On 5-6 December, Tashkent hosted a workshop on renewable energy (RE) policy development jointly organized by the Government of Uzbekistan and the World Bank Group (WBG) in partnership with the International Renewable Energy Agency (IRENA). The presentation was delivered during the above-mentioned event.

1. Financing RE projects with Private
Sector Participation
Pedro Sanchez
World Bank Group Energy & Extractives

2. Outline
• Auctions for RE projects
• RE funds

3. Auctions for RE projects

4. A general shift from Feed-in Tariffs to Auctions
32
60
78
11
18
30
6
29
67
2005 2010 2015
FIT (FIP) RPO Auctions

5. 5
Auctions promote price discovery
Auctions
Government
sets quantities,
market sets the
price
FITs
Government
sets the price,
market sets
quantities

6. Costly with high deployment rates and
tariff adjustment process is complex
No exposure to competition and
electricity market prices
Relatively high transaction costs for both
developers and auctioneer
Risk of underbuilding of the system,
delays, etc.
Both approaches have pros and cons
6
FITs
Limit the risks for investors (including in
emerging technologies)
Facilitate the entry of new players in the
market
Can be funded by consumers and not
expose public budget
Long term security drives deployment
and brings lower costs
Auctions
Flexibility of design according to
objectives and based on local policies
Allow true price discovery in the given
country/market
Provide greater control over quantities
and possibly also location of plants
Enable transparency and enforceable
commitments to build power plants
Advantages Advantages
Disadvantages Disadvantages
Source: based on IRENA

7. Methods to increase investor confidence
7
Scale
• Ambitious RE targets
• Multi-country approach
Repetition
• Learning benefits
• Reduced transaction costs
Site preparation
• Strategic site identification
• Lower risk
Guarantees and/or stapled
financing
• Lower risk
• Leveled the playing field

8. Argentina: superguarantee mechanism
8
• Technology neutral renewable energy auction
• PPA for 20 years fixed in USD but paid in local
currency and indexed
Basic
setup
• Trust Fund for the Development of Renewable
Energies (FODER) serves as a guarantee for
PPAs
• Bid price adjustments for certain connection
nodes and for projects with early delivery
Features
• WB guarantee of USD 500million for the FODER
• Winners can also obtain individual WB
guarantees
Role of
WBG

9. India: extensive use of auctions to meet targets
9
• Reverse bid auctions for several years now, aim
to deliver 100GW target by 2022
• State-level as well as national auctions
Basic
setup
• PPAs in local currency, indexed to inflation
• India benefits from very low equipment costs
• Local commercial financing available
Features
• WB financing evacuation infrastructure and IFC
advisory services for REWA solar park in Madhya
Pradesh
• WB supporting rooftop solar – multiple delivery
models
Role of
WBG

10. Zambia: competitive prices in a new market
10
• Scaling Solar process of WB/IFC/MIGA
• Solar PV auction with pre-selected sites
Basic
setup
• Creating market scale through standardized
process
• Achieved USc 6/kWh non-indexed (equivalent to
an average of USc 4.7/kWh over contract lifetime)
Features
• De-risking through WB and MIGA guarantees
• Stapled financing of IFC
Role of
WBG

11. Renewable energy funds

12. Renewable energy fund
• For sustained support to RE, there should be clear
mechanisms to either support investments or pass costs
through to consumers
• Costs for feed-in tariffs for example are passed through
electricity tariffs
• An RE fund can be used to reduce the cost of capital

13. India Renewable Energy Development Agency (IREDA)
• Established as a government-owned corporation in 1987,
specifically to finance renewable energy projects.
• IREDA receives funds from a variety of international
organizations as well as from the Government of India and
its own borrowing (for example using tax-free guaranteed
bonds with a 7-10 year tenor, Lines of Credit from Bilateral/
Multilateral Institutions)
• In 2016-2017 fiscal year, IREDA loans supported capacity
addition of 2477.60 MW

14. Argentina Fund for the Development of Renewable Energy
–(FODER)
• A trust fund to enhance and foster renewable energy.
• Through FODER, the GoA expects to provide debt
financing and payment guarantees (for liquidity or
termination obligations) to renewable energy projects.
• FODER is to be capitalized with:
o resources from the national treasure, equal or higher to 50% of the savings
achieved by switching from fossil fuels to renewable energy sources;
o specific taxes to energy demand (to be determined);
o revenues from the issuance of trust securities by the Fund’s trustee and;
o other external sources that wish to contribute to the Fund.

15. Thank you

16. Risk mitigation with public funding mechanisms

17. Public financial instruments to support RE
Instrument Use
Grants and long term
equity
Capital grants fund part of the investment costs of an RE project,
generally in an effort to reduce its ultimate financial cost to increase
its competitiveness, or—where off-takers are obliged to purchase its
output—to reduce ultimate customer prices.
Senior Debt Senior debt is primarily used to reduce the costs of the project, by
providing concessionary funds that may be blended with more
expensive commercial funding, and to offer longer-term debt than
may be available in local financial markets.
Asset-backed
securities
Asset-backed securities are bonds or similar instruments, which are
backed by the cash flows generated by a RET project or projects
(rather than being corporate bonds backed by the assets of a
company as a whole).
Guarantees and
insurance
Guarantees and insurance do not comprise direct financing but offer
protection to financiers against risks, making it possible to mobilize
commercial financing for the necessary terms and at acceptable
costs.

18. World Bank Guarantees
• Provide credit enhancement to support financing
o Policy-Based Guarantee (for governments)
o Project-Based Guarantee (for SOEs and private projects)
• Backstop payment obligations from public entities
o Project-Based Guarantee (for SOEs and private projects)
• Eligible parties:
o Governments
o State-owned enterprises (SOEs)
o Private projects

19. Why World Bank Guarantees
• Mitigate risks to support the mobilization of private capital
o Enable projects by enhancing the credit worthiness of borrowers/offtakers
o Improve risk profile and transaction structuring
• Leverage World Bank resources to mobilize capital for development
o Guarantees enable member countries to raise larger amounts of capital than through
straight loans
o More efficient use of the World Bank balance sheet
• Competitive terms
o Same pricing for all IDA concessional guarantees: 75bps p.a.
o Pricing of IBRD guarantees and IDA non-concessional guarantees only depend on
tenor of guarantee: 50 to 100bpsp.a.
• Effective use of member countries’ World Bank allocation
o IDA countries benefit from a 1:4 preferential booking treatment (only 25% of the
guarantee face value is booked against their country allocation)
o IBRD countries may also benefit from the same preferential 1:4 booking treatment on
a case by case basis