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of existing public !nance instruments active in these countries. "is report should be seen as a welcome addi-tion to the existing body of PFI research in that it discuss-es low-carbon PFI engagement in the context of a coun-try-based, programmatic approach, which many experts have argued is the most appropriate direction for the !eld of development overall.

In order to achieve a 50 percent reduction in carbon diox-ide emissions by 2050, total !nancing to 2050 of around EUR 30 trillion will be required – or around EUR 800 billion per year – according to the International Energy Agency.1 "e United Nations Framework Convention on Climate Change has concluded that a signi!cant major-ity of this investment will need to come from the private sector.2 Much of this investment needs to be done in the developing world, but private investors are currently not motivated to undertake the level of investment needed in developing countries due to the high risk. Moreover, re-gardless of how much incentive the private sector is given, there are certain market barriers that it cannot overcome and !nancing gaps that it cannot !ll. Public !nancing will therefore be needed in certain critical areas for both the short and long term, as re#ected in the !nal report of the High-Level Advisory Group on Climate Finance.3

Public Finance Instruments (PFIs) for low-carbon de-velopment are publicly backed interventions that help to close !nancing gaps, overcome market barriers, and ac-celerate market uptake of low-carbon measures. When PFIs are designed to maximise the leverage of additional private !nance, they can deliver ratios of between 3:1 and 15:1 in private !nance leveraged per public monies spent.

"is report has been prepared for the German Interna-tional Cooperation (GIZ) Climate Protection Programme in Developing Countries (“CaPP”) by Frankfurt School of Finance and Management (FS) in partnership with the Basel Agency for Sustainable Energy (BASE), drawing on the best up-to-date research and experience in the !eld. It recommends options and strategies for public !nance en-gagement in the following seven countries considered in this study:

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1 IEA (2008), Energy Technology Perspectives: Scenarios and Strate-gies to 2050.2 UNFCCC (2007), Investment and Financial Flows to Address Cli-mate Change.3 AGF (2010), Report of the Secretary-General’s High-level Advisory Group on Climate Change Financing

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4. Flexibility must be built into the programme design so that !nancing strategies can be modi!ed appropri-ately as country conditions evolve. Impact assessment and a rigorous comparison of goals and outcomes must also be allowed to dictate adjustments to the !-nancing strategies as needed over time.

"ese recommendations can be applied either to the es-tablishment of new PFIs, or to the modi!cation of exist-ing PFIs.

Existing PFIs are best utilised by placing them within a country-based programmatic framework, or by modify-ing them where appropriate to more closely re#ect this approach. For example, an instrument that does not cur-rently engage local partners in strategic planning could be modi!ed to give greater responsibility for !nancing strat-egy to local stakeholders. Similarly, a narrow !nancing instrument can be enhanced by adding a local low-car-bon “diagnostic” facility that would locate the instrument within a tailored and comprehensive low-carbon develop-ment assessment for each country. Both of these modi!-cations would be relevant, for instance, in the case of the Federal Ministry for the Environment, Nature Conser-vation and Nuclear Safety (BMU), German Develoment Bank (KfW) Global Climate Partnership Fund (GCPF).

"e establishment of new PFIs may be appropriate in every country that does not yet have a tailored national !-nancing programme dedicated explicitly and comprehen-sively to low-carbon development. New PFI programmes could take the form of National Centres for Low-carbon Finance, each of which would employ a distinct pack-age of instruments carefully tailored to local context, and would partner with local stakeholders on the design of !-nancing strategy. Linking the programmes with Nation-ally Appropriate Mitigation Actions (NAMAs) that are already being developed by the countries considered in this study would strengthen the local participatory ele-ment of the approach while simultaneously helping these countries meet their commitments under the United Nations Framework Convention on Climate Change (UNFCCC).

Aside from leveraging private !nance into low-carbon sectors, these National Centres would further add value by mandating, for the !rst time, a comprehensive focus on the goal of low-carbon development within the given country – which is a critical !rst step towards a low-car-bon path. "e Centres would also bring together the best local knowledge, experience and expertise in low-carbon

Public !nance instruments (PFIs) can be used to leverage substantial private investment into low-carbon sectors in developing countries, thereby addressing a key challenge in the e$ort to combat the causes and impacts of climate change. Any single !nancing mechanism by itself, how-ever, will be insu%ciently nuanced to meet the needs of low-carbon development in a meaningful way. "is is because low-carbon markets are highly complex arenas requiring multiple !nance instruments to address the distinct demands of a variety of technologies and sub-sectors. "ese are complex living systems, and each one is unique – which means that !nancing approaches must be tailored to individual country contexts. Furthermore, the required combination of !nancing instruments will change over time as the technologies and sectors mature, and as broader country and regulatory contexts evolve.

PFI programmes can have the most far-reaching impact when they are designed in partnership with the countries considered in this study. Financing will be most e$ective, moreover, when delivered under a programmatic frame-work dedicated to low-carbon development holistically – as opposed to targeting only speci!c sub-sectors (such as Energy E%ciency-EE or Renewable Energy-RE) without maintaining a broader perspective on the complete over-arching picture of a country’s carbon intensity path. In-deed, a variety of public !nance strategies have been em-ployed in recent decades to leverage private !nance into low-carbon sectors, and the most successful experiences to date are broadly correlated with a nuanced, tailored, programmatic approach.

"e following principles should therefore inform the de-sign of public !nance strategy:

1. Employing a package of !nancing instruments is more appropriate than limiting the approach to a sin-gle !nancing mechanism, and distinct !nance pack-ages will need to be employed for every country con-sidered in this study so that each one can be tailored to the speci!c national context.

2. Finance packages should be designed by programme managers based locally in the target countries them-selves, and strategic planning should be pursued as a joint e$ort between programme managers and rel-evant local stakeholders.

3. Financing should be delivered under comprehensive low-carbon development programmes. "ese pro-grammes should seek holistic and nuanced solutions that are in the genuine best interest of the countries considered in this study themselves.

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development. "is implies that neither country currently o$ers meaningful opportunities to leverage private invest-ment into low-carbon sectors. PFI engagement in these countries is therefore not advised.

For the other !ve study-countries, a common objective of national programmes should be to redirect !nancing that is already present in these countries away from high-carbon sectors and towards low-carbon sectors. "is can involve a suite of instruments, including !nancial risk management products, political risk insurance and other credit enhancements. Programmes should also empha-sise Technical Assistance (TA) and capacity building, and should align where possible with local policy priorities – such as increasing employment or energy access - in order to secure local government support and engagement. "e programmes should furthermore seek to grow a network of partners and stakeholders, and to channel funds where possible through local FIs, in order to increase learning, knowledge transfer, and absorptive capacity among local actors.

When choosing speci!c technologies to support, the pro-grammes should adopt a portfolio approach that takes care to avoid creating path dependency on a particular set of technologies while ignoring others that may some-day prove to have signi!cant long-term potential. In gen-eral, there is also a strong rationale to support both the earlier stages of technology innovation and demonstra-tion, as well as the later stages of technology commerciali-sation, deployment, and market di$usion in developing countries.

PFI engagement has the potential to leverage private sec-tor investment so long as it addresses one or more existing investment barriers. In principle, guarantees can leverage private !nance per unit of public money spent better than either grants or direct loans. Guarantees are most ap-propriate in !nancial markets where borrowing costs are reasonably low and where a good number of Commercial Financial Institutions (CFIs) are interested in the targeted market segment – as is the case in Morocco, "ailand, In-dia and Costa Rica. Brazil may also become a good can-didate for guarantees in the future as its borrowing costs start to decrease in response to recent achievements in combating in#ation.

!nance to enhance the impact of the !nancing pro-grammes and the absorptive capacity of the country.

"e Centres could be capitalised, either partly or fully, as national sub-funds underneath an Umbrella Fund struc-ture that would maintain both the #exibility of design at the country level and the local strategic partnership ele-ment, but would otherwise be similar to the European Fund for Southeast Europe (EFSE). "e main advantage of an Umbrella Fund structure is that it would enhance overall leveraging potential by attracting private commer-cial participation at the broadest funding level, while also engaging the private sector through local activities within the target markets.

"e activities of return-driven low-carbon investors in the seven countries under this study are currently hampered by a range of risks and constraints across the strategic, op-erational, !nancial, political and physical arenas. Speci!c constraints that emerged prominently in interviews with local investors include lack of equity !nancing; currency risk; commercial risk of power purchase agreements; limi-tations in loan tenor; lack of su%cient deal #ow; lack of adequate policy frameworks; and limitations in knowl-edge and capacity among relevant players.

None of the countries considered in this study currently has a PFI programme dedicated to low-carbon develop-ment comprehensively (although there are plans to es-tablish one in India). However, the countries considered in this study do exhibit a range of experience with PFIs targeting speci!c low-carbon sectors such as RE, EE, or rainforest protection – outside the context of a compre-hensive low-carbon framework. India and Brazil exhibit the largest range of these more targeted PFIs, re#ecting their high level of national clean energy ambitions and large domestic markets. "ailand and Morocco are mid-sized markets with enough relevant policy commitment to support a modest level of existing PFI activity. Costa Rica is a small country with a low level of PFI activity, but it has nevertheless begun to explore methods for as-sisting the creation of low-carbon businesses, which re-#ects its long history of progressive policies and a strong commitment to RE.

