1. Sustainable energy access Managing FX Risk in Climate Finance

2. Setting the stage
FX Risk = FX market risk + inconvertibility & transfer + counterparty risk
FX risk is a major cost component and inadequate risk allocation/management slows technology roll-out
Social impacts, micro-economic impacts, macro-economic impacts

3. Currency Risk Threatens Energy Access
What to do?
Borrow locally
Securitize local currency asset
Buy a cross currency swap
Hike tariffs/rates
A 10% devaluation reduces the asset value of the un-hedged company by ~$0.6m. The hedged company faces a reduced asset value and(!) a reduced liability value with a P&L effect close to 0.

4. The siren call of fx speculation?
5% USD loan
12% LC loan

5. Beware! Currencies crash all the time....
The share of countries with annual depreciation rates greater than 15 percent, , Reinhart and Rogoff, 2010

6. TCX Absorbs and Allocates FX Risk
Global risk pools which offers 15y+ hedges in > 70 currencies,
> USD 4bn closed, special impact on Micro and SME finance
Cooperates with DFIs, commercial banks and institutional investors to deepen local markets: additionality + risk-reflective pricing
A scaleable solution: global diversification and stable operating costs.
Blending Instruments

7. TCX Success Factors Diversification and scale
Pricing capacity and expertise in challenging environments
Patient capital and supportive stakeholders
Innovation (pricing models, delivery, etc)

8. Power of Diversification
Period , Annualized avg. monthly return, annualized STDV

9. Hedging Of Solar Project in Kenya
KES
SE4All Projects/Firms/SPV
LCY Revenues
US$
KES loans
US$ loans
Concessional fx hedges
Competing Funders: DFIs. Specialized Funds, Institutional Investors, Commercial banks
ISA - Donor
Concessional fx hedges
TCX: risk pool & market maker
Concessional fx hedges
Intermediating DFIs, Specialized Funds
Market Reflective FX hedges
Pension Funds
Commercial banks

10. Future Topics
Counterparty Risk Inconvertibility GREG Role of Subsidies – Impact and distortions

11. Summing up FX Risk is main risk/cost factor in access to energy.
TCX provides long-term hedging instruments for most DAC/IDA currencies (
TCX can become a main fx risk solution for climate finance because it is highly scaleable, crisis tested, and crowds in private sector capital.

12. http://www.tcxfund.com | +31 20 531 4851
Per | Jerome