Sustainable Energy Finance Update: MDBs Prioritize Clean, Efficient Energy, Invest in Infrastructure to Expand Electricity Access

energy_update_jun 1 June 2016: During the month of May, many multilateral development banks (MDBs) hosted their annual meetings, at which sustainable energy was often a central theme. The African Development Bank (AfDB), for instance, has placed powering the African continent “on the front burner,” putting it at the top of its priority list.

As outlined by the European Bank for Reconstruction and Development (EBRD), the MDBs are “key players in raising the finance needed to help combat climate change and more broadly to deliver the new Sustainable Development Goals (SDGs) that were universally adopted in 2015.” In particular, with much of the international public sustainable energy finance reported being channeled through MDBs, these Banks are significantly contributing to SDG 7 (Ensure access to affordable, reliable, sustainable and modern energy for all) and, consequently, SDG 13 (Take urgent action to combat climate change and its impacts), as well as the Paris Agreement on climate change that was adopted in December 2015.

MDB Annual Meetings

Themed ‘Energy and Climate Change,’ the 51st Annual Meetings of the AfDB highlighted the Bank’s efforts toward universal, sustainable energy access in Africa, such as its pledge to commit US$12 billion in energy investments over the next five years. At the meeting, held from 23-27 May 2016, in Lusaka, Zambia, a number of energy initiatives, including the Bank’s Lighting Up and Powering Africa priority area, received special attention, along with their intersection with other themes, including sustainable cities, trade and private sector development.

The Meetings followed on the heels of the AfDB Board’s approval of the 2016–2025 Strategy for the New Deal on Energy for Africa on 18 May. According to AfDB, the New Deal will guide its interventions in Africa’s energy sector, with a focus on “increasing energy production, scaling-up energy access, [and] improving affordability, reliability and energy efficiency as well as the sustainability of energy systems.” The Bank emphasizes that the New Deal will not only help Africa achieve SDGs 7 and 13, but also SDG 3 (Ensure healthy lives and promote well-being for all at all ages), SDG 5 (Achieve gender equality and empower all women and girls) and SDG 10 (Reduce inequality within and among countries), as well as countries’ commitments under the Paris Agreement. [AfDB Press Release – New Deal on Energy for Africa] [AfDB Press Release – Kenyan and Rwandan Presidents Endorse New Deal at Annual Meetings] [AfDB Press Release – World Leaders, Business Executives Endorse New Deal at Annual Meetings]

The Caribbean Development Bank (CDB) held its 46th Annual Meeting on 18-19 May 2016, in Montego Bay, Jamaica, featuring a keynote from Rachel Kyte, Chief Executive Officer (CEO) of the UN’s Sustainable Energy for All (SE4All) initiative. Kyte’s speech focused on responding to the SDGs and Paris Agreement, specifically through a just transition to clean energy that also fosters prosperity. At the close of the Annual Meeting, the CDB Governors committed to urgently tackling radical energy sector reforms. The Governors also called for even greater focus on clean, renewable energy. [CDB Press Release – Annual Meeting] [CDB Press Release – SE4All CEO Lecture] [CDB Press Release – Governors’ Commitment]

On 11-12 May in London, UK, EBRD hosted its 25th Annual Meeting and Business Forum, which the Bank made carbon neutral through offsets from the Sena Hydro Power Plant in Turkey. The Bank used the occasion to highlight its role in financing green infrastructure, including sustainable energy projects. An award ceremony honoring EBRD-supported sustainable projects recognized the Burnoye Solar Plant in Kazakhstan as the Sustainable Energy Project of the Year. EBRD signed a mandate letter at the Annual Meeting indicating it will consider lending an additional US$50 million for the second stage of the project, adding 50 megawatts (MW) of capacity. Special events during the Annual Meeting examined sustainability and the Paris Agreement through the lens of renewable energy and energy efficiency finance. [EBRD Press Release – Annual Meeting Carbon Neutral] [EBRD Press Release – Financing Green Infrastructure] [EBRD Press Release – Burnoye Solar Plant] [EBRD Press Release – Sustainability Event] [EBRD Press Release – Paris Agreement]

Financing Facilities Developments

In order to scale the areas of focus highlighted during their meetings, the MDBs continue to innovate in the financial products they offer and to build capacity for their targeted populations to access them. This month, EBRD launched the €60 million REENOVA+ Financing Facility for residential energy efficiency improvements in Croatia. The European Investment Bank (EIB) announced a €62 million credit line for small- and medium-sized enterprises (SMEs) and midcaps to make sustainable investments, including in green energy. And the International Finance Corporation (IFC), with the Government of Canada, is providing a loan package of US$20 million to increase lending to Lebanese businesses to adopt renewable and energy efficient technologies. All of these funding lines employ partner institutions to on-lend in-country. [EBRD Press Release] [EIB Press Release] [IFC Press Release]