Vietnam and Namibia have the least amount of PFI ex-perience and the least low-carbon policy ambition among the countries considered in this study. Whereas Namibia is disadvantaged by a small domestic market, Vietnam is comparable in size to "ailand. However, both countries lack clear policy frameworks to incentivise low-carbon

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any other speci!c sector that does not explicitly share its overarching goal. A solar loan programme has the poten-tial, in theory, to help reduce the carbon footprint of any country; but this might not be the best approach to low-carbon development for a given country context (such as in the case of a country where carbon emissions main-ly result from deforestation). Public !nance can only be truly e$ective, therefore, when delivered under a compre-hensive framework dedicated explicitly to low-carbon development.

Moreover, low-carbon markets are young and dynam-ic, changing over time as the sectors mature, as relevant policy frameworks evolve, and as the economic body itself develops. "e public !nance approach must also be suited to the growth and relationship dynamics that characterise living systems. In this regard, clinical medicine o$ers im-portant lessons that can be applied to the challenge.5

Like human bodies, every economic system is unique – and health in each case is inescapably a question of indi-vidual conditions. Local context therefore holds the key to unlocking the right !nancing prescription for a given country. For this reason, the starting point for public !-nance strategy is di$erential diagnosis for each “patient” (country under study).

"e public !nance practitioner must be trained to hone in e$ectively on the key underlying constraints on low-carbon development in a unique system and to prescribe solutions that are speci!cally tailored to these conditions. No two economies are alike, even when showing the same symptoms of distress, and no single public !nance pack-age will be equally !tting for all. "is means that a dis-tinct finance package will need to be employed for every country under study so that each one can be tailored to the national context. For the seven countries consid-ered in this study, this implies seven separate !nancing packages.

Public !nance strategists must be steeped in the history, ethnography, politics and economics of the country where a programme is active. Just as the doctor builds a trust-ing, consensual working relationship with the patient, so should the public !nance practitioner seek agreement from relevant local stakeholders on !nancing strategy. For

5 Leading development economist Je$rey Sachs has made this argu-ment for development policy in general. See J. Sachs, "e End of Pov-erty (2005).

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"is section builds the framework for designing a low-carbon public !nance strategy. It seeks !rst to establish the nature of the challenge at hand, and then to draw strategic conclusions based on the particular demands of this craft and on historical experiences in this !eld.

Economies, like human bodies, are complex living sys-tems. "ey have distinct yet highly interconnected sys-tems for transport, power, communications, law enforce-ment, national defence, taxation and so on that must operate properly and in balance for the body to function as a whole. Within an economy, the low-carbon sectors are characterised by additional dimensions of complex-ity. "ese markets often consist of large numbers of small, dispersed projects with relatively high transaction costs for investment preparation and !nancing. Low-carbon energy supply involves the combined use of a variety of technologies (e.g. solar, wind, geothermal, hydropower and biofuels), as does energy e%ciency. Di$erent tech-nologies are at di$erent stages of development; on-shore wind is commercially operating, for example, whereas ad-vanced solar is still in development.

"e !nancing approaches needed to unlock a given tech-nology depend on its current level of maturity, along with other factors, such as the characteristics of the target mar-ket segment and the broader country conditions – includ-ing the macro-economy, institutional structures and the maturity of the !nancial system.4 Financing for low-car-bon sectors unrelated to energy, such as rainforest protec-tion and reforestation, requires yet other strategic frame-works. Moreover, developing countries require PFIs to be used on an even larger scale and through a grea ter vari-ety of instruments, because low-carbon markets in these countries face more risks, barriers, and !nancing gaps needing to be addressed.

For the public !nance strategist, this means that employ-ing a package of financing instruments is more likely to be e!ective than limiting the approach to a single mecha-nism. Aside from being insu%ciently nuanced to meet the holistic !nancing needs of these complex systems, indi-vidual instruments do not in themselves constitute low-carbon development strategies.

Low-carbon development is its own science. It is distinct from renewable energy, energy e%ciency, reforestation, or

4 For a more detailed discussion of how to choose the !nancing strat-egy based on these characteristics, see UNEP SEFI 2009.

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this reason, the !nancing packages should be designed by programme managers based locally in the study-coun-tries themselves.

Upon prescribing a tailored remedy or package of reme-dies, the doctor would then monitor progress and modify the prescriptions over time as needed, fully responsive to the reality of the patient’s condition and to his or her re-actions at any given time. In low-carbon development, changes in country conditions must likewise be careful-ly monitored over time, and these changes should lead to corresponding modi!cation of the !nancing strategy as appropriate. It is therefore important to build flexibility into programme design.

Since all components of an economy – like the human body – are intrinsically connected, an intervention in one area can have a cascade of impacts in others; and a fail-ure in one area can lead to cascading failures throughout. Poverty and instability serve to compound the challeng-es inherent in systemic complexity; the less developed a country, the more challenges can be expected in all areas, given their interconnectedness. Public !nance interven-tions, therefore, should only be introduced in the context of a profound commitment to search for the answers that are in the genuine best interest of the target country itself.

Super!cial approaches that prescribe standard !nance in-terventions without regard to local context are wasteful at best, and can cause unintended damage at worst. "e development community learned this the hard way dur-ing the 1980s from a number of painful experiences as-sociated with the so-called “Washington Consensus” (or “Structural Readjustment”, and “Shock "erapy”) policy period, during which standard packages of policy pre-scriptions – including di%cult austerity measures – were introduced in countries with what critics saw as insuf-!cient consideration for local context. For a doctor, this would be like prescribing the same drugs to every patient without regard for individual conditions. Aside from be-ing ine$ective, it would also be dangerous and a viola-tion of ethical protocols. "e same logic applies in climate !nance.

A variety of public !nance strategies have been employed in recent decades to leverage private !nance into low-car-bon sectors. "e majority of these are or were quite spe-ci!c, promoting one technology in a particular region, one !nance instrument to one actor (e.g. credit line to a !nancial institution), or one instrument at a speci!c stage

(e.g. seed !nance for rural green enterprise). Many such instruments are already active in the countries considered in this study. While these instruments have not been con-troversial overall, narrow !nancing approaches are never-theless inadequate for addressing the demands of low-car-bon development. "e reasons for this have already been explained.

Indeed, the most successful past experiences in public finance are broadly correlated with a more holistic and nuanced approach. "e UK Carbon Trust, for example, is widely hailed as a leader in this !eld. Its approach is tailored, #exible and programmatic, employing multiple !nancing mechanisms that are designed in partnership with other national stakeholders. Such nuanced !nancing programmes are relatively rare, particularly if the search is limited to those that explicitly adopt low-carbon develop-ment as the overarching goal.

However, nuanced programmatic approaches can be found targeting speci!c low-carbon sectors in develop-ing countries. "e CORFO Renewable Energy Centre in Chile and the China Energy Conservation and Invest-ment Corporation (CECIC) are leading examples. In the countries considered in this study, no such programmes yet exist that are explicitly dedicated to low-carbon devel-opment, although one is planned for establishment in In-dia. "ere are, however, programmatic approaches target-ing certain speci!c low-carbon sectors in these countries.

"e most successful public !nance programmes place particular emphasis on monitoring and evaluation, and especially a rigorous comparison of goals and outcomes. Good public !nance practitioners perpetually question their own conclusions. Like scientists, they should always be prepared to revise the approach according to the best emerging information and research. Impact assessment is therefore a critical component of public finance strategy.

However, impact assessment for low-carbon public !-nance programmes is a challenging arena. No group has yet produced a comprehensive set of recommendations, statement of principles, or standardisation of these meth-odologies (and tackling this problem could therefore be a valuable contribution to the !eld). BASE, on behalf of the Sustainable Energy Finance Alliance of the United Na-tions Environment Programme, performed a review of the impact assessment methodologies utilised by SEF Alli-ance member organisations in 2008. Within that context, the most advanced frameworks were found to be those of Sustainable Development Technology Canada and the

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"e establishment of new PFIs would be justi!ed in any country that does not yet have a tailored national PFI programme explicitly dedicated to low-carbon develop-ment. "is is the case in all of the study-countries ex-cept India. In India, a Low-carbon Innovation Centre is planned for establishment by the World Bank and the UK Department for International Development (DFID). "is e$ort is already aligned with the recommendations listed above, indicating a rationale to join forces with the World Bank and DFID in India rather than duplicate ef-forts. In the other six countries considered in this study, however, the establishment of new PFI programmes could be considered.

Alternatively, modi!cation or adaptation of an exist-ing PFI would be justi!ed when the PFI in question does not yet meet the criteria listed above. "is option will be discussed in relation to the Global Climate Partnership Fund (GCPF), the Global Energy Transfer Feed in Tar-i$s (GET FiT) programme, and the concept of Advance Market Commitments (AMC).

"e establishment of national !nancing programmes ded-icated to low-carbon development comprehensively (as opposed to focusing only on speci!c low-carbon sectors without a comprehensive framework) would be a signi!-cant contribution to the public !nance landscape in any country where this does not yet exist. "ese could take the form of National Centres for Low-carbon Finance. In line with the recommendations listed earlier, each Centre would employ a distinct package of !nancing in-struments carefully tailored to national context, and the !nancing strategy would be designed in partnership with relevant local actors. "e approach should be #exible and responsive to changes in country conditions and to rigor-ous assessment of programme outcomes over time.

National Centres for Low-carbon Finance would add value in a number of ways. Aside from providing targeted public funding to leverage private !nance into low-carbon sectors, the Centres would also mandate, for the !rst time (except for India), an explicit focus on the goal of low-carbon development within these countries. As explained earlier, low-carbon development is its own science. With-out a mandate to pursue this goal, the job can at best be done only in a haphazard way, if at all. By applying the science of this unique craft to the countries, considered in this study the Centres would help them take a critical !rst step towards a low-carbon development path.

