Poster: Public Finance Institutions and the low-carbon energy transition

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 : ian.cochran@cdcclimat.com

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.