Powering Up — Cleanly
November 29, 2012—Today, more than 1.3 billion people are still without access to electricity worldwide. Almost all of them live in developing countries. Without access to energy services, the poor are deprived of the most basic opportunities needed to improve their standard of living. Hospitals go without power, children study by candlelight, and businesses reduce production capacity.
This point is clear: Access to power is essential to ending poverty.
Now, with climate change an enduring concern and wide recognition of the benefits of clean energy, countries are looking toward renewable sources. Certainly, clean power is an enormous boon to countries without indigenous fossil fuels. In addition to powering grids without polluting the environment, clean power brings technological advances, expertise, and jobs.
Indeed, countries are making significant investments and developing expertise in renewable energy and efficiency, laying the foundation for sustained development and prosperity. Here, the private sector is essential to delivering solutions to support these countries' efforts and there are many creative ways that governments and businesses can partner to achieve this. Yet, high up-front costs and perceived political risks may affect investors’ decisions to enter certain markets. This is where MIGA can add significant value by offering an extra degree of comfort to allow investors and lenders to move forward with confidence.
MIGA has a track record of supporting energy transformation by insuring sustainable power investments in all regions of the world. Geothermal energy in Kenya, wind energy in Nicaragua, waste-to-energy in China, and hydropower in Albania and Pakistan—these are all examples of MIGA-insured projects that demonstrate the Agency's commitment to this critical sector.
Given the importance of energy for development, MIGA's energy experience is significant. The Agency's guarantees are well-suited and well-tested to reduce noncommercial investment risks in these projects. Often, MIGA's insurance has played a pivotal role in helping companies attract funds for large, capital-intensive investments.
As part of the World Bank Group, MIGA facilitates investors' ability to take advantage of the full gamut of products that the group offers, including financing from the International Finance Corporation (IFC). MIGA's coverage can also be used in conjunction with the World Bank's partial risk guarantees, which include conditions that promote stable regulatory and contractual frameworks, while helping investors obtain capital market financing on better terms and securing public obligations by a sovereign counter-guarantee.
In addition, MIGA’s ability to help investors address the environmental and social risks so often encountered with power projects is a very important aspect of the Agency's work and comparative advantage. MIGA colleagues have successfully advised investors on many challenges posed by the sector including resettlement, biodiversity, resource management, health and safety, and community engagement. These are complex and interconnected issues, and MIGA has staff dedicated to addressing them.
Below are vignettes of some of the clean power projects insured by MIGA.
Geothermal Power in Kenya
A MIGA-guaranteed investment in Kenya is helping the country address severe power shortages while simultaneously offsetting greenhouse gas emissions. The project consists of the design, construction, management, and operation of a base-load geothermal power plant with a combined capacity of 84MW on a build-own-operate basis in the Olkaria geothermal fields of the Rift Valley. The project uses indigenous geothermal fuel resources, lowering Kenya's dependence on imported thermal energy.
MIGA issued a guarantee of $99 million to Ormat Holding Corp. for its equity investment in OrPower 4, Inc. The electricity generated by the plant is sold under a 20-year power purchase agreement with Kenya's national power transmission and distribution utility.
Hydropower in Uganda
A severe electricity crisis has impacted the livelihoods of millions of people in Uganda, stunting the country's economic growth by an estimated one percent of GDP. MIGA support to the country's power grid includes a $115 million guarantee for the Bujagali Hydropower Project. The project involves the construction and operation of a 250-megawatt, run-of-the-river hydropower plant on the Victoria Nile.
MIGA's guarantee insures an investment by World Power Holdings Luxembourg S.à.r.l., a subsidiary of Sithe Global (USA) and was considered the linchpin to securing part of the investment.
Developed on a build-own-operate-transfer basis, the plant re-uses water flowing from two existing upstream facilities to generate electricity. The project also includes an associated Interconnection Project, which consists of a series of transmission lines owned and operated by the Uganda Electricity Transmission Company.
The guarantee coverage provided by MIGA is one element of the World Bank Group’s support of Uganda's strategy to close its energy supply and distribution gap. The International Finance Corporation lent $130 million for the project, while the International Development Association provided a partial risk guarantee of up to $115 million.
Read blog on Bujagali here.
Windpower in Nicaragua
Nicaragua's electrification rate is among the lowest in Central America and reliance on oil-fired generating plants has made the long-term marginal electricity costs the highest in the region. MIGA's $16.3 million in guarantees to Eolo de Nicaragua S.A., a 44-megawatt wind farm in Rivas province, are helping the country address its power-sector issues. The Agency's guarantees cover an equity investment by Globeleq Mesoamérica Energy (Wind) Limited (GME Wind) of Bermuda.
The Eolo de Nicaragua project consists of 22 Gamesa G90 2-megawatt wind turbine generators, as well as the facilities and equipment required to connect the generators to a high-voltage substation. The project is estimated to generate 170 gigawatt hours of electricity per year, without requiring any fossil fuel supply.