International Finance Corporation (IFC), a member of the World Bank Group, is investing approximately $143 million in direct financing, and coordinating approximately $264 million in parallel loans to support the construction of two landmark concentrated solar power (CSP) projects in South Africa. IFC also blended $41.5 million in concessional loans through the Clean Technology Fund (CTF) to reduce the impact of elevated solar power tariffs on electricity prices.
By African Development Bank
Ouarzazate, Morocco is home to what will be, upon completion at 500MW, the largest concentrated solar power (CSP) plant in the world and a major component of the Middle East and North Africa region’s ambitious program to create a 1GW CSP network. Under the auspices of the Moroccan Solar Energy Agency (MASEN), Morocco has worked hard to establish a phased site development plan, with the first 120-160 MW to come on line in 2014 and help Morocco avoid 240,000 tons of CO2 emissions a year—the same as removing 80,000 cars from the road annually. The push for Ouarzazate I has not only achieved financing approval from international financing institutions, including US$197 million from the CIF’s Clean Technology Fund (CTF), but has also produced important lessons that Moroccan officials are sharing across the region and beyond.
The first phase of the Ouarzazate CSP project will develop a parabolic trough plant through a public private partnership (PPP) between MASEN and a private partner.
The first 120-160 MW to come on line by 2014 will help Morocco avoid 240,000 tons of CO2 a year—the same as removing 80,000 cars from the road annually.
Morocco shared its experience in a joint workshop conducted by the African Development Bank and the World Bank
Representatives from solar-focused Botswana, South Africa, and China also attended to offer their experiences in CSP
Morocco experience was front and center at a joint workshophosted by the African Development Bank (AfDB) and the World Bank (WB) in Tunis, Tunisia on 28 June 2012 to share updates on the Middle East and North Africa region CSP scale-up initiative—a program in which Algeria, Egypt, Jordan, Morocco, and Tunisia aim to build a series of nine commercial-scale CSP plants spanning northern Africa and the associated transmission infrastructure in the Maghreb and Mashreq to supply domestic energy and eventual exports to Europe. Representatives from solar-focused Botswana, South Africa, and China also attended to offer their experiences in CSP and gain insight from this south-south learning event.
Lesson: Political buy-in essential to lay groundwork
Mustapha Bakkoury, President of MASEN, described Ouarzazate I as a public private partnership (PPP) between MASEN and a private partner selected through a public competitive tender, and a key component of Morocco’s Solar Plan (2009), which aims to produce 2,000 MW of solar electricity by 2020. He explained the integrated nature of the initiative, which simultaneously addresses the national need for energy security, climate change mitigation, local industry development and related job creation, research and development, and skills development. He stressed the importance of taking time to lay the proper ground work, including institutional and regulatory frameworks, to support the vision. This requires political will at the highest levels of government and concerted coordination across all stakeholders.
Lesson: Concessional financing needed to buy down costs
Mr. Bakkoury noted project structuring and financing remain challenges, a sentiment echoed by all workshop participants who see driving down the high investment cost of CSP as a regional concern and effort. The International Energy Agency also emphasizes that "it is only through technology learning as a result of market place deployment that these costs are reduced and the product adapted to the market." Concessional financing plays a critical role in kick starting this process.
"One way to make these projects more viable, in the context where technology is still expensive, is to make the financing less expensive. Financing like the Clean Technology Fund, which has a significant component that is grant-like, brings the economics and financial viability of projects closer to reality so implementation is feasible and government subsidies are less needed," said Hela Cheikhrouhou, Director of the AfDB’s Energy, Environment and Climate Change Department.
The CTF is backing the Middle East and North Africa region CSP scale-up initiative with a total of US$750 to be implemented by the AfDB and WBG. The program expects to leverage USD$4.8 billion in public and private investments and avoid an estimated 1.7 million tons of CO2 emissions per year from the energy sectors of the countries involved. If the program is successful and replicated, the global benefits would be far larger.
"The stakes are high," says Gevorg Sargsyan, WBG CIF Coordinator. "Donors remain committed to the program despite many austerity measures introduced in their countries, because they see the true transformational impact of the program."
Mr. Ben Mosbah, CEO of Societe Tunisienne de l’Electricite et du Gaz, points out that the timing of investments in CSP, as well as the partnerships between governments, multilaterals and European institutions, has been critical to controlling risks and seizing opportunities as the Middle East and North Africa region unites to address energy security and shifts towards renewable energy and energy efficiency.
