Mobilising private finance in emerging economies - the UK approach LCEDN Workshop 25 June 2013

£2.9 billion Split between adaptation (c.50%), low carbon development (c.30%) and forests (c.20%) Delivering transformational change Priorities: –Demonstrate that building low carbon, climate resilient growth at scale is feasible and desirable –Support the international climate negotiations, particularly through supporting adaptation in poor countries and building an effective international architecture –Drive innovation and new ideas for action, and create new partnerships with the private sector to support low carbon climate resilient growth –Results and measurement – MW, private finance £, CO2, jobs etc Importance of evaluations UK’s International Climate Fund

Reduce cost and raise returns Reduce actual and perceived risk Develop enabling environments, build capacity Considerations in designing programmes: Additionality Target market failure Careful use of subsidy Sustainability & exit Risk appetite Priority countries UK approach to mobilising private finance

Private sector is not homogenous Pension funds behave quite differently to angel investors or project finance debt in infrastructure UK Government must be more hands off further along the development cycle or where institutional finance. Can be more involved with start up finance. Maximise expertise so focus on energy, not agriculture Consultation with business via CMCI and DFID focus groups UK approach to mobilising private finance

Spread of programmes

Two new commercially run private equity funds that will make investments in to climate friendly sub-funds and projects in developing countries. UK “hands off” approach. Aims Drive new types of private money into climate investments e.g. pension funds, SWFs Speed up the development of private equity market in climate change/climate friendly projects Show climate investments are profitable by building network of sub-funds with good investment track records UK project – Climate Public Private Partnership “CP3”

UK investment of £110 million + circa £11m technical assistance UK project – CP3 IFC Catalyst FundCP3 Asia IFC AMC as fund managersCFIG + Asian Development Bank as fund managers Global focusAsia only 70% sub funds (with a focus on first time fund managers) 70-80% direct investments 20% sub funds First close: USD $281.5 million (UK $80, IFC $75, Azerbaijan $50, Canada $76.5) Second close later Larger fund

Multi-donor project (UK contribution of £20 million plus), providing top up grant to renewables Feed in Tariff, support to regulator, use of World Bank Guarantees 1MW to 20MW plants– bagasse, hydro, biogas etc Aims Demonstrate to private sector developers that investment in renewable energy in countries like Uganda is financially attractive Demonstrate to Ugandan and regional governments that incentivising investment in renewable energy can mobilise private sector investment. Get Fit Uganda

UK project – Green Africa Power New Private Infrastructure Development Group (PIDG) facility Aim: to demonstrate the commercial and technical feasibility of larger renewable energy projects in Africa 5 – 200MW projects All renewable technologies 75% to the poorer countries in Africa Uses patient (up to 15 year) capital, subordinated to other lenders but above equity (Debt equity hybrid)

UK - minigrids (in development) Off grid infrastructure. Mini grids in Tanzania and Kenya Financing support – guarantees, loans etc for developers Technical support for development of regulations e.g. tariffs.

Prizes versus Challenge Funds Prizes – specific problem Will be launching later in year/early Tender out now for consultancy. Challenge Funds – themes with merit based award Examples – REACT, EEP, IDEAS Climate Innovation Centres. Hubs in Kenya, Vietnam, Ethiopia Supporting innovation

Results Based Financing Off grid market. Projects which are close to financial viability. Uses demand led concepts from vaccines – agree to pay top up subsidy for results. Flexible Fund – in progress Recognises “valley of death” after the challenge fund/initial grant before the VCs will come in. Working capital loans, grants, equity – i.e. “flexible” Getting innovations to market and to scale

Working with supply chains Top ups for non viable activities and shifting from greenfield to brownfield Equity investments to propel sustainability Demonstration effect Forestry fund (in preparation)

 Policy risk – UK work  Readiness activity - to develop the policy and regulatory environments in developing countries e.g. Climatescope, India smart grids etc  Local finance  Cities  Adaptation Suggestions for future focus

 UK Government Web site Enter “International Climate Fund” Also “Funding and partnerships with businesses in the UK and developing countries”  Sign up for DFID Low carbon newsletter (includes information about other donor projects) and to join contacts list – or g- More information?