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Financial Mechanisms for Sustainable Energy

Financial instruments are fundamental to remove barriers and encourage investments that contribute to more efficient energy use, reduce the use of fossil fuels and mitigate climate change. The IDB has been developing and implementing innovative instruments such as concessional loans, green bonds, energy savings insurance, contingent grants, technology innovation facilities and performance contracts. Efforts have been focused on promoting private investment, institutional strengthening and facilitating regulatory developments on the fronts of energy efficiency, renewable energy, sustainable transportation and energy storage.

 

Scope of Activities

Renewable Energy

Support for the design and implementation of financial and non-financial instruments that remove barriers for new solar, wind, biogas, geothermal and biomass projects on and off the grid.

Energy Savings Insurance - ESI

The Energy Savings Insurance Program (ESI) removes barriers to energy investments through four instruments that mitigate project risks and build investor confidence: standard contract, energy savings insurance, savings validation and financing. The contract guarantees the performance of the project in terms of energy savings or energy generated and is backed by an insurance policy that is activated in the event that the promise of savings or generation is not fulfilled. The validation is carried out by an independent entity with experience in energy project certification and its concepts are binding for the parties. The financial support required by investors is channelled through financial institutions interested in creating a market and a portfolio of projects with assured energy savings. The client or investor is responsible for applying to the bank for a loan to finance their project. In turn, the supplier is in charge of managing and acquiring the insurance policy in favor of the investor.

The ESI Model is applicable to both energy efficiency and distributed generation projects, largely solar photovoltaic. The energy savings or the energy generated must be guaranteed for a period of time sufficient to recover the investment. The ESI Model is applicable both to projects of equipment replacement by more efficient ones and to new installations. The ESI Program includes incentives for the development of demonstration projects.

The ESI Program is also being replicated in Europe by BASE with the support of the European Union’s Horizon 2020 Research and Innovation Programme. See details at: ESI - Europe.

Sustainable Transport

The transport sector in Latin America and the Caribbean contributes to approximately 34% of energy-related greenhouse gas emissions. The Bank seeks to promote investments in lower emission vehicles such as hybrid and/or electric public and private transport fleets. Electric mobility represents a great opportunity for the countries of LAC, since reduces GHG emissions to the extent that the electricity grids in the region have relatively low emission factors, lower than in some developed countries. Electrical mobility also helps to reduce emissions of air and noise pollutants, improve local air quality and reduce the impact on health, particularly for inhabitants in urban areas. Interventions from the financial side are aimed at removing barriers to investment through risk mitigation mechanisms for investors and financial institutions and the development of innovative solutions driven by concessional climate funds. Some of the issues addressed are the analysis of concession contract models, technical and financial evaluation of specific projects, definition of investment models and support to financial institutions in building sustainable transport capacity.

Energy Storage

Is a critical tool for the expansion of renewable energy, enabling the electrification of transport and energy consumption in urban areas, in particular with grid-connected storage systems. There is a relatively wide range of technologies that can be exploited and their use will need to be extended as storage costs decrease, which is already happening progressively. It focuses on the development of schemes to facilitate investment in battery electric energy storage, in recognition of the multiple services that batteries can provide in the supply, demand and transmission of energy. Initially the Bank has focused on promoting the implementation and scaling up of hybrid solar/wind systems - small and large scale energy storage and the analysis of regulatory issues.

Energy Efficiency

Design and implementation of financial and non-financial instruments that promote investments in energy efficiency though technical cooperation and concessional funds.


 

Where it is implemented

Argentina

Promote production efficiency and energy use in SMEs.

Promote production efficiency and energy use in SMEs.

Brazil

The ESI Program is being implemented in Brazil in cooperation with three public development banks: BRDE (state of Rio Grande do Sul), BANDES (state of Espirito Santo) and Goiás Fomento (state of Goiás). In September 2018 the Banks set aside approximately $ 25 million total to finance ESI projects in distributed generation and energy efficiency in the three states. The ESI program in Brazil is also open to other financial institutions. The financing strategy combines medium and long-term loans with three project risk mitigation instruments that support the identification and structuring of technically robust and bankable projects: a performance contract, technical validation of the projects, and the energy savings insurance.

