Climate Fund ‘Transforms Economies From Brown to Green’

Workers who helped install Mongolia’s largest solar energy farm in the Sumber Soum area of the country’s Govisümber province with a few of the solar panels they put in place. The solar facility began generating power on January 28, 2019. (Photo courtesy Green Climate Fund) Posted for media use.

By Sunny Lewis

SONGDO, Incheon, South Korea, January 31, 2019 ( News) – An emerging “super grid” of renewable energy is beginning to stretch across the Asian region, linking Mongolia, China, Japan and South Korea; and it is relying on the Green Climate Fund for the money to make it happen.

The Green Climate Fund, established within the framework of the UNFCCC, was founded by 195 countries in 2010. It is the first international fund under the United Nations with the goal of supporting countries in the global South build clean energy, climate resilient economies to counter climate change.

Javier Manzanares of Argentina is Interim Executive Director of the Green Climate Fund. (Photo courtesy Northwestern University) Posted for media use.

“We facilitate climate action and the transformation of economies from brown to green,” said Javier Manzanares, the GCF’s interim executive director. “In the area of mitigation, much of the energy generation we work with is through renewables. We also branch into other areas that combine elements of both resilient economies and mitigation of emissions.”

Controversial from the first, the Green Climate Fund is supposed to take in US$100 billion a year by 2020 from developed countries and the private sector for investment to help developing countries meet their climate change needs.

By comparison the Green Climate Fund has been promised about a tenth of that sum – US$10.3 billion over its first four years of operation from 2014 – mostly from developed countries. It has a current portfolio of 93 approved projects, worth a total US$4.6 billion in investment.

The GCF can provide funds in the form of grants, concessional loans, equity investments and guarantees. The GCF partners with other institutions to run and manage activities, rather than funding projects directly. These

partners are known as “accredited entities” because they undergo an accreditation process that is supposed to test their ability to manage funds, implement projects and apply safeguards.

The GCF has so far accredited 75 entities, including several Multilateral Development Banks, UN agencies, developed country bilateral aid agencies, regional and national environment centers, national ministries, three large international commercial banks, a private social impact investment fund and an international non-governmental organization.

The accreditation of Deutsche Bank, HSBC and Crédit Agricole caused immediate controversy. These are among the world’s largest private financiers of coal, and have been implicated in human rights violations and market manipulations.

Most, but not all, of the Green Climate Fund’s investments have gone to renewable energy projects, although the GCF has refused to impose an explicit ban on fossil fuel projects.

In Mongolia, January 28 was marked by the start-up of a new solar generating facility in the Sumber Soum area of the country’s southern Govisümber province.

In a financing partnership with the Green Climate Fund, Mongolia’s XacBank is now the country’s first private bank to fund the completion of a large-scale solar plant.

The widespread use of coal in Mongolia’s factories and homes led the United Nations Children’s Fund (UNICEF) to declare an “air pollution crisis” in the country at the beginning of last year.

The government’s plan to expand its use of renewables, including solar and wind power, is designed to wean the country from its current reliance on coal for most of its energy needs.

The 10 MWh solar photovoltaic plant, built with a total investment of US$17.6 million, is forecast to reduce greenhouse gas emissions by 12,270 tons annually, while at the same time providing 15,395 MWh of electricity every year.

GCF alleviated the financial risk through a long-term, concessional loan of US$8.7 million.

Dr. Zamba Batjargal, formerly with the Environment Ministry of Mongolia, and now the government’s liaison with GCF, said this project aligns closely with the country’s Green Development Policy, approved by the national parliament in 2014.

The policy sets a renewable energy target of installed power capacity in Mongolia of 20 by 2020 and 30 percent by 2030.

“The Sumber solar power plant is the first successful project jointly implemented by the Ministry of Environment and Tourism with XacBank, based on strong GCF support,” Dr. Batjargal said during the official opening ceremony for the solar plant in the Mongolian capital of Ulaanbaatar. “This project will contribute significantly to Mongolia’s efforts to upgrade its emissions reduction targets.”

The start of the solar power plant operations comes as the Green Climate Fund implements a growing number of climate finance initiatives around the world.

GCF Backs Indonesia’s Geothermal Gold Mine

The Green Climate Fund supports Indonesia’s energy transition by removing some of the risk of geothermal development.

Indonesia’s geothermal potential is estimated to be 29 gigawatts, which is about 40 percent of the world’s known reserves. Despite this potential, the country relies heavily on fossil fuel to meet its electricity demand.

A key barrier to geothermal development in the country has been the limited availability of suitable financing instruments and options that adequately address the early stage exploration risk taken by geothermal developers with the uncertainty of finding geothermal resources.