In addition, the World Bank’s two inaugural projects of its Scaling Solar programme in Zambia successfully attracted the lowest bid tariffs in Sub-Saharan Africa during the auction held on 27 May. The winning bids, which were selected from tariffs ranging from 6.02¢/kilowatt hour (kWh) to 10.6¢/kWh on the low end, will remain in place for the independent power producers (IPPs) developing the large-scale solar plants for 25 years. To help African stakeholders participate in transactions such as these, AfDB’s African Legal Support Facility (ALSF) published a handbook titled ‘Understanding Power Project Financing.’ Released at the Annual Meetings, the book helps investors, developers and governments navigate the power project process, including financing and negotiation. [IFC Press Release] [AfDB Press Release] [Understanding Power Project Financing]

Energy Access in Africa

Many developments in May related to increasing energy access on the African continent. In addition to hosting the AfDB Annual Meetings and attracting record low solar tariff bids, the Government of Zambia, with technical assistance from AfDB, launched its national SE4All process in May, with a workshop to kick-start the development of its SE4All Action Agenda and Investment Prospectus. Also in Africa and with AfDB’s support, Cameroon announced it had held a similar workshop at the end of April. [AfDB Press Release – Zambia SE4All] [AfDB Press Release – Zambia and Renewable Energy] [AfDB Press Release – Cameroon SE4All (in French)]

The MDBs are also investing in infrastructure to deliver electricity access. AfDB, for example, has set goals of connecting 130 million people to the grid and connecting another 75 million people to off-grid sources. In addition, grid interconnections can increase reliability and affordability as it allows countries or regions to trade electricity.

This month, AfDB and the EU announced their technical collaboration and support for studies related to connecting the electricity grids of Burundi, the Democratic Republic of the Congo, Kenya, Rwanda and Uganda. The World Bank approved loans for grid expansion and reinforcement projects in Uganda (US$100 million) and Ethiopia (US$200 million), and electricity services in the Gambia (US$10 million). In addition, the Climate Investment Funds (CIF) hosted an event in Nairobi, Kenya, on 23-27 May, on scaling up the use of micro and mini grids. [AfDB Press Release] [World Bank Uganda Project Webpage] [World Bank Ethiopia Project Webpage] [World Bank Gambia Project Webpage] [CIF Event Webpage]

Adding Renewable Energy Capacity

In line with the vision of providing sustainable energy for all, several of the banks announced new financing for renewable energy projects in May. For instance, EBRD is supporting the second phase (56 MW) of the Banie wind farm in Poland with a €37 million loan. The World Bank approved a US$625 million loan, a US$120 million co-financing loan and a US$5 million grant from the CIF Clean Technology Fund for 400 MW of rooftop solar in India. It also agreed to provide a US$44 million guarantee to increase private investment in renewable energy and electrification in the Philippines. EIB is providing GBP525 million in financing to a 588 MW offshore wind farm in Scotland. A GBP4 million grant through CDB to Saint Vincent and the Grenadines for geothermal energy development will support exploratory drilling. [EBRD Press Release] [World Bank Press Release] [World Bank India Project Webpage] [World Bank Philippines Project Webpage] [EIB Press Release] [CDB Press Release] [CDB Project Webpage]

Energy Efficiency

Alongside announcements for energy access and renewable energy in May, there were also a number of energy efficiency projects announced. The Inter-American Development Bank (IDB), CDB, Caribbean Community (CARICOM) and US Department of Energy signed an MoU to jointly promote, through technical assistance and funding, not only renewable energy, but also energy efficiency. CDB approved a US$10.6 million project to replace 21,500 streetlights in Saint Lucia with the more efficient light-emitting diodes (LEDs). Similarly, EBRD is financing street rehabilitation, including the switch to LEDs, in Gyumri, Armenia, with a €14.6 million sovereign loan.

In three cities in Kazakhstan, two EBRD loans totaling €11.6 million will go toward improving the efficiency of their district heating. The Nordic Environment Finance Corporation (NEFCO) is also supporting urban energy efficiency through a loan, to be complemented by a grant from the Eastern Europe Energy Efficiency and Environmental Partnership (E5P), for refurbishing buildings in Ivano-Frankivsk, Ukraine. Lastly, a €50 million loan to the manufacturer Gorenje from EIB will be used, in part, to improve the efficiency of domestic appliances. [IDB Press Release] [CDB Press Release] [CDB Press Release – Saint Lucia] [EBRD Press Release – Armenia] [EBRD Press Release – Kazakhstan] [NEFCO Press Release] [EIB Press Release]

IISD RS publishes the Sustainable Energy Finance Update monthly, focusing on announced funding for sustainable energy projects and other sustainable energy finance-related developments from international financial institutions. Climate finance news and developments outside of the sustainable energy sector are included in IISD RS’s monthly Climate Finance Update, available via the Climate Change Policy & Practice portal. [IISD RS Climate Finance Updates]