• Feature Story
  • |
  • Nov 09, 2016

No Risk, No Reward

CIF Action 

“Investing in sustainable infrastructure is key to tackling the three central challenges facing the global community: reigniting growth, delivering on the Sustainable Development Goals, and reducing climate risk in line with the Paris Agreement.” Global Commission on the Economy and Climate

With such a high-level of ambition – there will be more investments made in infrastructure over the next 15 years than in all of history – public money will not be sufficient. It is, however, necessary given that it can help unlock private investment.

CIF Event at COP22​: Monday, November 14, 10-11.30am, Salle 2, Africa Pavilion (Blue Zone)
The session, co-organized with the African Development Bank, will explore the role of
de-risking investment in realizing groundbreaking renewable energy projects in Morocco and Sub-Saharan Africa

If you want to build something, then you need to build things.  And if the world wants to build low-carbon, climate-resilient economies, research from Brookings shows that $90 trillion of investment is needed to build public transport, energy, buildings, water supply and sanitation systems that are fit for the future.

Infrastructure investment is vital to economies.  It aids trade and makes countries more competitive.  It strengthens local communities and improves the quality of life for the many, not just the few.  And as a recent report by the Global Commission on the Economy and Climate, states: “Investing in sustainable infrastructure is key to tackling the three central challenges facing the global community: reigniting growth, delivering on the Sustainable Development Goals, and reducing climate risk in line with the Paris Agreement.” 

With such a high-level of ambition – there will be more investments made in infrastructure over the next 15 years than in all of history – public money will not be sufficient.  It is, however, necessary given that it can help unlock private investment.

Unfortunately, in many developing countries, private sector financing for infrastructure projects still entails significant barriers and uncertain returns. This is where concessional financing, also known as de-risking financing, comes in to enable investment in projects that have real, positive impacts on people's lives—for example roof-top solar energy, flood-proof roads and bridges, reforestation.

The Climate Investment Funds (CIF) provides this kind of long-term financing, which is essential to unlock climate-smart investments deemed too risky for private investors and even in some cases for multilateral development banks. Provided at below-market rate, it is especially needed at the early project preparation and construction phases of projects, where risks are highest and capital most costly and scarce.

For example, in Morocco, about US$435 million of CIF funds have been invested in the Noor project, which will provide clean energy to 1.1 million households. 

It is estimated that the plant will achieve over 500 megawatts (MW) installed capacity, reduce Morocco’s energy dependence by about two and a half million tons of oil, while also lowering carbon emissions by 760,000 tons per year.  And independent analysis has shown that the cost of CSP decreased by 25 to 35 percent thanks to the low-cost debt enabled by CIF’s concessional financing.

In Kenya, a top government priority is to improve access to affordable energy.  Approximately 65 percent of Kenyans do not have access to basic energy services, and existing energy supply is heavily dependent on hydroelectric power.  To meet growing energy demand, Kenya is increasingly turning to other renewable energy solutions, particularly geothermal. 

Kenya's Menengai Geothermal Project will generate electricity equivalent
to consumption needs of around 185,000 households

The CIF is supporting this effort by helping to remove investment barriers, such as exploration and drilling risks, to establish a strong basis for private sector participation in Kenya’s emerging geothermal energy market.  This concessional financing has been instrumental in unlocking the potential of geothermal. 

And in South Africa, the 100 MW Sere Wind Farm is one of the largest wind farm projects in Africa and the first commercial utility-scale renewable energy project of the national utility Eskom. It will save nearly 6 million tons of greenhouse gas emissions over its 20-year expected operating life. Average annual energy production is estimated at about 298,000 megawatt hours (MWh), enough to supply about 68,000 standard homes.

South Africa's Sere Wind Farm has already achieved its
full commercial operational capacity of a 100 MW

The development of Sere Wind Farm is part of South Africa’s efforts to diversify its energy mix to reduce reliance on coal. A total of $100 million in concessional funds from CTF channeled through the AfDB and World Bank were essential to bridge the cost gap relative to coal power generation and in providing the positive incentives required for Eskom and its lenders to proceed with the investment.

The CIF will be discussing these examples – and many more – this Monday at COP 22 in Marrakech. The session will be moderated by Mafalda Duarte, Head of the Climate Investment Funds. Invited panelists include:

  • South Africa: Dr. Edna Molewa, Minister of Environment
  • Kenya: Mr. Charles Keter, Minister of Energy and Petroleum
  • Germany: Thomas Silberhorn, Parliamentary State Secretary, Ministry of Economic Cooperation and Development
  • World Bank Group: Ms. Laura Tuck, Vice-President Sustainable Development
  • MASEN: Mr. Mustapha Bakkoury, President, MASEN, Morocco
  • African Development Bank: Mr. Alex Rugamba, Director, Energy, Environment and Climate Change Department