Lesson: Technology transfer required for sustained growth
Another key consideration universally emphasized by workshop participants was technology transfer and the need to ensure local CSP industries are established and jobs are created. Beyond the goals of energy security and climate change mitigation, all the countries seek to become CSP industry leaders as a catalyst to green growth.
"Today, Tunisia is faced with serious challenges concerning employment. To develop a local CSP industry, relatively high capacities are required. Even if we start with a medium-size prototype project, what will follow will be an industrialization and a project that can integrate local industry and create needed jobs in Tunisia," explained Belhassen Chiboub, Tunisian Ministry of Energy, Industry, and SMEs.
"If we get the energy sector as a whole working, it feeds into the growth of an economy, which is essential for job creation. And that growth will create the demand, not only demand globally, but demand locally," stated Junaid Ahmed, Director of Sustainable Development, Middle East and North Africa, World Bank.
Representatives from Botswana, South Africa, and China also presented their varied CSP experiences. A key lesson emerging from the shared discussions was that there is no blueprint to follow in designing and implementing CSP initiatives. Rather, different business models should be considered and adapted to the local context.
"Renewable energy holds much promise for Africa," stated Mafalda Duarte, AfDB Chief Climate Change Specialist and CIF Coordinator. "We must bring attention to these projects and encourage the widespread use of renewables like CSP, which holds substantial promise in Africa given its proven solar radiation potential, to increase energy access, green African economies, and deliver on sustainable development."
The workshop will inform an investment plan update being prepared for the Spring 2013 meeting of the CTF Trust Fund Committee. MENA CSP countries will come together again at the Climate Investment Fund (CIF) 2012 Partnership Forum in Istanbul, Turkey in November 2012.
The European Bank for Reconstruction and Development’s Turkey Sustainable Energy Financing Facility (TurSEFF), worth US$280 million, on-lends to businesses and households via five local commercial partner banks. Supported by US$50 million from the Clean Technology Fund (CTF), TurSEFF aids participating banks in developing energy efficiency financing instruments to help sub-borrowers design and implement projects, as well as to increase the awareness of the benefits of sustainable energy investments.
The Clean Technology Fund (CTF) has approved US$105 million to support the government of the Philippines' effort to put more energy efficient electric tricycle taxis—eTrikes—on the roads of Manila to meet growing transportation demands in a cost-conscious and environmentally responsible way. Despite high up-front costs, eTrikes are cheaper to run and maintain, boost drivers’ incomes, and offer safer, more comfortable transport to riders than the 3.5 million motorized trikes that ply the roads of the Philippines, producing 10 million tons of CO2 emissions and using close to US$5 billion of imported fuel annually.
The European Bank for Reconstruction and Development is arranging a financing package of €5.7 million for the development of a 4.5MW solar plant owned by a local company Green Agro Service LLC, which will be located in the Vinnitsya region of south Ukraine. This first ever solar project to be financed by the EBRD in the region is a part of the EBRD Ukraine Sustainable Energy Lending Facility (USELF), an investment facility of €70 million--€50 million from the EBRD and €20 million from the Clean Technology Fund--designed to provide finance to private local enterprises wishing to invest in renewable energy projects in Ukraine.
By International Finance Corporation
Cutting energy costs improves bottom-line benefits. It also fights climate change—tackling the demand for energy, not just the supply.
For as essential as increased use of renewable energy is, it is not the only route to a low-carbon future. A recent World Economic Forum report also called for "wholesale changes in the way energy is distributed, stored, and consumed." Identifying a US$170 billion global market for energy efficiency upgrade projects, the report stressed that "the cheapest source of energy is the energy never used."
Turkey’s industrial energy consumption is more than three times above the OECD average due to a reliance on outdated equipment
US$22 million from the CTF is supporting Turkey’s effort to encourage energy efficiency projects in SME, commercial, residential and municipal sectors
70 percent of Turkey’s energy currently comes from thermal sources, mainly gas and coal
YKL’s SME energy efficiency finance portfolio has grown from US$18.8 million in 2010 to US$200 million today
Turkish equipment manufacturer Toskar has cut energy costs by 20 percent and raised output by 50 percent thanks to systems upgrades financed via YKL
Turkish equipment manufacturer Toskar would agree. It has new systems that have brought energy costs down by 20 percent. As a result, this fast-growing Small and Medium Enterprise’s (SME) output is now 50 percent higher than before.