UK Carbon Trust. "ese models could be used to inform this aspect of programme design.

Finally, decades of development policy experience have provided another key insight: namely, that development strategy is best designed in the context of an equal part-nership between donor and recipient. "e goal is to create lasting change that will be learned and embraced by the target country itself, thereby enabling the donor to exit later on. "is requires active participation (beyond sim-ple agreement) by the target country in the actual design of programmes. Strategic planning should therefore be pursued as a joint e!ort between programme managers and relevant local partners.

"e following conclusions can now inform the design of a public !nance strategy for the seven countries considered in this study:

1. Employing a package of !nancing instruments is more appropriate than limiting the approach to a sin-gle !nancing mechanism, and distinct !nance pack-ages will need to be employed for every target country so that each one can be tailored to the speci!c nation-al context.

2. "e !nance packages should be designed by pro-gramme managers based locally in the study-countries themselves, and strategic planning should be pursued as joint e$ort between programme managers and rel-evant local stakeholders.

3. Financing should be delivered under comprehensive low-carbon development programmes. "ese pro-grammes should seek holistic and nuanced solutions that are in the genuine best interest of the study-countries themselves.

4. Flexibility must be built into the programme design so that !nancing strategies can be modi!ed appropri-ately as country conditions change over time. Impact assessment and a rigorous comparison of goals and outcomes must also be allowed to dictate adjustments to the !nancing strategies as needed.

Having established some guidelines for the PFI approach, a subsequent decision facing the strategist is whether to create new PFIs, or to modify existing ones. "e recom-mendations above could be applied in either case, and both options will therefore be considered here.

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NAMAs represents an opportunity to enhance the e!ec-tiveness of these programmes.

NAMAs were recognised within the Bali Action Plan (2007) and the Copenhagen Accords (2009) of the UN-FCCC negotiations process. NAMAs are dependent on technology, !nance and capacity building support provid-ed by developed countries, which represents a potential win-win for prospective international public !nance en-gagement. Linking public !nance strategy with NAMAs that are already being developed by the countries consid-ered in this study can strengthen the local participatory element of the !nance programme while simultaneously helping the target country meet its commitments under the UNFCCC.

Generally, three types of NAMAs are di$erentiated: (i) unilateral NAMAs, which are domestically funded and unilaterally implemented; (ii) supported NAMAs, which are implemented with !nancial, technological and/or ca-pacity building support from developed countries; and (iii) credited NAMAs, which are implemented with fund-ing from carbon o$set credits generated for the amount of emission reductions achieved. Partnering with an interna-tional public !nance programme would be appropriate in the second model (supported NAMAs).

"is section compares the programmatic, country-based approach to three public !nance initiatives at the fore-front of the !eld today. It also considers how these initia-tives could be modi!ed to be more aligned with the pro-grammatic approach, or utilised within a programme.

"e Global Climate Partnership Fund (GCPF) was cre-ated in December 2009 with funds from BMU, chan-nelled through KfW, to promote EE and RE investment in transition and developing countries. Although the fund is global, it is currently focuses on a limited num-ber of countries, four of which overlap with the countries considered in this study – namely Brazil, India, Moroc-co and Vietnam. "e GCPF mainly provides medium to long-term !nancing to !nancial institutions (FIs), and to a limited extent may also directly invest into projects or energy service companies (ESCOs) via loans or equity. It is accompanied by a Technical Assistance Facility help-ing FIs to implement the loans properly and monitor the impact.

Moreover, creating Centres for Low-carbon Finance would mean bringing together the best knowledge, ex-perience and expertise of low-carbon !nance that exists within the study-country. "is would allow business in-telligence from investors and the market to inform early-stage technology support and project selection, as well as allowing, conversely, a deep understanding of early-stage technologies to be fed back to the market – enabling early sight of new opportunities and thereby catalysing private sector investment. Collecting, networking and coordinat-ing the best local knowledge and e$orts under a national low-carbon framework would enhance both the impact of the !nancing programmes, and the absorptive capacity of that country.

"e Centres for Low-Carbon Finance could be capital-ised, either partly or fully, as national sub-funds under-neath an umbrella fund that would be similar to the European Fund for Southeast Europe (EFSE)6, based in Luxembourg. However, the umbrella fund structure in this case would di$er from the EFSE in that it would maintain both the #exibility of design at the country lev-el (including various types of !nancing), and the donor-country partnership element. As with the EFSE, the na-tional sub-funds would be cross-collateralised so that any loss in one would a$ect all the sub-funds, and the e$ects on shares would only be calculated on aggre gated fund level.

"e main advantage of an umbrella fund structure is that it would enhance the overall leveraging potential of the PFI approach by attracting private commercial en-gagement at the broadest funding level, while each sub-fund achieved further leverage through its local activities within the target market.

Nationally Appropriate Mitigation Actions (NAMAs) are tailored strategies for reducing greenhouse gas emis-sions designed directly by and for developing countries themselves. Given the importance of local participation in the design of public !nance strategies, partnering with

6 EFSE is a successful fund concept that is well known to the BMZ (BMZ has invested into the fund). "e main characteristics are similar to the proposed fund structure (section 6), with some modi!cations re-garding the cross-collateralisation of shares and the proposed waterfall structure. "e EFSE structure provides a good blueprint for a global fund that wants to invest in di$erent countries.

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"e GCPF exhibits many features that are aligned with the approach recommended here – such as the public-pri-vate partnership structure, the accompanying TA com-ponent, and the emphasis (70%) on !nancing through local institutions are excellent characteristics of the fund. A drawback of this fund is that it does not seek out, nor explicitly respond to, the “whole truth” of a target coun-try’s low-carbon development situation. In the analo-gy to clinical medicine, the GCPF is like a drug target-ing two important areas of low-carbon “health” (EE and RE). However, like any drug, this tool should ideally be applied within the context of an overarching “prognosis” (comprehensive low-carbon framework) for each target country.

Another drawback of the GCPF is that, although it seeks to channel funding through local institutions, the !nanc-ing strategy itself is already pre-de!ned. As explained earlier, the countries considered in this study should ide-ally participate in the design of !nancing strategy. In this case, they have no say in the matter and therefore less chance to establish a sense of ownership over the !nanc-ing approach. "is weakens the potential to support last-ing change in the modalities of local leadership, as well as local replication of the strategy.

Options for enhancing the GCPF, therefore, could be to:

1. Place this tool within a programmatic framework providing a country-speci!c, low-carbon “diagnos-tic” function. "is can be considered a form of Tech-nical Assistance directed at the !nancing strategists themselves.

2. Modify the approach so that local partners are direct-ly involved in designing the !nancing strategy.

"e Advanced Market Commitments (AMC) is an ap-proach that combines market-based !nancing tools with public intervention. "e AMC has been applied to vac-cine markets in recent years and has proven to be a pow-erful tool for dealing with market failures in this con-text. Many donors are therefore asking whether the AMC would work in climate !nance.7

7 See, for example: Climate Change Capital, Advance Market Com-mitments/Emission Reduction Underwriting Mechanisms for Climate Change Finance, July 2010: http://www.climatechangecapital.com/me-dia/111307/advance%20market%20commitments%20july%202010.pdf

An AMC is a binding contract, typically o$ered by a gov-ernment or other !nancial entity, used to guarantee a vi-able market if a product or technology is successfully de-veloped. "e e$ect of the AMC is to guarantee a price for a speci!c product, thereby acting as a “pull mechanism” that seeks to create a sustainable market by subsidising demand for that product. In designing an AMC, the spe-ci!c product, market, industry and policy context mat-ter. AMCs are complex !nancing structures that must be tailored to the speci!c challenge at hand. It makes little sense, therefore, to transplant the original AMC struc-ture into the climate !eld directly. Rather, donors should look at the challenges in !nancing a given climate project, and design an innovative !nancing scheme that !ts them. Moreover, AMCs must be designed at the country level and cannot be transplanted from one country context to another.

"is can be an useful tool for accelerating the develop-ment of speci!c low-carbon technologies, but – like the GCPF – is not a comprehensive strategy in itself. AMCs are a promising !nancing option, but they should be placed within a country-based programmatic framework.

"e GET FiT (Global Energy Transfer Feed-in Tari$s) programme, put forward in April 2010, is an initiative championed by Deutsche Bank Group to help facilitate the installation of Feed-in Tari$s in developing coun-tries. GET FiT looks to combine public !nancing with the experience of national and international partners to help address project development and remove !nancing barriers in developing countries. It aims to establish the “incremental costs” to an economy, taking into account the energy-industry bene!ts of fuel diversi!cation; re-duced fuel imported dependence and increased national employment. A number of national !nance sources and instruments cover the di$erence between the national value of RE production and the cost of conventional en-ergy; international carbon !nance pays for the remain-ing, true “incremental cost”. "e international commu-nity receives value for climate money, and the recipient country receives carbon !nance at far lower transaction costs than under the Clean Development Mechanism (CDM)-approach.

"is initiative provides an excellent example for how to establish a mutually meaningful collaboration between donor and recipient countries. "e strategic partnership and tailored “diagnostic” aspects of GET FiT are well

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aligned with the PFI approach recommended here. Like the GCPF, however, this is a single instrument rather than a comprehensive low-carbon development strategy.

Like AMCs, the GET FiT approach could be an excellent tool to use within a country-based programmatic frame-work, where this !ts the local “prognosis”. It is most ap-propriate for countries with a medium market potential, yet with green growth ambitions. Among the countries considered in this study, this option is thus most feasible to develop for Morocco, and potentially also "ailand.

