Download How is Climate Finance Positioned at the AfDB

Climate Funding Instruments
and Strategies for SCP
Projects.
South-South Cooperation Conference.
10-Year Framework of Programmes on SCP,
April 6-7, Brasilia, Brazil
Dr. Timothy A. Koomson,
African Development Bank (AfDB),
Climate Finance Division.
Outline
 CONTEXT
 What are the Financial Resources in the AfDB?
 What is Climate Finance?
 How is Climate Finance Positioned at the AfDB ?
 RELEVANCE OF SOME CLIMATE FUNDS FOR SCP PROJECTS
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Climate Investment Funds (CIFs)
Global Environment Facility (GEF)
Africa Climate Change Fund (ACCF)
Adaptation Fund (AF)
Green Climate Fund (GCF).
 FINANCING STRATEGIES FOR SCP PROJECTS
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Why Concessionality, Eligibility and Accessibility Criteria are Key?
What are the Major Steps Defining financing strategies for SCP projects?
What are the Major Expenditure Categories for the SCP projects?
How do you design the SCP financing structure?
What are the Financial Resources in the AfDB?
AfDB-managed
Donor
Resources (TFs,
programs, etc.)
AfDB Statutory Resources
Grants
Nonconcessional
Concessional
Debt
Equity
Guarantees
Other Initiatives:
GCF, Africa50 Fund, FAPA, ACSP,
NEPAD-IPPF, RWSSI, ICA, AFP,
ClimDev Africa, several bi-lateral
funds, Co-financing, etc.
GEF
CIFs
AF
SEFA
Sovereign
lending
AWF
CBFF
Non-sovereign
Operations
Additional
External
Resources
What is Climate Finance?
• There is no internationally agreed definition of climate finance yet.
• Article 4.3 of the UNFCC Convention defines climate finance as ‘new
and additional financial resources’ for the ‘full incremental costs’ of
addressing climate change.
• Climate Finance includes 1. Carbon Finance, 2. Climate Funds, 3.
Private Sector Climate targeted investments and 4. Public sector
Climate Expenditure funding.
• Climate funds has been used in a narrow sense to refer to transfers of
public resources from developed to developing countries.
• Climate funds can flow from developed to developing countries
(North-South), from developing to developing countries (SouthSouth), from developed to developed countries (North-North) and
domestic climate finance flows in developed and developing
countries.
How is Climate Finance Positioned at the AfDB ?
The Climate Finance Team coordinates and leads the implementation of different Facilities
that provide multiple instruments (grants, concessional debt, equity, etc.) which ultimately
enhance project bankability, build resilience to climate change and support transition to
green growth in Africa
AfDB’s
Bank’s Own Trust
Fund
Sustainable
Energy Fund
for Africa
Africa Climate
Change Fund
role
[Structuring is
ongoing]
Africa
Renewable
Energy
Initiative
External Funds
(AfDB Implementing Entity)
Green Climate
Fund
[Terms of
Cooperation
(AMA) not yet
finalized]
Climate
Investment
Funds
The Global
Environment
Facility
The Adaptation
Fund
How Relevant are Climate Investment Funds (CIFs) to SCPs ?
The CIFs are a USD 8.3 billion pair of funds to help developing countries pilot low-emissions
and climate-resilient development.
Trustee
Financial Procedures Agreement
Other MDBs
Strategic Climate
Fund (SCF)
Clean Technology
Fund (CTF)
Scaling-up
Renewable Energy
Program (SREP)
Pilot Program for
Climate Resilience
(PPCR)
Forest Investment
Program (FIP)
How Relevant is the GEF to SCP ?
Accessing Funds
The GEF
Adaptation Funds
LDCF
GEF TF
SCCF
1. Reduce vulnerability to the adverse impacts of
climate change – e.g. reduced risks to economic
losses through implementation of adaptation
measures
2. Increase adaptive capacity to respond to the
impacts of climate change – e.g. within relevant
development sectors and natural resources;
diversified and strengthened livelihoods and
sources of income
3. Promote transfer and adoption of adaptation
technologies – as defined under the Climate
Convention
Focal Areas
1. Biodiversity
2. Sustainable Forest
Management (SFM)
3. International waters
4. Land degradation
5. Waste & Chemicals
6. Climate change
mitigation
How Relevant is the Climate Change Fund (ACCF) to SCP ?
 ACCF provides small grants to support RMCs in their transition to climate resilient
and low carbon development, in line with their Nationally Determined
Contributions (NDCs) and to enable the Bank to scale up its climate change
activities.