“In order to be a good firm-a global firm-you have to have machinery like this in your inventory,” says Toskar’s General Manager, Mr. Onur Tosun. He financed his upgrades through Yapi Kredi Leasing (YKL), Turkey’s leading leasing company and beneficiary of financing from the Clean Technology Fund (CTF), a program of the Climate Investment Funds (CIF).
Encourage Financial Institutions to Lend for Energy Efficiency Projects
Support to YKL falls under Turkey’s Commercializing Sustainable Energy Finance Program, which is applying US$22 million from the CTF to encourage local financial institutions to develop lending programs for energy efficiency projects in Turkey’s SME, commercial, residential, and municipal sectors. International Finance Corporation (IFC) is implementing the program in partnership with YKL and complementing CTF funding sources with its own.
In countries such as Russia and China, IFC helps bring multiple local financial institutions into the profitable, high-impact energy efficiency market. The approach is the same in Turkey, whose industrial energy consumption is more than three times above the Organisation for Economic Co-operation and Development (OECD) average due to a reliance on outdated equipment.
In 2008, YKL became the first local Turkish financial institution to partner with IFC in this regard. Looking for a specialized market niche, it too wanted to develop its energy efficiency equipment business. An important resource for local SMEs, YKL is a subsidiary of parent Yapi Kredi Bank, winner of Turkey’s Bank of the Year award in 2011 from The Banker, a Financial Times publication.
Supported by the CTF, IFC provided YKL with a US$50 million line of credit in 2010, when its SME energy efficiency finance portfolio was just US$18.8 million. Today that same portfolio stands at US$200 million.
Half of the US$50 million loan to YKL was designated for sustainable energy financing (both energy efficiency and renewable energy), with U$20 million coming from IFC on commercial terms and US$5 million provided by the CTF at below-market terms. The other half of the loan was allocated for financing in the healthcare sector.
The loan was structured by IFC’s Blended Finance Unit, which blends concessional funds from donor partners, like the CIF, alongside IFC’s own in order to catalyze investments that would not otherwise happen because of barriers preventing such investment.
Address Barriers in Expanding Sustainable Energy Financing
In the case of YKL, the investment addresses barriers the company faces in expanding sustainable energy financing by providing loans with longer maturities than are otherwise available in Turkey. The lack of long-term funding options has traditionally been a critical factor limiting the capacity of financial institutions to fund sustainable energy projects, which are perceived as high-risk investments.
Investment in YKL is expected to address climate change in a range of ways by:
- Supporting energy efficiency investment by SMEs serving Turkey’s commercial and residential sectors
- Improving the competitiveness of the Turkish economy by increasing the energy efficiency of the end-user’s operations and impacting its bottom line profit margins
- Building the capacity of YKL to finance energy efficiency projects
- In addition to energy efficiency, developing renewable energy resources in Turkey, where 70 percent of energy currently comes from thermal sources, mainly gas and coal
- Reducing emissions of greenhouse gases and other conventional pollutants, as well as limiting the country’s dependence on imports of fossil fuels and natural gas
Financial support to YKL will be accompanied by advisory services in the form of training for at least 40 YKL loan, credit, and marketing staff on energy efficiency measures, renewable energy technologies, and IFC eligibility criteria and reporting requirements.
For more information, please contact: Anita Jain, email@example.com, (202) 458-1315
Day 1 (April 30, 2012) Materials
- Strategic Program for Climate Resilience (SPCR) - Dominica
- SPCR - Caribbean Network
- SPCR - Kingdom of Tonga and Pacific Regional Track
- SPCR - Yemen
Day 2 (May 1, 2012) Materials
Day 4 (May 3, 2012) Materials
The Joint Meeting of the CTF and SCF Trust Fund Committees took place on May 1-2, 2012. Discussions focused on the progress made in implementing the Measures to Improve the Operations of the Climate Investment Funds. Specific items under consideration included enhancement of country coordination and stakeholder engagement, a new communications strategy, improving both private and public sector engagement, and refinement of the CIF result frameworks.
In March, the Government of Canada finalized the terms of its new contribution to the Clean Technology Fund (CTF). The CAD 200 million contribution from the Canadian International Development Agency (CIDA) increases the resources available to CTF to approximately USD 5 billion. Canada's participation in CTF comes at a particularly welcome time, as CTF seeks to meet significant unmet demand for funding.