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"e previous section concluded that distinct packages of PFIs would need to be designed for each of the countries considered in this study so that these can be tailored to the speci!c national contexts. "is section explores key factors that will shape the design of the !nancing packag-es for each of the countries considered in this study.

PFIs leverage private !nance by targeting existing risks and constraints on investment.8 In general, low-carbon investors currently experience a wide range of risks and constraints. A broad categorisation of these risks is sum-marised in Table 1 below.

8 For the RE sector in particular, risks to private investment have been examined in-depth in a number of recent studies. For example: UNEP SEFI, Financial Risk Management Instruments for Renewable En-ergy Projects, 2004; UNEP DTIE, Financing Mechanisms and Public/Private Risk Sharing Instruments for Financing Small Scale Renewable Energy Equipment and Projects, 2007; UNEP and Marsh Ltd., Assess-ment of Financial Risk Management Instruments for Renewable Energy Projects, 2007.

In developing countries, low-carbon investment condi-tions are characterised in general by higher levels of risk aversion among !nancial institutions; higher borrowing costs; lack of access to loans with tenor longer than 5-6 years, less experience with project !nance structures and high requirements for equity co-!nance (typically 40%); lack of angel and venture capital (business !nance) for start-up SMEs, higher foreign exchange risks when sourc-ing international funds; greater market risk due to less stable macroeconomic conditions; limited equipment op-erations and maintenance expertise; and a greater need for technology transfer support.

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available for more than 5 years. Debt providers are hesi-tant or unable to provide long-term loans when country conditions are not stable or !nancial conditions are con-strained. Raising longer-term debt to cover the duration of low-carbon projects in these countries can therefore be extremely di%cult.

A further common preclusion to private sector engage-ment is insu%cient deal flow. It is not always the case that there is an unwillingness to provide capital for low-car-bon projects in the developing world, but rather that there is a shortage of su%ciently commercially attractive, easily executable deals in which to deploy capital.

Finally, experts in all the countries considered in thhis study identi!ed limitations in knowledge and capac-ity among relevant actors as a signi!cant constraint on investment. "is applies to project developers, !nancing authorities, and public administrators. Bankers often do not understand the technologies being used in low-car-bon projects and are unwilling to approve !nancing due to an inability to assess the risk of the project. Similarly, lack of understanding “carbon !nance” means inability to recognise potential CDM investments. Project developers require support in business and !nancial planning, tech-nical expertise, or basic information to be able to apply for project funding. Public administrators often lack ca-pacity to streamline approval processes e$ectively. Where supportive laws for low-carbon sectors have been passed, public administrators often lack the capacity to imple-ment the laws, rendering them ine$ective at facilitating investment.

Most low-carbon technologies are still relatively high cost when compared with conventional high-carbon options if environmental and other externalities are not factored in. For this reason, credible policy support is especially im-portant for generating private sector interest in low-car-bon sectors, and a lack of supportive or su#ciently stable regulatory frameworks is a critical barrier. Among the countries considered in this study, this is especially the case in Namibia and Vietnam.

It should be noted that these constraints a$ect di$erent types of investors di$erently. Low-carbon project invest-ments in the countries considered in this study are under-taken by three broad categories of investors:9

9 "e de!nition of scale depends on the technology. In this study, scales were de!ned according to installed power capacity rather than investment volume.

"is section provides an overview of the main risks and constraints that emerged from background research of the countries considered in this study and from interviews with local and international i) investors, ii) !nancing in-stitutions (commercial and development-oriented), and iii) project developers active in these countries. "ese bar-riers are evident to varying degrees in all of the countries considered in this study; however, a detailed listing of country-speci!c interview results is included as Annex E.

A persistent constraint on debt !nancing for low-carbon projects that emerged in all of the countries considered in this study is the inability of project developers to secure su%cient equity financing. "e reasons are both lack of capacity to design !nancially sound projects, and equity availabity. Lending to project developers or projects di-rectly in developing and emerging markets typically re-quires a higher proportion of equity relative to debt than would be the case for similar projects in mature markets.

Currency risk is another key constraint. Exchange rate #uctuations restrict foreign private sector engagement be-cause assets with stable and predictable returns in their local currency are much more volatile when converted to the currency of the investor, signi!cantly increasing the risk of the investment. Although !nancial instruments to hedge this risk are already available for commonly traded currencies, the private sector appears unwilling to provide the same instrument for currencies traded less frequently.

Commercial risk of Power Purchase Agreements (PPAs) for renewable energy was frequently mentioned by experts as another signi!cant barrier to investment in low-carbon sectors. PPAs establish a complex relationship between the seller (generally the developer of the renewable energy source) and the buyer (often a utility), including key pro-visions addressing allocation of future risks that are inher-ent in long-term renewable energy contracts. PPAs have a wide range of risk exposures and some tend to be very complex. "rough various PPA terms, utilities seek to place the risks on the renewable project developer, which can result in PPA terms that are very problematic for pro-ject !nancing.

Loan tenor furthermore emerged as a common theme in these discussions and in the background research. In-deed, long-term loans are required to !nance low-carbon infrastructure projects that often have a payback period of longer than 7 years. However, in emerging and de-veloping countries, debt !nancing is in many cases not

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basis. However, they often face problems in securing do-mestic funding in local currency with su%ciently long tenor. In spite of this, there is a growing appetite to invest in low carbon projects from local pension funds and in-surance companies. "is is the case in India, Brazil and Morocco. In addition, some commercial !nancial insti-tutions are already active in the low carbon market and many others may enter the market soon.

By contrast, most start-up project developers face prob-lems both in meeting lender expec tations for equity par-ticipation and in securing debt !nance. "ey do not enjoy a track record with banking institutions, and hence are viewed as bad credit risks. Banks therefore are general-ly unwil ling to provide them with non-recourse !nance or loans on terms longer than 5-7 years. "is prob lem persists in spite of the fact that several of the countries considered in this study help small and medium project developers by o$ering technology-speci!c feed-in-tari$s (available for projects with less than 10-20 MW capacity).

Similarly, !nancing constraints can be di$erentiated ac-cording to the target market segment. For example, a summary of gaps and barriers associated with clean en-ergy projects according to their market segment is shown in Table 2 below.

Professional foreign investors, mainly large-scale pro-jects of more than 20MW;

Professional national investors in medium-scale projects (10-20MW), but also some larger scale;

National start-up project developers of small or medi-um-scale projects (usually less than 10-20 MW, often down to as low as 500 kW).

Foreign investors are generally private equity !rms, in-surance companies, pension funds, industry bodies, for-eign clean energy companies and Development Financial Institutions (DFIs). While DFIs include market devel-opment as well as economic and social impact in their strategy, private investors primarily look for minimum returns, i.e. around 25% Internal Rate of Return (IRR). "e key challenges for them are regulatory-backed !nan-cial in#ows, foreign currency !nance for investments with operating revenue paid in local currency and country-spe-ci!c risks.

We !nd similar pro!les for professional national inves-tors. Many successful local businesses, and not only from the energy sector, are actively looking for potential deals in the low carbon market. "ey generally face fewer prob-lems to secure equity for their investments, to be consid-ered credit-worthy, or to secure !nance on a non-recourse

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E$ective design of PFI programmes requires an awareness of the existing PFI landscape. "e main categories of low-carbon PFIs that currently exist in the countries consid-ered in this study include:

Credit lines to local commercial !nance institutions (CFIs) for senior and mezzanine debt to projects;Debt financing of projects by entities other than CFIs;Loan softening programmes to mobilise private sources of capital;Guarantees to share the commercial risk of lending to projects and companies, to end-users, and to SME start-ups;Grants and contingent grants to share project develop-ment costs;Equity funds and quasi-equity investing risk capital in companies and projects;Venture capital funds investing risk capital in technol-ogy innovations;Carbon finance facilities that monetise the advanced sale of emissions reductions to !nance project invest-ment costs; andTechnical assistance to build the capacity of all actors along the !nancing chain.

A detailed listing and descriptions of specific instru-ments in each of the countries considered in this study can be found in the background document that accom-panies this report. A summary table is included as An-nex A.

Among these countries, only India and Brazil have im-plemented a large and sophisticated range of PFIs stim-ulating the creation of national low-carbon businesses (particularly in RE/EE), inclu ding national content re-quirements for investments seeking access to PFIs. "ey are also the only countries considered in this study that are developing policies and investment programs for tech-nologies that do not belong to the “low-hanging-fruit” category. India, in particular, has introduced an espe cially broad range of PFIs to stimulate investments in RE. Both countries also have a very open eye for the export poten-tial of low-carbon technology.

"ailand, Morocco and Costa Rica are in the mid-range of existing PFI activity among the countries considered in this study. Although far below the level of India and Bra-zil, they have nevertheless begun to explore methods for assisting the creation of RE/EE businesses. "ailand has succeeded in setting up some PV-manufacturing plants,

and Morocco’s 2000 MW CSP-plan may lead to some follow-up in terms of promotion of component manufac-turing. Costa Rica is a small country but with a long his-tory of progressive policies, and it is implementing 100% RE in new power capacity.

Vietnam and Namibia are at the low end of the scale in terms of existing PFI activity. "ese countries have small national markets for RE&EE technologies and, as a con-sequence, have not yet developed initiatives to link PFIs fomenting investments in RE&EE-projects with PFIs fo-menting investments in RE&EE businesses.

"e main explanation for the variation in the level of ex-isting PFI activity within the countries considered in this study is their corresponding variation in country size (in terms of population and GDP). "e development of low-carbon sectors depends on the development of a national market for the technologies. India and Brazil are the only countries considered in this study large enough to have signi!cant domestic markets for low-carbon technologies – which o$ers the opportunity for active industrial policy in favour of creating national low-carbon businesses.

