Possible modalities of government support for private clean energy investments financing
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Possible Modalities of Government Support for Private Clean Energy Investments/Financing. Government support could be in different forms depending on types of “ barriers ” perceived by private investors & lenders: TA (grants) to help develop business; enhance capacity of lenders & borrowers

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Possible modalities of government support for private clean energy investments financing l.jpg
Possible Modalities of Government Supportfor Private Clean Energy Investments/Financing

  • Government support could be in different forms depending on types of “barriers” perceived by private investors & lenders:

    • TA (grants) to help develop business; enhance capacity of lenders & borrowers

    • Grants/concessional loans to make projects economical (investment costs; transaction costs); to address lenders’ liquidity

    • Guarantees to mitigate risks that private lenders cannot take/are reluctant to take, for example:

      • Credit risks of borrowers (start-ups, SME sponsors)

      • Risks as to the stability of emerging clean energy regulations

  • IBRD support requires sovereign government indemnity


Possible modalities of ibrd ctf support guarantee support could mitigate different risks l.jpg
Possible Modalities of IBRD/CTF SupportGuarantee support could mitigate different risks

IBRD can provide Loan and Guarantee for the same project,

depending on specific project needs


Slide3 l.jpg

IBRD-supported Local Partial Credit Guarantee Program

with a Local Guarantee Company as Program Administrator

How to address the credit risk of borrowers that banks will not take fully?

Guarantee Program

Implementation Agreement

GOV

IBRD Loan Agreement

withdraw upon

guarantee signing

ownership

withdraw upon

guarantee call

World Bank

(IBRD)

Guarantee Program

Administrator

( Local Guarantee Company, etc.)

Partial Credit Guarantee

Program Escrow Account

CTF

Partial Credit Guarantees

(could be

portfolio guarantee)

for risk sharing

between GOV and lenders

Local Commercial Banks

loans

Entities engaging in clean business (renewable SPPs, ESCOs etc.)


Slide4 l.jpg

IBRD-supported Local Partial Credit Guarantee Program

with a Local Guarantee Company as Program Administrator

How to leverage GOV resources?

1. Risk sharingbetween

GOV and lenders under

Partial Guarantees

2. Professional management&

close monitoring to result

in truly revolving nature of

fund resources

3. Borrowers’ own resources

for borrowing discipline

& to become credible

borrowers

guarantee fee income to offset the cost of the Guarantee Program

Guarantee Program

Administrator

(Guarantee Company)

Partial Credit Guarantee

Program Escrow Account

Partial Credit Guarantees

Local Commercial Banks

loans

Entities engaging in clean business


What are world bank partial credit guarantees l.jpg
What are World Bank Partial Credit Guarantees ?

  • For sovereign or agency borrowing in the commercial market for IBRD countries, chiefly in support of public projects/fiscal support

  • Cover a portion of debt service payment for bonds/loans:

    • Principal and/or interest (e.g., late maturities)

    • Coverage can be structured flexibly

  • Two types of credit guarantees:

    • Partial Credit Guarantees (PCG) for investment projects: borrower can be Government/agency

    • Policy-Based Guarantees (PBG) for Development Policy Lending (i.e., fiscal support)

  • PCG can be offered for local currency debt


World bank partial credit guarantees pcg pcg can be structured flexibly l.jpg
World Bank Partial Credit Guarantees (PCG)PCG can be structured flexibly

A. World Bank’s guarantee of a single coupon payment on a rolling basis

PV=3%

Single Coupon Payment

USD 300 m

B. World Bank’s guarantee of the principal

PV=56%

World Bank Support for Principal Repayment

0

10


What are world bank partial risk guarantees l.jpg
What are World Bank Partial Risk Guarantees?

Partial Risk Guarantee (PRG) covers lenders in case of debt service defaultcaused by Government not meeting its commitments to private projects

Loans

Project

Company

Commercial

Lenders

Government

Undertakings

Guarantee

Indemnity

Agreement

Government

World Bank


Slide8 l.jpg

World Bank (IBRD) Partial Risk Guarantee

For Limited-Recourse Debt or Sponsor Loan

Possible application for Clean Energy/Transport Projects

Government

Indemnity

Government

Undertaking or

Guarantee

CTF

Repayment of

commercial debt

covered by PRG for government risks

Incremental Cost Support

Project

Company

(Wind Power,

Hydro Power,

Urban Transport

Etc.)

Commercial

Bank

Private

Investors

Equity

Project Loan

Sponsor Loan

PRGs can also be structured with a deemed loan or a letter of credit structure to benefit project companies (i.e. equity investors) as well.


Clean technology fund ctf guarantee instruments for public sector operations l.jpg
Clean Technology FundCTF Guarantee Instruments for Public Sector Operations

  • CTF resources may be deployed as guarantees to promote low carbon technology projects and programs

  • CTF support “incremental risks” (vs. conventional risks) that are not assumed by sponsors & lenders

    • Technology & economic performance risks:

      • Application of commercially viable technologies in new markets

      • Unfamiliarity resulting in requirement for higher returns

      • Unwillingness of manufacturers to warranty performance

      • Increase in O&M costs; degradation of performance beyond warranty

    • Commercial & financial risks:

      • Perceived credit risks resulting in unavailability of financing

      • Small project scale and high transaction costs

        [Country & political risks: CTF would not address these risk for “public sector” projects]


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Clean Technology FundCTF Guarantee Instruments for Public Sector Operations

  • Guarantee support can be structured flexibly and may take various forms, but two categories have been proposed:

    • Loan Guarantee: up to 100% (but sharing in encouraged) to extend the maturity of commercial loans

    • Contingent Finance: disbursed to the project upon underperformance of a low carbon technology (not commercially insurable or beyond the insurable period)

  • Borrower: government, sub-national governments, SOEs, etc.

  • MDB issues guarantees/provide contingent finance backed by funds in the CTF - no sovereign government indemnity required

  • Guarantee charge: 0.1% per annum

  • US dollars only


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