Technical Documents

Financing and Incentives
Technical validation
Insurance
Standardized Contract

Chile

The ESI Program is implemented in Chile under the leadership of BancoEstado. The financing strategy combines medium- and long-term loans with three project risk mitigation instruments that support the identification and structuring of technically robust and bankable projects: a performance contract, technical validation of the projects, and the energy savings insurance.

Technical Documents

Financing and Incentives
Technical validation
Insurance
Standardized Contract

Colombia

The ESI Program is executed in Colombia under the leadership of Bancóldex. The financing strategy combines medium- and long-term loans with three project risk mitigation instruments that support the identification and structuring of technically robust and bankable projects: a performance contract, technical validation, and the energy savings insurance.

Technical Documents

Financing and Incentives
Technical validation
Insurance Coverage
Standardized Contract
Success cases

Greenhouse Gas Emissions mitigation by Renewable Energy Projects in Non-Interconnected Zones (ZNI) - CO-T1409

Financing mechanisms for investment in Energy Efficiency in public lighting, promoting the replacement of low-efficiency luminaires with LED luminaires.

An initiative of the Inter-American Development Bank (IADB), the Global Environment Facility (GEF) and Findeter to promote the modernisation of public lighting in Colombia, replacing low efficiency luminaires with LED lights, through the design and implementation of a methodology to be tested in five pilot municipalities. To develop this project, Findeter signed a non-reimbursable technical cooperation agreement with the IDB, called "Financing Mechanisms for Energy Efficiency Investment in Public Lighting, promoting the replacement of low energy efficiency luminaires with higher efficiency LED lights", which is being developed through four components: 1) technical assistance and legal mechanisms, 2) financial mechanisms, 3) validation, monitoring and evaluation mechanisms, and 4) capacity building and communication.

Learn more: https://www.findeter.gov.co/alumbradopublicoled/index.html

El Salvador

The ESI Program is implemented in El Salvador under the leadership of the Banco de Desarrollo de La República de El Salvador BANDESAL. The financing strategy combines a $40 million GCF-BANDESAL long-term line of credit with three project risk mitigation instruments that support the identification and structuring of technically robust and bankable projects: a performance contract, technical validation of the projects, and the energy savings insurance.

Technical Documents

Financing and Incentives
Technical validation
Insurance
Standardized Contract

Mexico

Mexico is implementing an ESI related instrument in cooperation with FIRA, a development bank with an agricultural and agro-industrial focus. The FIRA initiative but differs from the ESI Model by not requiring a contract, neither involving an insurance company. The energy savings or energy generated by the project are covered by a technological guarantee offered by FIRA through a CTF grant. The financing strategy combines medium and long-term loans with two project risk mitigation instruments that support the identification and structuring of bankable projects: technical validation of the projects, and the technological guarantee.

Technical Documents

Financing and Incentives
Technical validation
Technological Guarantee
Success cases

Dialogue for the development of financing initiatives for distributed generation

Supporting the scale up of ES technologies through the establishment of Innovative Financial Mechanism in Mexico. The Program main objective is to provide finance in adequate terms scale up private investments in ES technologies in major grids of Mexico. The initiative seeks to address three of the main investment barriers for battery storage in Mexico: lack of familiarity with Battery Storage Systems technology among key stakeholders, lack of adequate cost recovery mechanisms, and high upfront costs - CAPEX. The Program will consist of a loan to support financing of demonstrative private investments in storage and be complemented with technical cooperation for the structuring of the financial solutions to be provided by the NDBs and enabling policy and regulatory environment.

Paraguay

Promotion of energy efficiency in the SME industrial sector

Peru

The ESI Program is implemented in Peru under the leadership of COFIDE. The financing strategy combines medium- and long-term loans with three project risk mitigation instruments that support the identification and structuring of technically robust and bankable projects: a performance contract, technical validation of the projects, and the energy savings insurance.

