• Henning Wuester, Director – Knowledge,

Policy and Finance Centre, IRENA

• Aleksi Lumijarvi, Programme Officer -

Renewable Energy Finance and Private

Sector Engagement

• Joanne Jungmin Lee, Junior Professional

Associate – Renewable Energy Finance

IRENA 11th Council Side Event

23 May 2016

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Global annual investment in renewable energy in developing and developed countries

To double the share of renewables in the global energy mix, renewable

energy investment needs to be scaled up significantly and rapidly.

Growing investment needs

in developing countries

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Key challenges in unlocking renewable

energy investment from the private sector

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Toolkit to unlock investment in

renewables

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Breaking down the barriers of

accessing capital

Public finance is playing an increasingly more active role in project

initiation and preparation stage, with a growing focus on building local

financing capacity.

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These guarantee instruments can:

• Manage investors’ risk perception and transfer risks;

• Improve access to concessional finance, lending terms and returns;

• Enable a more efficient project development and commissioning process;

• Strengthen government participation and commitment to projects; and

• Mobilise private sector investment.

Versatile guarantee instruments

addressing investment risks

How are these

guarantees utilized

in renewable energy

investments?

IRENA Survey (2014)

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• Use of guarantees for renewables remains limited

• Guarantees favor larger-scale projects (e.g. geothermal and hydro)

• Some public finance institutions are increasingly focusing on

instruments targeting small to medium-scale projects and enterprises

• Political risk insurance is the most common form of support

• Institutions placing priority on renewable energy issue more

guarantees

Utilisation of guarantees in

renewable energy projects

Why guarantees are underutilised

in renewable energy projects

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They can transfer the burden of high hedging costs and extend

loan tenors.

Currency and liquidity risk

mitigation instruments and tools

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They can address resource risk in exploration drilling phase of

geothermal energy projects.

Geothermal risk mitigation

instruments

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Mechanisms for scaling up

investments

There is an increasing interest in applying these mechanisms in

developing countries and for smaller-scale renewable energy projects.

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Case Study: Walney Offshore

Wind Farm (UK)

Actor Success Factor

GovernmentStrong commitment to renewables, production-based incentives

Transparent land leasing process for renewable development

Multilaterals or other financial institutions

7-year debt for refinancing of equity stakes

Developers Creative legal arrangements to mimic a tranched tradable product

Risk mitigation instruments and

structured finance mechanisms

• Contingent equity tranches and

debt service reserve, cash sweep

• Standardised scope of work via

syndicate

• Aggregated financial package

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Case Study: Sarulla Geothermal

Power Project (Indonesia)

Actor Success Factors

GovernmentStrong commitment to renewables, government guarantees, favorable tax treatment and flexible tendering process

Multilaterals or other financial institutions

Political risk insurance

DevelopersContingent equity (liquidity reserve for cost overruns)

Alignment of operator and servicer interests through long-term contracts

Risk mitigation instruments and

structured finance mechanisms

• Government PPA guarantee

• Political risk insurance

• Contingent equity tranche

• Interest rate swap

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Case Study: Aggregated Solar PV

Project (Jordan)

Actor Success Factors

GovernmentStandardised, long-term PPAs and flexible tendering and application processes

Multilaterals or other financial institutions

Standarised templates for contracts

B-lending structure

Developers Ensuring flexibility in standardisation for individual projects

Risk mitigation instruments and

structured finance mechanisms

• Government PPA guarantee

• Political risk insurance

• Standardised tender process

• Project aggregation for financing

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Key findings

The role of policymakers

• Building a predictable and liquid investment environment through

enabling policies

• Strengthening capacity for local financial institutions

The role of public finance

• Shifting focus towards leveraging private investment via risk

mitigation instrument and local currency lending

• Strengthening support for small-scale renewable energy projects

The role of project developers

• Improving the quality of renewable energy projects

• Identifying, assessing and using a portfolio of instruments that range

across project lifecycle

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Five action areas

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Five action areas

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Five action areas

Thank you!

Discussion Questions

• How could IRENA take the agenda forward?

• How can governments use the key findings from

the report?

• What support will governments need in

implementing the recommendations?

• What is the evolving role of public finance and

multilateral development banks?

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