climate Investor One will facilitate early-stage development, construction financing, and refinancing to fast-track renewable energy projects in developing countries.
Climate Investor One, proposed by the Netherlands Development Finance Company FMO, addresses these challenges by combining three innovative investment facilities into one to finance projects in the wind, solar and hydro sectors.
Climate Investor One supports these projects through several stages of a projects’ life to ensure projects get off the ground and attract new investors. It provides technical, environmental and social due diligence support at an early-stage. It then cuts out complex negotiations with multiple providers by financing a large part of construction costs with equity, removing the need for more costly debt finance. Finally, Climate Investor One will unlock new capital through a pooled refinance fund that may be appealing to institutional investors.
In a pilot, Climate Investor One would finance nine projects to deploy 300 MW of renewable energy capacity and reduce 600ktCO2 emission per year. Due to the combination of the financing facilities, these projects would be built for 7-21% less capital than a typical project, a significant reduction in costs, with clean energy provided at 9-18% lower cost to consumers in developing countries.
For pilot implementation, Climate Investor One requires USD 150 million in donor capital from governments – a one-off investment that can facilitate additional replication and scale-up. This will help to mobilize USD 2 billion of new private or commercial rate capital within and outside Climate Investor One.
The pilot is being taken forward by FMO, the Netherlands Development Finance Company, in partnership with Phoenix Infraworks from South Africa. FMO is exploring partnerships with guarantors and investors. The Dutch government has committed EUR 7 million to Climate Investor One, the UK government committed 50 million pounds, and FMO is also interested in investing up to USD 75 million from its own balance sheet.
Climate Investor One will mobilize at least USD 2 billion in new private finance out to 2020, while lowering the cost of clean electricity to consumers in developing countries.