Description: 

A project to support the installation of at least 20MW of self-supply renewable energy projects in Honduras and reduce GHG emissions by an estimated 800,000 tCO2e over 20 years.

Background:

Honduras’ electricity sector is under stress, with high electricity distribution costs and frequent power outages. Currently, 62 percent of system capacity comes from conventional thermal combustion power plants, making power generation sensitive to international oil price variations.

Honduras has limited access to natural gas, and relies heavily on expensive oil-derived bunker fuel for industrial processing. However, it has ample renewable resources. Biogas has an exploitable potential of 366 million m³/yr. Moreover, the biomass electricity potential is around 361.1 MW (20 percent of existing generating capacity). Mean annual solar irradiance is of 5.2 Wh/m²/day, which could achieve a capacity factor of 18 percent in fixed installations. Theoretical potential for solar PV is estimated at almost 50 times the current electricity production.

Small-scale self-supply RE systems are regarded as the most pervasive, lowest risk and least costly opportunities to mitigate climate change. In Honduras, self-supply projects are already a cost-effective alternative to the grid, made competitive by market price. Self-supply projects also allow private sector companies to have greater financial and operational stability, given the high costs and frequent outages.

Objectives and outputs:

A Guarantee Program will be established to provide risk mitigation instruments (first-loss guarantees mainly, and co-financing resources in cases) for IDB loans and other FIs for self-supply renewable energy projects in Honduras. In 2013, the IDB’s Structured and Corporate Finance (SCF) Department established a USD 50 million SREFF Facility to offer loans ranging from $500,000 to 5,000,000 for investments in EE and self-supply RE projects. However, the loan size, tenors, and security requirements of these investments exceed both local bank and the IDB’s risk tolerances. SREFF aims to provide loans with minimal transaction costs, at sufficiently long tenors without high collateral requirements due to credit enhancements provided by donor guarantees. The IDB will be the anchor investor and attract co-financing investment of at least 50 percent of the total cost of each project. In addition, the IDB facility can provide financing by lending through local FIs, increasing the sustainability of the investments and provide local banks with expertise to finance RE projects.

SREFF also provides investment grade energy studies from top international engineering firms, working with local partners to transfer knowledge to the local workforce. The studies are done with the corporations’ own engineers and maintenance managers. Specifically, eight of these investment grade studies have already been conducted and have demonstrated the economic viability of numerous solar and biogas projects to local companies. These studies provide the knowledge, vision and confidence necessary for companies to make longer-term investment. Furthermore, IDB has developed detailed case studies for projects confidential version, which will increase knowledge of self-supply and small-scale renewable energy technology project performance and costs. The grant will support training and capacity building activities, and additional feasibility studies or legal documentation whose cost pose a barrier for the initial projects. The market potential for biogas, small-scale biomass and solar projects is significant, and the demonstration impact of the SREP and IDB supported projects could lead to significant replication, reaching $100 million or more in investment in similar projects in the near future.

Project Details
Cover Note | Proposed Decision
Approved on December 9, 2014 (Approved Decision)
Approved Amount(s):
USD 5.0 million (first loss guarantees)
USD 500,000 (grant funding)

MDB Project Implementation Services (MPIS)
MPIS Template
Approved on March 26, 2015 (Approved Decision)
Approved amount(s):
USD 428,000 (grant funding)

Comments and Responses:
United States (November 24, 2014)
United Kingdom (November 28, 2014) 
IDB Response to United States and United Kingdom (December 3, 2014)