Mobilising private finance in
emerging economies
- the UK approach
LCEDN Workshop
25 June 2013
UK’s International Climate Fund
• £2.9 billion 2011- 2015
• Split between adaptation (c.50%), low carbon development
(c.30%) and forests (c.20%)
• Delivering transformational change
• Priorities:
– Demonstrate that building low carbon, climate resilient growth
at scale is feasible and desirable
– Support the international climate negotiations, particularly
through supporting adaptation in poor countries and building
an effective international architecture
– Drive innovation and new ideas for action, and create new
partnerships with the private sector to support low
carbon climate resilient growth
– Results and measurement – MW, private finance £, CO2,
jobs etc Importance of evaluations
UK approach to mobilising private finance
Reduce cost and raise returns
Reduce actual and perceived risk
Develop enabling environments, build capacity
Considerations in designing programmes:
• Additionality
• Target market failure
• Careful use of subsidy
• Sustainability & exit
• Risk appetite
• Priority countries
UK approach to mobilising private finance
Private sector is not homogenous
Pension funds behave quite differently to angel investors or
project finance debt in infrastructure
UK Government must be more hands off further along the
development cycle or where institutional finance. Can be more
involved with start up finance.
Maximise expertise so focus on energy, not agriculture
Consultation with business via CMCI and DFID focus groups
Spread of programmes
UK project – Climate Public Private
Partnership “CP3”
Two new commercially run private equity funds that
will make investments in to climate friendly sub-funds and
projects in developing countries. UK “hands off” approach.
Aims
• Drive new types of private money into climate
investments e.g. pension funds, SWFs
• Speed up the development of private equity market in
climate change/climate friendly projects
• Show climate investments are profitable by building
network of sub-funds with good investment track
records
UK project – CP3
UK investment of £110 million + circa £11m technical
assistance
IFC Catalyst Fund
CP3 Asia
IFC AMC as fund managers
CFIG + Asian Development Bank as
fund managers
Global focus
Asia only
70% sub funds (with a focus on first
time fund managers)
70-80% direct investments
20% sub funds
First close: USD $281.5 million
(UK $80, IFC $75 , Azerbaijan $50,
Canada $76.5) Second close later
Larger fund
Get Fit Uganda
Multi-donor project (UK contribution of £20 million plus),
providing top up grant to renewables Feed in Tariff,
support to regulator, use of World Bank Guarantees
1MW to 20MW plants– bagasse, hydro, biogas etc
Aims
• Demonstrate to private sector developers that
investment in renewable energy in countries like Uganda
is financially attractive
• Demonstrate to Ugandan and regional governments that
incentivising investment in renewable energy can
mobilise private sector investment.
UK project – Green Africa Power
New Private Infrastructure Development Group (PIDG)
facility
Aim: to demonstrate the commercial and technical
feasibility of larger renewable energy projects in Africa
5 – 200MW projects All renewable technologies
75% to the poorer countries in Africa
Uses patient (up to 15 year) capital, subordinated to
other lenders but above equity (Debt equity hybrid)
UK - minigrids (in development)
Off grid infrastructure.
Mini grids in Tanzania and Kenya
Financing support – guarantees, loans etc for
developers
Technical support for development of
regulations e.g. tariffs.
Supporting innovation
Prizes versus Challenge Funds
Prizes – specific problem
Will be launching later in year/early 2014.
Tender out now for consultancy.
Challenge Funds – themes with merit based award
Examples – REACT, EEP, IDEAS
Climate Innovation Centres
. Hubs in Kenya, Vietnam, Ethiopia
Getting innovations to market and to
scale
Results Based Financing
Off grid market. Projects which are close to financial
viability.
Uses demand led concepts from vaccines – agree to pay
top up subsidy for results.
Flexible Fund – in progress
Recognises “valley of death” after the challenge fund/initial
grant before the VCs will come in.
Working capital loans, grants, equity – i.e. “flexible”
Forestry fund (in preparation)
Working with supply chains
Top ups for non viable activities and shifting from
greenfield to brownfield
Equity investments to propel sustainability
Demonstration effect
Suggestions for future focus
 Policy risk – UK work
 Readiness activity - to develop the policy and
regulatory environments in developing countries
e.g. Climatescope, India smart grids etc
 Local finance
 Cities
 Adaptation
More information?
 UK Government Web site
Enter “International Climate Fund”
Also “Funding and partnerships with businesses in
the UK and developing countries”
 Sign up for DFID Low carbon newsletter
(includes information about other donor projects)
and to join contacts list
Email – a-bobin@dfid.gov.uk or gwarrander@dfid.gov.uk