Technical Documents

Financing and Incentives
Technical validation
Insurance
Standardized Contract
Financing sustainable solutions for electric transport in Peru (PE-L1254)
 

Project Map

Click icon to locate all active initiatives in the region.

 

Why Sustainable Energy?

Sustainable energy use seeks not to compromise the energy needs of future generations. It involves promoting low-carbon energy supply from renewable energy sources and optimizing energy use through more efficient equipment and practices.

Goal 7 of sustainable development is to achieve universal access to modern energy in a reliable, affordable and sustainable manner by 2030. Expanding the use of modern technologies and facilitating access to local energy sources contributes to reducing poverty, promoting a better quality of life, strengthening competitiveness and promoting the economic development of countries.



Sustainable energy and barriers to investment:

Limited FinancingLimited financing for the adoption of new technologies.
Asymmetric and imperfect informationAsymmetric and imperfect information that sends incorrect signals to potential stakeholders about the opportunities that sustainable energy provides.
Performance RiskPerformance risk, technical risk and uncertainty in terms of flows of investment projects.
Scarce ExperienceScarce experience in the implementation and management of projects.

Poorly Developed NetworkPoorly developed networks of equipment and technical service providers.

 

Success Cases

Bancoldex in Colombia

The Program developed successful projects in the sector of clinics, hotels and hospitals, thus it was scaled up to all sectors of the national economy. BANCOLDEX has made significant progress in socializing and promoting the Program to local financial institutions, technology providers, associations and SMEs. As of May 2020, 29 ESI projects have been developed in Colombia.

Energy storage in remote systems to increase access to energy in Central America.

Energy storage in remote systems to increase access to energy in Central America. The main objective of the program is to provide financing to expand private investments in energy storage technologies mainly in small off-grid cities or remote locations in Central America that combine energy storage with solar photovoltaic systems or hybrid photovoltaic systems combined with diesel where the use of energy storage technology results in a net reduction in diesel use. The initiative seeks to address some of the major barriers to small-scale storage investments, including, in particular, financial barriers such as lack of appropriate cost recovery mechanisms, high upfront costs, financial viability of customers and energy subsidies, as well as lack of familiarity with storage systems. The programme will also seek to address technical cooperation policies and regulatory issues.

Energy Efficiency in Public Lighting

This is an initiative of the Inter-American Development Bank (IADB), the Global Environment Facility (GEF) and Findeter to promote the modernisation of public lighting in Colombia, replacing low-efficiency luminaires with LEDs, through the design and implementation of a methodology to be tested in five pilot municipalities.
The adoption of energy-efficient technologies contributes to the environment, improves the quality of life of the communities and promotes territorial development.

More information here.


 

Partners on the Ground

Who is supporting Sustainable Energy

The Inter-American Development Bank has partnered with major "green" players to catalyze investments in the Latin American and Caribbean region.

The IDB is promoting and expanding sustainable energy with support from the Government of Denmark through the Danish Energy Agency.
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The Inter-American Development Bank launched the Energy Hub

The energy sector is undergoing a technological and digital revolution, which has resulted in an explosion of data in volumes never imagined, growing exponentially at an extraordinary speed. This data is the new fuel for creating effective public policies, providing a basis for new business models, helping in decision-making processes, detecting trends, saving costs and time, responding to current problems and, ultimately, powering innovation in the sector. But having access to different sources of data and information is not enough. It is essential to find a way to gather, organize, and analyze them in order to provide practical benefits and encourage the creation of a more significant number of evidence and data. The IDB, jointly with the collaboration of its partners, academia and the public and private sectors, launched the Energy HUB as a digital meeting point that collects, integrates, disseminates and promotes the generation of data and information on the energy sector in Latin America and the Caribbean in one place.


Events


WEBINAR | Experiences on PPPs and concessions for climate finance in Brazil
The Inter-American Development Bank, in association with Radar PPP, developed a training program for professionals from development agencies in Brazil with three main objectives...


 

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