In all seven countries, the energy sectors in general and the power sectors in particular have been dominated by state-owned !rms. Direct state enterprise investments continue to be the favoured PFI to promote investments in RE power plants in Costa Rica, Vietnam, Namibia, and Morocco. Brazil, India and "ailand rely now on the promotion of private investments in RE-power. Morocco also uses public funds to buy shares in start-up RE&EE businesses. In terms of end-user !nance for low carbon products and technologies (e.g. micro-loans for farm-ers to purchase biogas installations), the clear trend is for PFIs promoting these investments to be gi ven as part of integrated programmes – not as individual speci!c PFI instruments.

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Selection and design of the most appropriate PFIs requires the evaluation of (i) the level of technological maturity, (ii) the characteristics of the target market segment and (iii) the country conditions, including the macro-econo-my, institutional structures and the maturity of the !nan-cial system.

All of the countries considered in this study have rela-tively well-developed !nancial markets in relation to the developing world as a whole. "is means that a central objective for every national programme will be to redirect financing that is already present in these countries away from high-carbon sectors and towards low-carbon sectors. "is can involve a suite of instruments, including !nan-cial risk management products, political risk insurance and other credit enhancements. Additional priority ar-eas that are appropriate in all countries considered in this study include extending loan tenor; mitigating foreign ex-change and PPA risk; and scaling up private equity-type investments, particularly seed !nancing and venture capi-tal for early-stage technology development.

Other priorities will vary from country to country. In India and especially in Namibia, an important prior-ity would be to leverage private !nance for systems that provide low-carbon energy access to rural areas – for rea-sons explained in the next section. In !nancial markets with high commercial lending rates, as has been the case in Brazil in recent years, public funds can be used to buy down interest rates through a credit enhancement ap-proach similar to that used by KfW to facilitate increased bank lending for energy e%ciency in Germany. Alterna-tively, credit lines can be o$ered at concessional rates or structured on a limited/non-recourse basis, or o$ered as subordinated debt to induce borrowing and direct credit to low-carbon sectors. By taking on a higher risk posi-tion in the !nancial structure, this approach can leverage higher levels of commercial !nancing.10

It is important to choose a strategy that appeals to the national government in each target country, given that policy and regulatory support are especially critical for

10 It should be noted that credit lines in general have limited leverage potential relative to, for example, gua ran tees. However, like guarantees, credit lines can have an indirect leveraging e$ect in that they help local Commercial Financial Institutions (CFI) to gain experience managing a portfolio of low-carbon loans, thereby helping to overcome elevated risk perception and build local capacity for low-carbon !nance.

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low-carbon sector development. It is therefore highly ad-visable to consider the potential employment and devel-opment impacts of the various PFI options, since these are important priority areas for the target country nation-al governments. A focus on innovation and early-stage technology development, for instance, is promising in this regard because it implies the creation of and support for local businesses that would add new high-quality employ-ment opportunities.

Certain key di$erences among the countries considered in this study will play a role in determining their nation-al low-carbon priorities – e.g. whether they would sooner concentrate e$orts on decarbonising existing infrastruc-ture or on ensuring the development of appropriate sys-tems to provide access to low-carbon energy sources for rural areas. Table 4 ranks the countries according to fac-tors in#uencing these two decisions.

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"e transition to a low-carbon economy will require de-ployment of many di$erent types of technologies. Coun-tries should aim to deploy a tailored mix of technologies, and to anticipate changes in the prioritisation of technol-ogies as new innovations are developed. A portfolio ap-proach should therefore be adopted, with no single tech-nology favoured. When crafting the package of !nancial instruments, care should thus be taken to avoid creating path depen dency on a particular set of technologies while ignoring others that may someday prove to have more sig-ni!cant long-term po ten tial.

"e technology development process covers research and innovation, prototype demonstration, project develop-ment and deployment, initial commercialisation, and market di$usion. Even in mature economies, a persistent funding gap arises as technologies move out of the labo-ratory and enter the demonstration phase, during which they must prove themselves in full-scale, real-world situ-ations. In developing countries, there is an even greater need to use PFIs for early-stage technology development both to make up for lack of private equity providers and to compensate for imperfect and evolving policy environ-ments.12 However, there is also a strong rationale to ac-celerate commercialisation and di$usion in order to avoid carbon lock-in and ensure that developing countries are able to step onto a low-carbon development path. "e PFI approach should therefore support the entire technology development process.

Research shows that PFIs can achieve a leverage ratio that can range between 3:1 and 15:1.13 Factors a$ecting the leverage potential for these sectors in a given country include:

1. "e level of sophistication of its !nancial sector;

2. "e existence and e$ectiveness of the policy and regu-latory frameworks needed to make low-carbon sectors commercially viable;

3. "e size of the domestic market.

12 PFIs can be especially helpful when targeting the more costly and time-intensive project development activities such as permitting, power purchase negoti ations, grid interconnection and transmission contracting.13 UNEP SEFI, Public Finance Mechanisms to Mobilise Investment in Climate Change Mitigation, 2009.

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Absorptive capacity is a key issue in the countries consid-ered in this study both in terms of developing the project pipelines and the enabling conditions needed to make them commercially viable. "e public !nance activities are therefore most likely to be e$ective if the Centres can simultaneously foster and encourage innovation and col-laboration among private, academic and public-sector partners, thereby helping to ensure the dispersion of the technologies in relevant market sectors throughout the countries considered in this study. "e Centres should thus work closely with and help to grow a network of stakeholders and partners11 including local technology innovators, academics, entrepreneurs, investors, and pub-lic administrators – helping them to form strategic rela-tionships and build a criti cal mass of low-carbon devel-opment capability. "is would help draw in expertise and resources from local business and low-carbon investors (nationally and interna tionally) to catalyse large com-mercial investment in the most cost-e$ective low-carbon projects.

"e signi!cance of the need for TA and capacity build-ing was re#ected in the recurring emphasis on this point by local experts interviewed for this study. Project de-velopers, for example, often require support in formalis-ing business plans and preparing projects for investment, particularly in uncertain and evolving regulatory envi-ronments where timing costs and development risks are signi! cant. Institution building (related to government ministries, univer sities, research institutes, businesses, and civil society) itself has a cost that must be anti cipated to ensure long-term impact.

Local !nancing capacity can be supported in part by !-nancing projects indirectly through local CFIs, rather than directly to project developers. "e PFI programmes should therefore seek where possible to channel funds through local CFIs, in this way helping them gain ex-perience in managing a portfolio of low-carbon loans, which puts them in a better position to evaluate true pro-ject risks. "is helps to address the problem “elevated per-ception of risk” and builds the capacity of local lending authorities to target low-carbon sectors. Providing credit lines to local CFIs would thus be preferable to the option of providing loans directly to project developers. Guar-antees would also have the same e$ect. Also, at this point the transaction costs must be taken into consideration.

11 Key prospective partners for each country are listed in Annex B.

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In general, higher leveraging ratios can be achieved in sophisticated !nancial markets than in less developed !-nancial markets. All of the countries considered in this study have relatively well-developed !nancial sectors. (Even Namibia, the least likely candidate based on mar-ket size, nevertheless has one of the most developed !nan-cial sectors in Africa.) "e !rst criterion therefore should not be an obstacle to achieving leverage in any of these countries.

However, the same cannot be said of the second and third criteria. Without the necessary incentives to create markets for clean energy technologies, including a su%-ciently high price on carbon, there is little advantage for commercial investors to engage in these sectors – even in relatively mature !nancial markets. "is means that the potential to leverage commer cial !nance in a given coun-try depends on the level and e$ectiveness of the exis ting low-carbon policy frameworks. In countries that have small domestic markets and/or no regulatory framework to support low-carbon sectors, the market for these tech-nologies is generally too nascent for the private sector – implying little leverage potential. Among the countries considered in this study, this scenario applies in Namibia and Vietnam.

A PFI approach has potential to leverage private sector investment as long as it addresses one or more of the ex-isting investment barriers. As seen earlier, there exists a broad range of barriers, including currency risk, lack of deal #ow, lack of equity, gaps in knowledge and capacity. Table 5 shows how leverage can be achieved from a range of activities. Support for early-stage technology and pro-ject development, for example, addresses lack of deal #ow, leveraging private !nance by moving projects to the phase where their commercial viability can then be assessed. For early-stage technology support, equity-focused PFIs that are structured as “funds of funds” (or “cornerstone funds”) are most catalytic, leveraging private capital both into the funds themselves and later into the investments that the funds make.14

14 Grantham Research Institute et. al., Meeting the Climate Chal-lenge, 2009.

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A risk reduction approach would seek to leverage private !nance by addressing the especially high level of both real and perceived commercial risk associated with potential low-carbon invest ments in developing countries. Risk re-duction can be achieved by designing PFIs to take on a higher risk position in the !nancial structure relative to CFIs, or through publicly backed guaran tees.

In principle, guarantees can leverage private finance per unit of public money spent better than either grants or direct loans. "is is because fees for guarantees, even when set at levels that cover the full cost of the expect-ed future claims for loss minus expected recuperation of assets, are a fraction of the committed loan or equity capital.15

In the case of guarantees, leverage is usually measured in terms of (A) the total project and equipment !nanc-ing accomplished through a programme, in ratio to (B) the amount of concessional funding provided. (B) refers to actual concessional funds expended in loss claims and is thus measured retrospectively, given that capital is only expended under a guarantee programme when loan losses occur.16 In order to get an optimal guarantee level, na-tional governments and multi-lateral organisations should play a very important role.

