WASHINGTON DC, November 5, 2021 — With a technology-driven shift underway in the energy sector across the globe, distributed renewable energy systems like mini-grids, off-grid systems, residential systems and captive power are increasingly viable sources of energy alongside traditional national grids. These systems are often developed by entrepreneurs and smaller investors operating with fewer resources than conventional power project development companies. Such investors are frequently daunted by political uncertainty in sub-investment grade emerging markets and developing economies.
To help better meet clean energy investors’ risk management needs, the Multilateral Investment Guarantee Agency (MIGA), the political risk insurance arm of the World Bank Group, is launching today the Renewable Energy Catalyst Multi-Donor Trust Fund (‘RECTF’), which will be used as a facility to backstop risk and thereby make guarantees more accessible and affordable. The Government of Norway, through the Norwegian Agency for Development Cooperation (Norad), is serving as the anchor donor for this multi-donor trust fund and has been a guiding partner in establishing this facility.
“Almost one billion people lack access to electricity. Investment guarantees are one of the most important measures we can take with public funds to facilitate the green transition in developing countries," said Anne Beathe Tvinnereim, Norway’s Minister of International Development. "We must step up to keep the temperature rise at a livable level, and we must do so now."
Building on MIGA’s long-standing engagement in the renewable energy sector, the RECTF aims to catalyze additional private sector investment into this critical area and help developing countries hasten their transition to climate-friendly, green energy.
In addition to entrepreneurs and small investors, the RECTF, initially sized at US$60 million, is expected to benefit industrial consumers looking to set up dedicated power solutions, as well as larger companies with market and project experience in developed countries looking to expand into developing countries.
The RECTF will complement MIGA’s existing tools and resources. A specific emphasis will be made on supporting projects in the poorest countries (IDA) and Sub-Saharan Africa. Projects supported by the RECTF will also need to meet MIGA’s due diligence requirements.
“Universal access to electricity driven by clean, renewable energy remains a core development objective,” Ethiopis Tafara, MIGA’s Vice President and Chief Risk, Legal and Administrative Officer said. “By promoting private, cross-border financing, the Renewable Energy Catalyst Trust Fund will bolster investor and lender contributions to global mitigation and adaptation efforts.”
Norad will be allocating up to Norwegian Kroner (NOK) 100 million annually for five years. Other donors are also expected to contribute over time.
“This exciting partnership between MIGA as a reputable guarantor and Norad will be a significant contribution from Norway to stopping climate change and ending energy poverty. We know that guarantees are among the most effective ways of mobilizing commercial investors to renewable energy projects,” said Norad’s Director General Bård Vegar Solhjell.
Achieving sustainable energy access and combating climate change are key elements of the Sustainable Development Goals and the World Bank Group’s Climate Change Action Plan. Transforming the global energy system is essential for meeting the Paris Agreement objective of limiting the rise in average global temperatures to well below 2°C, and ideally to 1.5°C. Renewable energy systems are expected to play a key role in reaching this target.
Since FY16, MIGA has supported 55 renewable energy projects totaling $1.9 billion in new gross guarantee exposure. Over the past three fiscal years, 85 percent of the power generation projects that MIGA has supported have been renewable energy projects.
MIGA was created in 1988 as a member of the World Bank Group to promote foreign direct investment in emerging economies by helping mitigate the risks of restrictions on currency conversion and transfer, breach of contract by governments, expropriation, and war & civil disturbance; and offering credit enhancement to private investors and lenders.
Since its creation, MIGA has issued over US$65 billion in guarantees across 119 developing countries.
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