Developing countries have a clear need to power economic growth with the additional need to diversify generating sources and where possible, deploy indigenous power rather than using foreign exchange to import fuel.
Given the massive needs of the power sector, the World Bank Group approach is to:
Facilitate access to modern fuels and electricity;
Reduce the cost and improving the quality of energy supply;
Promote clean technologies
Within the World Bank Group, the IFC:
Responds to investor and country demands for help in their transition to lower carbon intensity;
Integrates development objectives and climate change challenges;
Leverages investments in renewable energy and energy efficiency (EE/RE) and carbon finance by a factor of 3 through partnerships – including with local financial institutions.
Investments in Renewable Energy
Solar, wind and other forms of renewable energy pose great opportunities for private investors in emerging markets – if capital can be raised and risks overcome. IFC has a commitment to clean energy investments, which include renewable generation and the switch from dirty to clean sources of energy. Per graph below, IFC investment in clean energy is almost $1.2 billion in FY11.
At IFC, renewable energy investments increased >10x (from $72m in 2005 to $827 m in 2011). Mobilization has been an increasingly important part of our business: IFC mobilized $1.7 billion in B-loans and other parallel loans in FY 2011. We have been developing locally based teams with market expertise and diversifying technology portfolio from hydro and wind to include geothermal, solar, and biomass. In-house technical expertise allows us to better appraise investments in new and emerging technologies and prototypes. Investments through financial intermediaries (e.g. private equity funds, holding companies) are an increasing share of our business and allow us to support smaller companies and projects.
Over the last 5 years, IFC has put a strong emphasis on supporting renewable energy projects: 40% of IFC's current power portfolio (in MW of generation capacity) is in the form of renewable energy, compared to 23% for the world. IFC has been a pioneer in supporting hydro power, which is by far the largest source of renewable energy (20% of global power capacity) and has recently become more involved in the biomass energy sectors in India and Brazil. As more developing countries begin to create the enabling environments for supporting other forms of renewable energy, IFC is playing a key catalytic role.
Investment portfolio includes:
Hydro: IFC has made over 40 hydro investments totaling more than 4,500 MW of capacity.
Geothermal: IFC participated in the IPO of a partially privatized vertically integrated geothermal company with subsequent corporate loans in the Philippines (in addition to Guatemala and Nicaragua). 2,668 MW supported.
Wind: IFC has made 15 wind investments totaling more than 1,200 MW of capacity.
Solar: IFC has made 9 solar generation investments in Thailand, Philippines, India and China totaling 352 MW of capacity.
Biomass: 27 MW of capacity addition in small scale rural areas of India.
Sustainable Energy Finance
Local financial institutions have the capacity to channel IFC funding for clean energy investments to smaller clients that IFC cannot reach directly. IFC's approach combines financing with targeted advisory programs and supports the business growth of our FI clients by helping them to expand their portfolios and enter new market segments.
Investment products include customized credit lines for energy efficiency upgrades and clean technology investments, and mezzanine finance for smaller renewable energy projects. Advisory interventions include technical capacity building for local FI's to help them identify and develop sustainable energy projects, and awareness raising and pipeline development support to local market players such as energy service companies, equipment vendors, consultants and government regulators.
In fiscal year 2010, renewable energy projects accounted for US$ 220.6 million.
Clean Energy Advisory
IFC's Sustainable Business Advisory Services in Clean Energy aims to increase investments into clean energy in order to reduce greenhouse gas emissions and provide access to energy for the poor. Clean Energy focuses on removing barriers to investments in renewable energy technologies and demonstrating how such investments can be profitable and sustainable. They open up markets for solar, geothermal, small hydro, biomass and distributed generation technologies.
IFC seeks to tap into underdeveloped market opportunities that are hampered by:
1) information asymmetry,
2) lack of proven business models and the capacity to implement them,
3) high first-mover costs,
4) lack of financing for company growth, and
5) regulatory constraints to achieving greater reach.
To address these barriers to market growth and catalyze investments, IFC works with:
Firms: By partnering with leading firms (e.g. renewable energy project developers) to pilot new business models and financing structures
Sectors: By providing services based on lessons learned from other projects (e.g. developing standards, providing market intelligence)
Governments: By offering advice based on results of firm and sector level projects (e.g. on how to improve regulatory environments)
Lighting Africa, a joint IFC and World Bank program, is developing commercial offgrid lighting markets in Sub-Saharan Africa as part of the World Bank Group’s wider efforts to improve access to energy. Lighting Africa is mobilizing the private sector to build sustainable markets to provide safe, affordable, and modern off-grid lighting to 2.5 million people in Africa by 2012 and to 250 million people by 2030. Project activities include direct business development support for leading companies (firm level); provision of market intelligence, development of product standard and facilitation of access to finance (sector level); and policy and regulatory reforms (government level).