"e degree of achievable leverage is directly connected with the guarantee percentage o$ered. A guarantee per-centage of 50% results, mathematically, in a higher lev-eraging ratio than an 80% guarantee. However, if a 50% cover is insu%ciently attractive for potentially interested CFIs, it will not be taken up. On the other hand, if an 80% guarantee is too risky for the guarantor, then it can-not be o$ered. "e ratio must be placed within the com-fort range of both sides.

15 "e IFC has developed a guarantee structure, for example, that can achieve a leverage ratio of up to 15:1 for energy e%ciency investments. IFC provides guarantees to local CFIs, which then use this risk shar-ing support to provide !nancing to various EE market segments, using multiple !nancial products. Over time, the guarantees can be phased out as familiarity with these sectors improves and risk perceptions de-crease. When e$ectively structured, one unit of public funds can di-rectly leverage 12-15 times that amount of commercial investment into EE projects and indirectly catalyse long-term growth of !nancial com-mitments to the sector. For an explanation of its structure, see p. 17 of UNEP SEFI, Public Finance Mechanisms to Mobilise Investment in Climate Change Mitigation, 2008.16 W. Mostert et. al. on behalf of UNEP SEFI Public Finance Alli-ance, Publicly Backed Guarantees as Policy Instruments to Promote Clean Energy, 2010.

Guarantees are appropriate in developing economies that do not lack basic liquidity for infrastructure investment, but rather lack incentives and revenue certainty needed to o$set the elevated risks and initial transaction costs asso-ciated with low-carbon projects. "e guarantees would be directed at CFIs who despite adequate medium to long-term liquidity are still unwilling to provide !nancing to low-carbon projects because of high perceived credit risk (i.e. repayment risk).

However, guarantees are only appropriate in !nancial markets where borrowing costs are reasonably low and where a good number of CFIs are interested in the tar-geted market segment.17 When these two factors are considered together, among the countries considered in this study guarantees are most appropriate for Morocco, "ailand, India and Costa Rica.

Guarantee schemes can be used to safeguard investments by foreign !rms in the setting up of local subsidiaries, and to increase tenor of loans for professional and for start-up investors.18 Guarantees can also be used to mitigate commercial risk of PPAs, which emerged as a signi! cant constraint on investment according to local experts in-terviewed. Where a key barrier to loans is demand from CFIs for collateral that the target group cannot ful!l, guarantees can be structured to reduce dema nd for collat-eral by o$ering a combined !rst order loss guarantee and a subordinated recovery guarantee.19

In today’s Fractional Reserve banking system, banks “create” money by leveraging their capital into loans. At an 8% capital requirement, they can leverage capital by a factor of twelve, so long as they can attract su%cient deposits (collected or borrowed) to clear the outgoing checks. By using public funds to capitalise a low-carbon development bank, or to increase the capital of an ex-isting public bank (such as KfW), public funds them-selves can be multiplied many times. "is, in turn, would expand the leveraging of private !nance that could be achieved through the activities of the bank.

17 Grantham Research Institute et. al., Meeting the Climate Chal-lenge, 2009; UNEP SEFI, Public Finance Mechanisms to Mobilise In-vestment in Climate Change Mitigation, 2008.18 Guarantees for debenture issues of professional !rms and with seed capital for smaller-scale project developers.19 Detailed guidelines for the design of publicly backed guarantees can be found in: W. Mostert et. al. on behalf of UNEP SEFI Public Fi-nance Alliance, Publicly Backed Guarantees as Policy Instruments to Promote Clean Energy, 2010.

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When leverage is a decisive goal, then PFI engagement is most appropriate in countries where domestic markets and policy frameworks o$er meaningful opportunities to incentivise private sector engagement. Given the limit-ed leverage potential in Namibia and Vietnam explained earlier, PFI engagement in these countries is not advised. Instead, the next steps for Namibia and Vietnam could be to design low-carbon roadmaps and establish attractive regulatory frameworks.

However, PFI engagement would be appropriate in India, Brazil, "ailand, Morocco and Costa Rica. "e next sec-tion therefore suggests speci!c recommendations for the establishment, structure and funding of National Low-carbon Centres under an Umbrella Fund structure, which could be appropriate for all these countries. In India, however, the e$ort should be merged with the planned World Bank/DFID innovation centre – as discussed in Section 1.

As a starting point, PFI engagement could begin initially in those countries with a medium market potential, yet with green growth ambitions. Among the countries con-sidered in this study, this most closely characterises Mo-rocco and "ailand. Morocco is particularly interesting because of the country’s ambitions to invest in CSP-plants and in developing local manufacturing, and because of the DESERTEC initiative. "is is particularly relevant for Germany considering that German CSP-technology is a world leader, yet there are no prospects for a home mar-ket; and because the EU has been unable to develop a fea-sible strategy and !nance concept for the implementation of its Plan Mediterranné.

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"is section discusses more detailed requirements and recommendations for governance, structure, funding and operation of the National Low-carbon Financing Cen-tres and the Umbrella Fund. In general, operational suc-cess for each Centre would depend on three main factors: (i) appropriate governance that provides e$ective engage-ment and oversight while protecting the independence of Centres; (ii) funding at a scale and durability to enable Centres to invest for the long term; and (iii) tailoring the implementation strategy e$ectively to local needs.

"e National Low-carbon Financing Centres would be operationally similar to the Innovation Centres that have been proposed for developing countries by the UK Car-bon Trust,20 with two main di$erences. "e !rst dif-ference is the Umbrella Fund concept, which is not a component of the Carbon Trust proposal. "e second is substantive rather than operational: whereas the Carbon Trust centres would support technology innovation spe-ci!cally, the Financing Centres would support low-car-bon development comprehensively. Nevertheless, the ex-perience of the Carbon Trust is highly relevant and can inform the operational design of the Centres. Its recom-mendations have therefore been adapted and applied to the governance and funding details that follow.

"e National Low-carbon Financing Centres should be publicly funded organisations set up as Public-private Partnerships at the national level in the countries consid-ered in this study. "ey would be supported by a Glob-al Secretariat that would maintain a global perspective, agree overall plans and monitor progress, ensuring knowl-edge transfer across the Centres. To maximise impact, the Centres should be independent, mission-driven organisa-tions. "ere must be appropriate local ownership of each Centre, with establishment of local governance and lo-cal control of project prioritisation. However, a partner-ship element between developed and developing countries would include agreed goals and success criteria.

"e structure of each Centre would suit local conditions. As an example, a Centre could comprise an administra-tive group, a national strategy group and a series of in-house teams and/or third party delivery partners. An executive board would be responsible for de!ning the strategy, plans and budgets for the delivery of activities in each Centre, developing an organisation capable of

20 Carbon Trust, Low Carbon Technology Innovation and Di$usion Centres, 2008.

delivering the plans, managing the delivery of the plans and monitoring and reporting on progress. "e execu-tive board could consist of equal representation from the central institution, national government and independ-ent members such as from local business or academic communities.

"e administrative group would facilitate the delivery of the various programmes and would act as a local centre of excellence for low carbon !nance, engaging with public and private stakeholders as well as representing the Cen-tre to the Secretariat. "e national strategy group would be responsible for analysing and explaining the issues and opportunities around low-carbon !nance locally and for providing input into the development of the Centre strat-egy and delivery plans, supported where necessary by the strategic and scienti!c advisory group in the secretariat. In-house local delivery managers would be responsible for the delivery of the activities, supported where necessary by external delivery agents.

"e Centres could draw up proposals on an annual basis for approval, and objectives and targets could be agreed between the secretariat and the Centre. Objectives and targets may include a leverage target (i.e. raising of addi-tional private and/or public sector funds), project deliv-ery targets (number of projects started/completed across the various areas of activities), and outcome targets which could include IP generation, numbers of companies at-tracting further funding and carbon savings.

Public funding must be on a scale and commitment time horizon su%cient to allow planning and implementation of complex projects, including su%cient public funding to undertake pre-commercial activities. An e$ective collabo-rative relationship with government and the private sector would be needed to leverage additional funding, without compromising the ability of the Centre to provide an in-dependent viewpoint on the policies needed to contribute to agreed goals.

One !nancing Centre would require funding of approxi-mately EUR 30-70 million per year. Given the long lead times involved in low-carbon research, development and deployment of projects, a !ve-year funding budget would be the minimum necessary to establish local networks and achieve measurable progress. At an overall level, this would require a total investment of between EUR 1.05 billion and 2.45 billion21 over !ve years to establish a

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Centre in each of the seven countries considered in this study as a !rst phase of activity.

Future funding for subsequent time periods should be considered in light of the success of the !rst phase. "e Centres would seek additional funding from other pub-lic sources and would be expected to achieve addition-al funding from national governments. "e Centres can reasonably be expected to leverage 5-10 times as much in private sector investment overall. Funding from local gov-ernments and leveraging of private sector funding would be expected to increase over time.

"e size of the Centres needs to be su%cient to support a range of low-carbon projects and early-stage companies. However, this needs to be set in the context of the abil-ity for the local market to supply the required number of projects, e.g. larger, more industrialised countries are likely to have many projects to fund. However, countries where access to energy is of primary concern may wish to concentrate their e$orts on funding deployment of one or two key clean energy technologies.

"e Centres would allocate funds based on prioritisation of the range of projects available to them. "e Centres could enable up to 50 projects per year to be supported in each Centre, many of which could lead to self-sustaining low-carbon technologies and businesses, given appropriate policy environments, with considerable carbon and eco-nomic bene!ts.

