Enabling Characteristics Exist to service the public good
• At times able to accept low- or below-market returns
Access to high volumes of stable, long-term finance
• International capital markets; household savings
• Concessional finance with limited use of public subsidies
Holistic approaches
• Market developers and instrument pioneers
• Influence regulatory frameworks
Public Finance Institutions and
the low-carbon energy transition
CDC Climat Research is the French Caisse des Dépôts’ think-tank dedicated to help public and private decision-makers to improve the way in which they understand,
anticipate, and encourage the use of economic and financial resources aimed at promoting the transition to a low-carbon economy.
Contact : [email protected]
www.cdcclimat.com
Mapping and Stocktaking
Public finance institutions (PFIs) – are publicly created
and/or mandated financial institutions that have often
been established to correct for the lack of market-based
finance through the provision of missing financial
services – have a role to play to scale up private
sector investments.
Key questions of study: •Why public finance institutions are relevant institutions for the
low-carbon transition? How can they address existing barriers to
private sector investment?
•What are the specific mandates of the institutions? What
climate-specific activities are these institutions involved in?
•What are the financial instruments used by each institution?
•How do those institutions mainstream climate concerns across
their portfolio?
Three Principal Roles in project finance
Ian Cochran (CDC Climat), Virginie Marchal (OCED) Romain Hubert
(CDC Climat), Robert Youngman (OECD)
Abstract
Public financial institutions (PFIs) are well-positioned to act as a key leverage point for governments’ efforts to mobilise private investment in low-carbon
projects and infrastructure. The study identifies the tools, instruments and approaches used by five PFIs to directly support and scale-up domestic
private sector investment in sustainable transport, energy-efficiency and renewable energy in OECD countries. Between 2010-2012, these five
institutions – Group Caisse des Dépôts in France, KfW Bankengruppe in Germany, the UK Green Investment Bank, the European Investment
Bank, and the European Bank for Reconstruction and Development – have provided over 100 billion euros of equity investment and financing for
energy efficiency, renewable energy and sustainable transport projects. They use both traditional and innovative approaches to link low-carbon projects
with finance through enhancing access to capital; facilitating risk reduction and sharing; improving the capacity of market actors; and shaping broader
market practices and conditions.
Development Construction Financing Operation
Political and
policy risk
• Policy Dialogue with national governments
• Expertise and input on investment frameworks
Technical
and
operational
• Capacity
building/
Knowledge
sharing
•
• Capacity
building/
Knowledge
sharing
• Risk sharing
agreements
(PPPs)
Financing
risk •
• Access to long
term capital
(financing)
Credit
enhancement
mechanisms
• Access to
long term
capital
(refinancing,
liquidity
investments)
• Access to long
term capital
(refinancing,
liquidity
investments)
Reliability of
output • • •
• Risk sharing
agreements
(PPPs)
CDC
• Holding fund
structures
• PPP
EBRD • PPP
EIB
• Guarantees
• Layered debt funds
• Structured Finance
Facility PPPs
KFW
• Loan financing for
unforeseen cost
overruns (offshore
wind energy
programme)
UKGIB • PPPs
Pre- construction Construction Operational
CDC - Studies (grants) - Debt
- Equity
- Equity
EBRD
- Technical
cooperation (grants)
- Studies (grants and
facilities)
- Debt
- Equity
- Guarantees
- External fund
structures
- Equity holding
- Assistance with
refinancing (debt,
refinancing guarantees)
EIB
- Studies (grants and
facilities)
- Debt
- Equity
- Guarantees
- External fund
structures
- Same as under
constructions
- Refinancing
KfW - Studies (grants) - Debt
UK GIB - Debt
- Limited equity
- Equity
Principal phases of intervention in project life cycle for public financial
institutions (as of early 2014)
Role Functions Tools and instruments
Facilitate access
to capital
Long-term capital
provider
Facilitate access to
private capital
- Concessional and non-concessional lending
- Intermediated “on-lending”
- Equity investment
- Regional & international climate funds
- Public private partnerships
Reduce risk Risk sharing
Credit enhancement
- Guarantees
- Junior debt / Mezzanine financing
- Structured finance
- Layered fund structures
- Public private partnerships
Fill the capacity
gap
Aid project
development
Reducing project
risks
- Technical assistance
- Capacity building
- Data tools, information tracking
Sectors of intervention in project finance
•Renewable energy: small and large scale
•Energy efficiency: residential, SMEs, Public,
Industrial, Commercial, Social housing
•Sustainable transport
Focus: fostering private sector engagement through risk sharing and transfer Risk sharing can help attract
new investors to projects with
certain fund structures, allowing
investors with different risk-return
profiles to invest in the same
project or aggregation of
projects.
Risk transfer, or providing ways
to assign risk at different stages
of the project to those who can
best bear the risk, and thereby
provide a bridge between early-
stage and post-construction
phases.
• PFIs are able to act both as providers as well as facilitators
of long term financing.
• PFIs play a role in reducing risk – both in terms of
addressing financial risk between project phases (financing
and refinancing) as well as risk sharing among project
participants.
• PFIs can contribute to filling the capacity gap particularly
present in low-carbon projects due to the relatively new
nature of these investments for a large number of financial
actors.