The EDFI Management Company (EDFI MC) launched the new Transferability & Convertibility Guarantee Facility for renewable energy projects (T&C Facility) on 17 June. EDFI MC, a common platform established by European DFIs to deliver innovative financing facilities in partnerships with the EU institutions, will administer the facility on behalf of Proparco, the French Development Finance Institution, for a total amount of EUR 26.2 million.

The new T&C Facility, established under the EU Blending Framework, covers inconvertibility and non-transferability risks between local currencies and euros and/or dollars to support DFIs’ high-risk investments in independent power producers particularly exposed to convertibility/transferability risks.

Removing barriers to international financing

The inconvertibility and non-transferability risks are important for the energy sector when electricity is sold in local currency while power plants are financed in USD or EUR and local governments do not guarantee such risks. Macro-economic conditions have resulted in countries with export-oriented economies experiencing some difficulties with foreign exchange reserves, and increasing the risks for international investors.

The T&C Facility will facilitate more efficient and effective international financing of renewable energy projects across SE4ALL[1] developing countries by mitigating convertibility and transferability risks with a reserve account for each project meeting the eligibility criteria.

Impact on sustainable development and energy access

The T&C Facility will complement a standard project debt service reserve account designed to cover payment risks, permitting risky investments particularly exposed to convertibility/transferability challenges. The guarantee therefore aims to unlock financing by improving the bankability of private renewable energy projects and reduce sovereign financing requirements for the power sector (SDG 8, 9, 17). The Facility will also support the development of renewable energy projects, up to the target of 250 MW, and contribute fighting climate change. (SDG 7, 10, 13).

“Efficient risk management mechanisms to spur renewable energy projects in developing countries require financial innovation and reliable partnerships. EDFI MC is delighted to launch this new facility with EU support, to help European DFIs go even further in clean energy investments that meet development needs,” says Dominiek Deconinck, CIO at EDFI MC.

EDFI MC will monitor the following development indicators, aligning with European DFIs mandate and EU ambition for a green transition in emerging markets and developing countries:

• senior debt and equity leveraged by the guarantee;
• new renewable energy generation installed capacity (MW);
• anticipated increased annual energy output produced from renewable energy sources (MWh);
• anticipated GHG emissions reduction (tons of CO2eq per year); and
• anticipated number of jobs (direct and indirect) created to provide for or as a result of the additional renewable energy generation capacity installed.

The facility is available to European DFIs which are EU pillar-assessed. Five to six investments are expected with an implementation period of 12 years.

[1] Sustainable Energy for All (SEforALL) is an international organization that works in partnership with the United Nations and leaders in government, the private sector, financial institutions, civil society and philanthropies to drive faster action towards the achievement of SDG7– access to affordable, reliable, sustainable and modern energy for all by 2030 – in line with the Paris Agreement on climate. https://www.seforall.org/