As a part of its ongoing Pacific Renewable Energy Program, the Asian Development Bank (ADB) has approved an umbrella facility of up to $100 million to provide financing support including loans, guarantees, and letters of credit to overcome constraints to private sector investment in renewable power projects in Pacific island countries.
The ADB, which was established in 1966, is owned by 68 members out of which 49 are from the Asia Pacific region. In 2018, it made commitments of new loans and grants amounting to $21.6 billion.
The Pacific Renewable Energy Program is set to support five separate renewable energy projects in ADB’s Pacific developing member countries over a 5-year period. ADB’s Pacific Department (PARD) and Private Sector Operations Department (PSOD) will work together to implement the program, the bank said in a statement.
PARD Director General Carmela Locsin said the program would help to build urgently needed capacity for energy sector expansion and private sector interest in clean energy projects in the region. “The objective is to implement more renewable energy projects in the Pacific by working with power utilities to identify transactions at an early stage,” she added.
Mercom had earlier reported about the bank’s announcement to invest $50 million in Indian renewable energy independent power producer Avaada Energy Private Limited. Avaada is a developer of utility-scale, rooftop, and off-grid solar projects.
Funding for power utilities in the Pacific is inadequate, the ADB release says, adding that private sector investment is crucial to expand renewable power generation as the region transitions from fossil fuels to clean energy. Investment is restricted by a lack of government credit support for the payment obligations of power utilities; development is also hampered due to a lack of bankable power purchase agreements, uncertainties over foreign currency availability, convertibility, and perceived political risks.
“This program is designed to work within these constraints and encourage private sector investment through an innovative blend of ADB’s direct private sector lending, ADB’s guarantees of commercial bank lenders, together with donor funds which provide a backstop to the payment obligations of the power utilities,” said PSOD Director General Michael Barrow.
The program is aimed to spur self-sustaining private sector development and, over time, reduce reliance by power utilities on grants and subsidies. A first project proposed for approval under the program has been identified, and a financing plan is under discussion. To meet international donor requirements, participating projects will be required to adopt environmental and social standards and to demonstrate good gender parity in their energy projects and/or related community projects, the release has stated.
“It will help remove barriers to investment by enhancing the creditworthiness of power utilities and mitigating perceived political risk for lenders,” he concluded.
Recently, the ADB, along with Southeast Asian governments and major development financiers has launched the “ASEAN (Association of Southeast Asian Nations) Catalytic Green Finance Facility,” a new initiative that aims to mobilize more than $1 billion in green infrastructure investments across Southeast Asia. The initiative is expected to provide loans and technical assistance for sovereign green infrastructure projects such as sustainable transport, clean energy, and resilient water systems. It also aims to accelerate private capital by mitigating risks through innovative finance structures.