"e Local Centres for low-carbon !nance and expertise can be capitalised partly or wholly as natio nal sub-funds underneath an umbrella fund framework. Speci!c recom-men dations for the design of such a system follow.

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Based on the successful fund concept of the EFSE Fund (European Fund for Southeast Europe), Luxembourg is recommended as the legal domicile for a variety of rea-sons. "e initiator of the Fund, the initial shareholders, and the eligible fund management company are familiar with Luxembourg law, the processes and the related coun-terparties eligible for additional services such as Custody and Transaction Management. "is would speed up the fund set up and structuring process and would be in ac-cordance with the ambitious time schedule for the set up of the IBTMC Fund (Fund for India, Brazil, "ailand, Morocco, and Costa Rica). "e IBTMC Fund should be organized as a SICAV (Société d’Investissement à Capital Variable), a closed-ended investment company organized under the laws of the Grand Duchy of Luxembourg in the form of a public limited company (société anonyme, S.A.) for an unlimited duration. "e Fund should be cre-ated as a specialized investment fund (“SIF”) under the Luxembourg SIF Law.

"e IBTMC Fund should be structured as an umbrella fund like the EFSE with some adjustments. It is proposed to set up National Subfunds for each country, but not to add regional Subfunds in order to reduce the complexity of the IBTMC Fund. If no regional Subfunds exist, it will also be unnecessary to pool the assets and to set up corre-sponding regional and national pools. During the initial phase of the IBTMC Fund, the following National Sub-funds should be established:

"e IBTMC SA, SICAV-SIF – India"e IBTMC SA, SICAV-SIF – Brazil"e IBTMC SA, SICAV-SIF – "ailand"e IBTMC SA, SICAV-SIF – Morocco "e IBTMC SA, SICAV-SIF – Costa Rica

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All National Subfunds should be cross-collateralized meaning that any loss in one of the National Subfunds will a$ect all Subfunds and the e$ects on the C Shares will only be calculated on an aggregate IBTMC Fund lev-el. All of the above mentioned modi!cations will reduce complexity, add to the transparency of the fund and make it more attractive for private commercial investors.

"e IBTMC Fund should build on the risk subordination mechanisms of the EFSE Fund. It should o$er collective Shares and Notes that will be allocated on a pro-rata basis to the respective National Subfunds. While there should only be one class of Notes, the IBTMC Fund will issue various classes of Shares according to the successful EFSE model, which o$er di$erent levels of risk according to the structure shown in Annex C.

"e EFSE should be used as a blueprint for the corporate structure of the IBTMC Fund and to incorporate a Board of Directors, an Investment Committee, and an Asset-Li-ability Committee.

"e Board will represent the IBTMC Fund and have the authorization to make any decisions on behalf of it in ac-cordance with the Luxembourg law, the articles of As-sociation and Incorporation, the Issue Document, and the Annual General Meeting of the Shareholders. It shall mainly consist of the Shareholders of the Fund. "e Di-rectors would be elected by the Shareholders at a general meeting of Shareholders. "is general meeting of Share-holders would further determine the number of Directors and other terms and conditions.

"e Board would appoint the investment committee con-sisting of between three to !ve members who do not need to be Board members. Its main responsibility would be to monitor and control the Fund Manager focusing on the investment pipeline, portfolio transactions, and the !nancial structure and performance of the Assets under Management. "e IC will furthermore make decisions on investments in Partner Financial Institutions based on the detailed Investment Proposals to be submitted by the In-vestment Manager.

"e Board on behalf of the IBTMC Fund will enter into a Fund Management Agreement with the Fund Manager to provide the following services to the Fund.

Develop and implement a comprehensive Portfolio Management Strategy to mitigate country, market, and credit risks

Identify, evaluate, negotiate and structure new PFI in-vestment opportunities and present the respective In-vestment Proposals to the Investment Committee

Review, monitor and supervise all outstanding PFI In-vestments and inform the Investment Committee or the Board of any early warning signs

Manage the Technical Assistance Facility of the Fund

"e Board of Directors will appoint a Custodian and Transfer Agent for the IBTMC Fund and will conclude a Custodian and Transfer Agent Agreement with the Cus-todian. It is suggested not to separate the Custodian and Transfer Agency responsibilities since they are closely re-lated. "e Custodian and Transfer Agent’s fees and costs will be charged to the IBTMC Fund in conformity with the Custodian and Paying Agent Agreement to be signed by the Board.

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From the above pages, it is obvious that PFIs on low carbon development should be tailored to the particu-lar country under consideration. Both local partners (the government and the private sector) should be engaged in strategic planning so as to give great responsibility for !-nancing strategy to local stakeholders.

Every country should have the policies that a$ect carbon development modi!ed in their frameworks and the power purchase agreements should be reviewed to attract the in-vestment of the private sector. In the same line, policies dealing with trade should be structured or better yet have a section that covers currency risk associated with carbon trade since this is not an asset with stable and predictable returns.

Information about carbon development should #ow easily within the speci!c country. Easy #ow of information gen-erally raises awareness and creates interest in the relevant stakeholders and other interested parties.

National !nancing programmes dedicated to low carbon development comprehensively should include !nancial risk management products, political risk insurance and other credit enhancements. In order for the programmes to secure local government support and engagement, they should emphasise TA and capacity building and where possible align local policy priorities – such as increasing employment or energy access. "e programmes should seek to grow a network of partners and stakeholders and to channel funds where possible through local FIs, in or-der to increase learning, knowledge transfer and absorp-tive capacity among local actors.

Selection and design of the most appropriate PFIs requires the evaluation of: the level of technological maturity, the characteristics of the target market segment and the coun-try conditions, including the macroeconomy, institutional structures and the maturity of the !nancial system.

Finally. this report provides speci!c recommendations for the establishment of National Low-carbon Centres under an Umbrella Fund structure for Brazil, Moroc-co, "ailand and Costa Rica. India is also included in the proposed Umbrella Fund structure, but PFI engage-ment there would ideally be coordinated or merged with the planned World Bank/DFID Low-carbon Innovation Centre for India in order to avoid duplication of e$orts. "is may mean refraining from the establishment of a new Centre in India, but a sub-fund within the Umbrel-la Fund structure could nevertheless be introduced in the context of a collaboration with the World Bank/DFID Centre.

International Organisations could play a role in tailor-ing the programme design for each of these Centres and sub-funds to their respective local contexts, which means establishing a comprehensive low-carbon development “diagnostic” framework for each country. It would be ap-propriate for the International Organisations to then re-main involved in an ongoing process of monitoring and adjusting these frameworks as country conditions change and as programme impacts are assessed, which would en-tail rigorous comparison goals and outcomes to inform the modi!cation of !nancing approaches over time. "e local TA and capacity building components of each coun-try programme, moreover, would provide further oppor-tunity for engagement. To conclude, the International Organisations could perform a similar role in relation to existing PFIs by developing country-speci!c, low-carbon diagnostic frameworks within which the instruments should ideally be placed, and which should inform the adjustment of these instruments over time.

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of A Shares will probably decline from 45% to 40%. A target dividend of 2.67% for the A Shares equalling a premium of 1% over Bonds with a !ve year tenor issued by the Federal Republic of Germany is proposed. "e A Shares will only su$er a net loss to the extent that the B Shares and the C Shares will have been depleted due to the types of losses stated above.

It is suggested marketing those Notes to private institu-tional investors as an attractive alternative to supranation-al bonds o$ering a substantial yield pickup while having the same low risk pro!le. Attracting commercial inves-tors would increase the outreach of the IBTMC Fund and make it a successful Public Private Partnership Vehicle with Double Bottom Line economic and social returns to all of its investors. "us the IBTMC Fund will be an attractive investment vehicle for the growing number of private institutional investors who are looking for invest-ments into low carbon funds in emerging markets being managed in a fair transparent and sustainable way. Equal-ly it is suggested to also benchmark the yield against the Bonds with a !ve year tenor issued by the Federal Re-public of Germany and to add a premium of 1%. So the Notes would be o$ered the same yield as the A Shares while having a lower risk pro!le thus making them more attractive to private institutional investors.

"e Notes will only su$er a net loss to the extent that the A, B, and C Shares will have been depleted due to the types of losses stated above.

"e Custodian and Paying Agent (see section below) would determine the quarterly revenues and expenses of the IBTMC Fund and calculate the quarterly Net Asset Value of the Fund. "e Income Waterfall Structure would be as follows.

1. Attribution of unrealized gains and losses to the C Shares (see section C shares above)

2. Payment of target dividends to the A Shares3. Payment of target dividends to the B Shares4. Attribution target capitalized dividend to the C

Shares (see section C shares above)5. Payment of the Performance Fee to the Fund Manager6. Funding of the TA Facility7. Payment of complementary dividends to the A, B,

and C Shareholders (C Shares receive only capitalized dividends)

"e proposed Umbrella Fund would issue various classes of Shares according to the following structure:

"e C Shares are the key foundation of the IBTMC Fund structure. "ey ensure the viability of the Fund and would account for roughly 40% of the total Fund capi-tal according to the !nancial model of the IBTMC Fund compared to approximately 30% for the EFSE. "e sub-stantial increase in the amount of C Shares takes into ac-count the higher risk pro!le of the respective countries and Projects as well as the fact that default rates might be higher for long-term loans compared to microlend-ing. "erefore the C Shares would provide a comforta-ble risk cushion for investors in the B and A Share Class and the Notes. According to the risk subordination wa-terfall structure, the C Shares would directly be a$ected by #uctuations in the valuation of equity participations, writedowns on any !nancial instruments due to impair-ments and net Mark-to-Market gains and losses due to #uctuations in Foreign Exchange rates. "e shares would be entitled to receive a target dividend of 1% and a com-plementary dividend depending on the income waterfall structure.

