World Bank Group Works to Overcome Challenges in Hydropower Financing
About 1.3 billion people around the world have no access to electricity. The World Bank Group has identified sustainable hydropower as part of the solution to this problem, but the upfront capital costs and long-term commitments required make it difficult for projects to secure financing.
“What we want is to unlock private sector solutions for hydropower development,” said Morgan Landy, Director of Transaction Risk Solutions at IFC, a member of the World Bank Group, speaking at the 2015 World Hydropower Congress held in May in Beijing.
By combining public and private sector support, mobilizing long-term capital, and offering clients risk mitigation instruments, the World Bank Group is helping unlock investments for hydropower development world-wide. This includes a recent $125 million investment in China Three Gorges South Asia, a subsidiary of the China Three Gorges Corporation, for a series of hydro, solar, and wind power projects that will provide electricity to more than 11 million people in Pakistan.
“The World Bank Group is committed to governments in Asia and to the private sector to encourage sustainable hydropower projects. We have worked hard to get to this stage and we should not lose momentum,” said Landy.
About 1,000 participants gathered for the 2015 World Hydropower Congress, including more than a dozen representatives from the World Bank Group. They participated in discussions on hydropower financing options and future investment possibilities, furthering the debate on the sustainability of hydropower in emerging economies and potential private sector involvement.
“Public versus private? Our view is that it’s not either or – it’s both,” said Landy. “Leveraging private companies is key. At IFC, we get responsible companies to invest in the sector while supporting government involvement. But before we begin, we want to get the fundamentals right. This includes environmental and social impacts, which must be addressed."
U Maw Thar Htwe, Deputy Minister of Myanmar’s Ministry of Electric Power, agreed that the success of the country’s hydropower sector will require private sector support. With untapped hydropower potential among the region’s highest, Myanmar is becoming a top investment market. As the Deputy Minister said during his presentation, the government anticipates that sustainable development of hydropower will help the country meet its development goals.
Sustainable development, however, requires companies to proactively manage environmental and social risks upfront. IFC advises companies early on in the project stage on innovative ways to manage the cumulative impacts associated with cascading hydropower in countries including Panama and Turkey and on designing state-of-the-art biodiversity action plans for projects in Costa Rica and Pakistan.
“The earlier we work on a company’s environmental and social management system, the better,” said Pablo Cardinale, Principal Environmental Specialist.
InfraVentures, IFC’s $150 million global infrastructure project development fund, addresses the key constraints to private investment in frontier markets by combining early-stage risk capital and solid project development support for eligible public-private partnerships and private projects.
“Financiers need to be involved as early as possible in the process to build project credibility,” said Raghuveer Sharma, Chief Investment Officer for IFC. “Private sector involvement in hydropower development builds confidence and shortens project development periods.”
With more than 72 hydro investments world-wide, IFC wants to boost the progress of bankable projects in the pipeline. To be selected by InfraVentures, a project must be related to core infrastructure such as hydropower, water, roads, ports, airports, and fiber connectivity. Projects must also meet a number of criteria and be economically viable.
“InfraVentures is working proactively as a co-developer alongside the lead sponsor,” said Jessica Farmer, Principal Investment Officer and Asia Coordinator for InfraVentures, based in New Delhi. “InfraVentures is pulling in resources from the World Bank Group umbrella to improve project sustainability through environmental, political and financial risk mitigation.”
