Renewable Energy Catalyst Trust Fund
What is RECTF?
The RECTF is a Multi-Donor Trust Fund that supports Climate Finance investment by catalyzing renewable energy projects and projects tied to renewable energy (i.e., mini-grid systems, transmission systems, battery storage etc.). RECTF is available for use in all MIGA member countries, with a particular emphasis on supporting projects in the world’s poorest countries and particularly those in Sub-Saharan Africa.
The RECTF was established in November 2021 with the Government of Norway as the anchor donor. Its current donors are Norad—the Norwegian development agency, and the Government of Japan.
What does it do?
The RECTF’s primary purpose is to provide funding that sits alongside MIGA’s guarantee support for a specific project and helps manage the financial risk. This allows MIGA to provide longer and more affordable guarantee coverage and is especially effective in higher-risk investment environments. In addition, the RECTF has a small envelope for providing grant funding to help unlock or enhance projects that are benefitting from MIGA support. The ways in which the RECTF can currently be deployed are as follows:
Risk Capital Applications
First-loss Layer (FLL): The RECTF can provide an FLL for MIGA Guarantees, solely or jointly with other FLL instruments, to provide risk transfer and claim loss mitigation where project risks are deemed high based on the country risk rating. This has the effect of reducing MIGA’s capital consumption backstopping the guarantee, and in turn reduces the cost of the guarantee.
Reinsurance: For larger transactions, MIGA has limits on how much exposure it can carry on its own balance sheet, and is therefore an active user of the private sector reinsurance markets where project risk is laid off. The RECTF can provide reinsurance coverage for a project where sufficient private reinsurance is not available through MIGA’s traditional channels, thereby allowing MIGA to issue larger gross guarantee amounts.
Political Risk Insurance (PRI): A non-commercial risk guarantee to be provided entirely on the RECTF capital account (i.e. without MIGA participation) in eligible non-member countries such as the West Bank and Gaza. In such cases, MIGA still processes and administers the guarantee.
Guarantee Tenor Extension: Fill coverage gaps for guarantee contracts with long-dated tenors (i.e., beyond 15 years) or to provide coverage beyond MIGA’s outer tenor limit (i.e., 20 years), to cater to long-term renewable energy projects.
Grants and Technical Assistance
Technical Assistance: Direct technical assistance to project stakeholders through third party service providers, with the aim of de-risking or catalyzing MIGA guarantees, or enhancing the development impact of MIGA-guaranteed projects.
Grants: Grant funding to project stakeholders to cover costs of ancillary activities which would de-risk or catalyze MIGA guarantees, or enhance the development impact of MIGA-guaranteed projects.
Liquidity Support (under development): The RECTF can be used to provide support as a liquidity backstop to eligible projects. This product is aimed at helping to advance prospective projects and is expected to be particularly relevant for smaller investors that may have limited resources.
How is it used?
MIGA deploys RECTF at its sole discretion in cases where the RECTF support is expected to help catalyze investment and enhance outcomes relating to renewable energy projects and projects tied to renewable energy.
What are RECTF’s Benefits?
The RECTF’s risk capital solutions can help make guarantees more available and affordable, particularly for smaller investors, and thereby encourage further private sector investment into renewable energy projects. The grants and technical assistance delivered through RECTF serve a complementary function, helping projects experiencing various challenges to move forward or to expand their development impacts.