"e B Shares will probably account for only 15% of the target Fund structure of the IBTMC Fund mainly due to the fact that the C Shares already provide a large risk cushion for the fund. Furthermore, B Shares would pay the highest target dividend given the fact that investors in B Shares would have a higher probability of losses com-pared to A Shares and Notes. Currently, a target dividend of 3.45% allowing a premium of 1% over Bonds with a ten year tenor issued by the Federal Republic of Germa-ny is recommended. It is advisable to use this benchmark given the fact that the majority of C Shares will be sub-scribed by the German Federal Ministry for Economic Cooperation and Development. "is dividend makes it less attractive for the IBTMC Fund to issue B Shares. "e B shares will only su$er a net loss to the extent that the C Shares will be fully depleted through any losses.

It is expected that A Shares will account for 40-45% of the target Fund structure depending on the interest of private commercial investors to invest in Notes. Once the notes have been issued presumably in year 3, the portion

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"is section provides a summary of the existing con-straints on investment that were identi!ed by local lend-ers in each of the target countries. "e experts inter-viewed are listed in Annex F.

"e majority of project developers and independent ex-perts see a general lack in funding, which implies an urgent need for customised non-standard !nan cing vehicles.

Lack of equity: Although several dedicated RE equity funds are available, especially for wind and hydro (and recently for small-scale energy e%ciency), access to eq-uity is nevertheless limited. "is is especially true for small projects (less than USD 5 mil lion RE projects) and for non-pro!t project developers (who cannot o$er high rates of return).

Loan tenor: banks only o$er mid-term loans since they themselves do not have long-term re-!nan cing.

Interest rates are high because local banks do not have experience in EE/RE and – if available at all – IFIs ap-ply commer cial re-!nancing rates. Local banks need cheaper/longer re-!nancing and capacity building.

Fund managers maintain that regulatory and other non-!nancial issues discourage investors. Regulations are not well advanced; in general the RE investment framework should be more stable and stringent; there are many uncertainties and di$ er en ces across states. (However, some provinces do have reliable regulatory frameworks and purchase agreements as well as ade-quate feed-in tari$s.)

Investment is hindered by general lack of capacity in public administration, which is characterised by insuf-!cient streamlining of pro ces ses (permissions, subsi-dies), and generally cumbersome bureaucracy. Applying for permits and licenses takes too long, sometimes up to 3-4 years for small-scale RE projects. "e payment of government subsidies (as a basis for ven ture capital or a bank loan) is often delayed, and projects are not real-ised as a result. More transparency and harmonisation is needed within the entire country, but this is almost impossible in the Indian federal system. Besides high capital costs, the process for land acquisition takes very long, and lease agreement are only valid medium-term.

"ere is an urgent need for strengthening of utilities. Utilities at the moment freeze the RE sector. "ey lack phy sical capacities for grid connection and in addition

are heavily indebted. "ey can neither purchase nor feed in the power produced by RE projects. "ere have to be increasing feed-in tari$s and more stringent pow-er pur cha se agreements.

"ere is uncertainty about the post-Kyoto situation (af-ter 2012). Future bene!ts from CDM projects are un-clear. Investors, however, need clarity.

Bankers do not understand the tech no logies and o$er loans at una$ordable rates.

Industrial managers lack su%cient education about the concept of EE, and EE/RE project developers have to be supported in !nancial planning as the basis for loan/equity application.

Developers do not always have su%cient techni-cal expertise or basic data to apply for funding of RE projects.

Debt !nancing is constrained by the inability of lenders to secure personal guarantees of the loans from project developers.

Loan tenor: projects require longer loan tenor than lenders are currently willing to provide. It is rare that Brazilian CFI give loans for more than 5 years due to in#ation and the instability of the country. Although Brazil is stable now, there is still scepticism. "is creates a !nancing gap for long-term investors.

Lack of equity hinders investment in private-sector low-carbon projects even at a small scale (i.e. less than 1MW, often down to as low as 500 KW).

Investment in Brazil is excessively concentrated, with only two major public investors. "ese are the Bank of Northeast Brazil (BNB) that is active in !nancing wind projects in the northern region of the country, and the Brazilian Development Bank (BNDES), which !nances sustainable energy projects throughout the country.

Lack of capacity among project developers and local in-vestors constrains investment generally, and lack of un-derstanding of carbon !nance constrains investment in CDM projects. Carbon buyers currently o$er advance payments only when the projects have strong sponsor support and in many cases resemble secured loans. "is cuts o$ a large number of promising CDM projects, es-pecially for smaller projects in developing countries. As a consequence, there is no alternative of sources of !-nance, which leads to market failure.

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"e commercial risk of PPAs in Costa Rica constrains investment in energy projects generally.

Equity is lacking for even small investments by the pri-vate sector.

Investment is constrained by the need for longer loan tenor than lenders are currently willing to provide.

Investors experience di%culty in assessing the credit-worthiness of project developers.

Debt !nancing is constrained by the inability of lenders to secure personal guarantees of the loans from project developers.

A lack of capacity among loan and credit authorities to e$ectively assess the risk of low-carbon projects results in hesitancy to accept these risks and thus a lower rate of loan or credit approval, posing a further barrier to potentially viable investment.

Similarly, a lack of understanding of carbon !nance constrains investment in CDM projects.

Out-dated RE regulation implies suboptimal condi-tions for investment in Costa Rica.

Where supportive laws do exist, the inability of the public sector to e$ectively implement the laws never-theless poses a further constraint.

Investment in new production is constrained by the lack of demand in Costa Rica for new renewable gener-ation given because existing capacity already covers ex-isting demand. New generation therefore lacks a guar-anteed market in the local economy.

Costa Rica is a stable country but is nevertheless too dependent on the global economy (especially USA). "is enhances the risk to low-carbon investment from volatility of currency exchange and from global eco-nomic conditions that can constrain !nancial #ows.

Lack of seed capital in the form of both debt and equity !nance during the early stage of project development was identi!ed as a primary constraint for the develop-ment of these projects. "is implies di%culty conduct-ing tests, feasibility and legal studies, and otherwise laying the groundwork for the project before it can be-come commercial.

Di%culty in securing personal guarantees from project developers constrains debt !nancing.

Lack of skills and knowledge: Experts pointed to a lack of skills in conducting technical due diligence and of “entrepreneurial skills” such as business planning and contracting. Project developers were also seen as lack-ing managerial and !nance-related knowledge. Banks were seen to require capacity training for loan o%cers to conduct credit analysis for projects in the EE and RE !elds. Insu%cient technology transfer and the chal-lenge of evaluating local technology were also identi!ed as hindering investment.

"e main barrier to investment identi!ed by experts in Morocco is the inability to leverage local debt as a re-sult of the fact that PPAs are based in local currency, creating a signi!cant risk for potential investors.

Volatility of the interest rate makes it di%cult to ac-quire a !xed interest rate over a long-term period.

Dearth of relevant projects needing to be !nanced was also identi!ed as an obstacle to investment.

Inability to sell low-tension supply (such as would be produced by a solar panel on a household roof) to the National Electricity O%ce (ONE) blocks investment in potential low-tension generation projects. "e new RE law that has been enacted in 2010 in Morocco only concerns energy supply for high tension and middle tension transmission.

"e lack of an application tari$ and the impossibility of agreeing on a tari$ with an o$ taker using the ONE grid further constrain investment.

Local enterprises lack project development capacity.

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In#ation risk due to high energy prices was identi!ed by experts as a local barrier to investment in Vietnam.

"e monopoly of the state-owned energy company on power provision means it has e$ective veto power on the award of licenses in the country, which was identi-!ed as a further constraint on investment.

"e base price for the wholesale of power is kept low by the government, making low-carbon projects less com-mercially viable in the country.

A lack of clear policies and tari$s for RE means project development is generally not active in this country.

Supplementary background research furthermore indi-cates that large-scale development of grid-connected re-newables has been hindered by (i) high transaction cost of negotiating a power purchase agreement (PPA) with Vietnam Electricity (EVN), the main electricity pro-vider; (ii) an inhospitable and non-transparent regula-tory framework with a lengthy approvals process; (iii) the absence of a procedure for allocating or re-allocat-ing project sites to those most able to develop them; (iv) weakness of private sponsors to develop a site in a technically, socially and environmentally sustainable manner and take it to !nancial closure; (v) the same li-censing burden as for large projects; (vi) the absence of suitably long !nancing tenors; and (vii) lack of skills among sponsors and bankers in assessing risk in such projects.

Experts identi!ed an overall lack of available !nanc-ing – whether debt from CFIs, equity from investors, or grants from donors. Many developers lack su%cient equity for scale-up given the large initial capital invest-ments required by energy projects. At the same time, CFIs do not show interest in these projects, claiming that they are not bankable.

Because the market is very young, grants are needed to develop pilot project for demonstration, to cover seed capital investment and for TA.

Namibia has no feed-in tari$, and power deals are made on a single buyer model. "is constrains transac-tions by subjecting the private sector to long negotia-tion and no price signal.

"e general electricity tari$ in Namibia is not adequate to cover the costs of renewable energy generation.

Namibia is unable to subsidise RE and is unwilling to impose a price increase that would be unacceptable to Namibian consumers.

Investment is indirectly constrained by the lack of RE policy and of an integrated resource plan and mapping.

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