 Integrating climate change into development strategies and policies and
developing and co-financing projects and programs to advance climate resilient and
low carbon development
 Supporting African countries to effectively engage in the UNFCCC process
 Contributing to the implementation of the Bank’s climate change and green growth
priorities, including the Bank’s Climate Change Action Plan
Eligible activities include:
o Consultants
o Trainings, workshops, meetings
o Communication, outreach, advocacy, translation
o Studies, strategies, analytical work
o Office equipment and transport
o Administrative costs
How Relevant is the Adaptation Fund (AF) to SCP ?
• Set up under the Kyoto Protocol of the UNFCCC and launched in
2007
• AfDB accredited by AF in September 2011
• Financed from a 2% share of the Credit Emission Reduction(CER)
proceeds on the Clean Development Mechanism (CDM) project
activities and other sources of funding
• Secretariat: GEF on an interim basis; Trustee: World Bank on an
interim basis
• Direct access to AF resources for eligible countries
• NIE and MIE shall meet the fiduciary standards established by the
AF Board
• AF funding provided on full adaptation costs basis of projects and
programmes which aim to adapt and increase climate resilience
How Relevant is the GCF to SCP ?
• Support development and submission of funding proposals
for projects and programmes (including for Project
Preparation).
• Support Readiness Activities in RMCs – through ACCF.
• Implement and manage funded Activities (projects and
programmes with funded incremental climate costs)
• Deploy, on-lend, blend a wide range of financial
instruments (grants, concessional loans, equity and
guarantees).
• Catalyze private sector investments.
• Scale up access to climate finance
Why is Concessionality Important ?
Climate Finance is about blending financial instruments at terms below market rates and
beyond.
6%
TENOR
LOAN SENIORITY
INTEREST RATE
Senior
20y
7y
Climate
Finance
AfDB
AfDB
GRACE PERIOD
15y
Climate
Finance
5y
Junior
3%
Climate
Finance
AfDB
AfDB
Climate
Finance
0%
0y
0y
The Principle of Minimum Concessionality needs to be applied to avoid market distortions
and crowding-out other financiers.
Why Eligibility and Accessibility Criteria are Important ?
• Country Eligibility: LDCF, CIFs- pilot countries
• Project Focus Eligibility: AF, CIFs, SCCF, .
• Compliance with GCF Investment Criteria
 Impacts Potential – low carbon and climate-resilient development
 Paradigm shifts – innovative/transformative, trickle down, scalable,
replicable programme/project investment,
 Sustainable Development- environmental, social (including gendersensitive) and economic development impacts
 Country Ownership and capacity – Consistency with country development
policies, climate strategies and institutional capacity, No Objection Letter
 Efficiency and Effectiveness- technical feasibility, financial viability,
operational efficiency including disbursement and procurement, cofinancing and private sector participation.
 Needs of the RMCs – impacts on vulnerable groups, barriers to financing
What are the Major Steps Defining financing
strategies for SCP projects?
What are the Major Expenditure Categories
for the SCP projects?
Operational
Expenditure
Construction
Expenditure
Maintenance
Expenditure
Costs Components: real assets, engineering, physical
infrastructure, equipment and facilities, labor, management
Investment
Expenditure
Costs Components:
application fees, interests,
insurance, equity shares.
Expenditure Financing
Prefeasibility
Feasibility
Design
Construction Operation/
Maintanance
How do you design the SCP financing
structure?
Risk
Return
Low risks and
uncertainty
Medium risks and
uncertainty
High returns
Medium returns
High risks and
uncertainty
Low returns
Surety bonds and other
Swaps- interest rate,
real options, guarantees
Currency, index etc
Equity and Quasi Equity, Market debt, Soft debt
Equity debt
And
Quasi
Equity/mezz
anine finance
Soft
Equity
and
market-based
debt, guarantees
Climate risks
insurance
Grants, subsidies
Incentives,
Grants Soft
interest Loans
subsidies, other
incentives
Project
Preparation and
Enabling Environment
Grants
Concessional
Debt
Quasi-Equity
and Junior
Equity
Project
Development Phase
Project Finance
Phase
Thank you for
your attention
Contacts:
ACCF
: Louise BROWN
AF/GEF : Mahamat ASSOUYOUTI
CIF
: Leandro AZEVEDO
GCF
: Timothy AFFUL-KOOMSON
– Ext.4258
– Ext.2753
– Ext.1125
– Ext.4622
Ouarzazate CSP Project, Morocco