GCF and World Bank sign renewable energy project agreement

GCF and the World Bank have signed an instrumental legal agreement to rapidly begin implementing the second phase of a renewable energy facility. It will support nine countries in meeting their NDC commitments while increasing access to electricity for the most vulnerable populations. The mitigation/adaptation cross-cutting Facility aims to also increase the reliability of the grid infrastructure, improving the country’s economic resilience, and the resilience of vulnerable households to better adapt to the devastating impacts of climate change.

The Sustainable Renewables Risk Mitigation Initiative Facility (Phase 2 Resilience focus) [SRMI-Resilience] will support Ethiopia, Guinea Bissau, Indonesia, Kyrgyzstan, Mongolia, Seychelles, Somalia, Tajikistan and Tunisia. SRMI-Resilience is a USD 160 million GCF program which will be blended with USD 960 million in World Bank financing to leverage USD 1.8 billion in private investments. The main expected results are the deployment of 2.2 GW of new renewable energy projects and 570 MWh of battery storage, and access to electricity for 3.2 million additional people. The first phase of the facility was approved in March 2021 and is already being implemented.

The legal agreement – called a Funded Activity Agreement (FAA) - was signed on 17 March immediately after GCF’s most recent Board meeting where the funding proposal was approved by the Board. 

With the signing of SRMI-Resilience’s FAA, the World Bank, as the accredited entity, can now rapidly move from approval to implementation, given the scale of needs on the ground and the need for rapid investment in renewable energy to allow countries to deliver economic growth sustainably.

Achieving global goals of climate change mitigation and providing universal access to electricity will require a significant stepping up of investment in renewables to allow countries to meet ambitious climate targets without compromising economic growth.

Both phases of the Facility will help to close critical investment gaps in renewable energy in developing countries, the cost of which has been coming down significantly due to falling technology costs, making investment in renewables commercially viable.

Despite falling costs, investment has been limited by a number of constraints including limited planning capacity, lack of public-private partnerships, weak competitive procurement capacity, low credit worthiness acting as a barrier to private investment and others. 

The Facility will provide technical assistance to help countries design and deliver a sustainable, climate resilient energy transition program, increase access to electricity, mitigate perceived risk to boost private investment and support project management at the country level.

Speaking at the signing of the agreement, Yannick Glemarec, GCF Executive Director said, “This programme is critical because financing costs in developed countries mean renewable energy is an unbelievably attractive value proposition, but you bring the same technology to developing countries that have lower credit ratings and suddenly the cost of financing means that your project that was so attractive in a developed country is now unbankable in developing economies and it’s very easy to forget that.   GCF’s focus is on making sure we create a commercial precedent in countries that do not have this precedent for renewable energy so that investors can better assess and reprice risk.”

“The Sustainable Renewables Risk Mitigation Initiative (SRMI) is a key component of the World Bank’s energy transition strategy. It has played an important role in helping governments address barriers to sustainable and bankable renewable energy projects while maximizing socioeconomic benefits. For this second facility, the World Bank worked with the Green Climate Fund in developing innovative risk mitigation instruments focusing on critical risks inhibiting mini-grid investments, foreign exchange and utility bankability. SRMI-Resilience is expected to leverage over US$ 1.8 billion in private investments to finance and operate 2.2 GW of renewable energy,” said Guangzhe Chen, World Bank Vice President for Infrastructure. 

“Climate change poses a profound threat to development gains. Countries need to make climate resilience a key priority to ensure a safer and more prosperous future. Our partnership with the GCF allows us to more effectively support governments achieve their NDC targets. SRMI-Resilience is the first adaptation/mitigation cross-cutting program for the Bank, focusing on increasing the deployment of renewable energy while increasing the resilience of infrastructure and vulnerable populations. It aims to improve the economic resilience of 22.5 million people that will have access to increasingly reliable power, and increase resilience to climate shocks of 3.2 million people that will be provided with access to modern electricity,” said Jennifer Sara, Global Director for Climate Change at the World Bank.