At its 21st meeting in Bahrain, the GCF Board approved the first tranche of US$100 million out of the US$185 million requested from GCF to finance public and private sector geothermal development in Indonesia.

The first tranche of the GCF multi-year support facility will mobilize US$410 million with contributions from the World Bank, the Government of Indonesia and private sector developers to achieve 600 MW to 900 MW of additional geothermal capacity.

The full project facility will mobilize US$760 million to support exploration and resource confirmation for one GW to 1.5 GW of geothermal energy. This translates to 187-281 million tonnes of CO2 equivalent mitigated over the lifetime of the generating geothermal assets.

GCF is providing a package consisting of a senior concessional loan for public sector projects, a reimbursable grant for private sector projects, and a grant for technical assistance.

A key innovation in the financing package is the use of convertible bonds that will enable private sector geothermal sponsors to mitigate the exploration risk while providing an adequate upside in case of success.

It is estimated that less than 10 percent of the global geothermal capacity has been tapped so far, mainly because early stage exploration risks in geothermal development is a barrier that needs to be addressed with the right calibration of financing packages.

Pierre Telep, renewable energy senior specialist at GCF, said that “convertible bonds facilities are promising … because of their nonrecourse features that follow the value of the developer and provide the adequate premium in case of success.”

The Indonesian geothermal project is at the heart of Indonesia’s energy transition drive. It promises to improve the country’s share of renewables, which currently accounts for 12.5 percent of the country’s electricity generation.

The project will support the government’s goal of increasing the share of renewables in the electricity generation mix to 23 percent by 2027 and geothermal energy is expected to contribute seven percentage points of the 23 percent.

German Velasquez, Director for the Division of Mitigation and Adaptation at GCF, said “this project emphasises the Fund’s commitment to low-carbon climate resilient investments and represents a clear climate mitigation delivery pathway that will assist the Government of Indonesia achieve its emissions reduction targets.”

Latin America Gets GCF Help

The Green Climate Fund and the Inter-American Development Bank (IDB) recently signed funding agreements which will enable the GCF channel climate finance to four projects in Latin America.

The following projects are now ready to be implemented by the IDB:

  • GCF will provide a US$20 million loan to the National Development Bank of El Salvador, which will help open a credit line to fund energy efficiency projects for small and medium enterprises (SMEs) in El Salvador.
  • In Guatemala and Mexico, GCF and the IDB will set up a risk-sharing facility that will unlock innovative financial instruments for micro, small and medium enterprises in the agricultural sector.
  • To support SMEs in Paraguay and help them increase energy efficiency, GCF will provide US$23 million in concessional financing. GCF will also assist the local government in developing the policy and regulatory framework to incentivize further energy efficiency investments in Paraguay.
  • A GCF loan of US$100 million will support SMEs in Argentina investing in sustainable energy technologies, namely biomass, biogas, and energy efficiency. A separate grant will also help strengthen the capacities of financial institutions, SMEs and energy, and technology providers.

“Increasing energy efficiency is at the very core of sustainable energy transition. Our partnership with IDB will enable small businesses in Latin America to access finance for energy efficiency projects, which are often perceived as too risky for SMEs,” said Andreas Biermann, deputy director at the Division of Mitigation and Adaptation of GCF.

“We are confident that these projects will build trust in the market and help attract further private sector investments,” Biermann said.

Amal-Lee Amin, chief of the Climate Change and Sustainability Division at IDB, said, “We are delighted that following the signing of these four Funding Activity Agreements with the Green Climate Fund we can start to execute these projects that will help promote energy efficiency in El Salvador and Paraguay, increase finance for renewable energy and energy efficiency in Argentina, and support low carbon agriculture in Guatemala and Mexico.”

Latin America and the Caribbean is one of the core priority regions for the Green Climate Fund. To date, GCF has approved 18 projects in 22 countries in the region, with a total GCF investment of US$822 million.

At its latest Board meeting in October 2018, the Green Climate Fund approved over US$1 billion of new renewable energy and water projects and programs to support climate action in developing countries, and formally launched the Fund’s first replenishment drive, which continues today.

GCF Interim Executive Director Manzanares said, “With a rapidly growing portfolio, accelerating implementation on the ground, and a pipeline of US$17 billion showing huge demand, GCF is now entering its first replenishment ready to step up its support of developing countries’ climate action.”

Featured Image: Steam and brine gathering system test of the Sarulla Geothermal Project in Tapanuli Utara, Indonesia. September 24, 2016 (Photo by Mike Krahmer / Geothermal Resources Council) Creative Commons license via Flickr.

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