Possible Modalities of Government Supportfor Private Clean Energy Investments/Financing

• Government support could be in different forms depending on types of “barriers” perceived by private investors & lenders:– TA (grants) to help develop business; enhance capacity of

lenders & borrowers– Grants/concessional loans to make projects economical

(investment costs; transaction costs); to address lenders’ liquidity

– Guarantees to mitigate risks that private lenders cannot take/are reluctant to take, for example:

• Credit risks of borrowers (start-ups, SME sponsors)• Risks as to the stability of emerging clean energy regulations

• IBRD support requires sovereign government indemnity

Possible Modalities of IBRD/CTF Support Guarantee support could mitigate different risks

Types of Projects

Government Role

IBRD Instrument to support GOT

CTF Instrument

Private Projects(SME-type RE &EE)

Partial Guarantor (credit risk of private entities through FI administrator)

IBRD Loan ( to backstop GOT obligations)

CTF Loan

Public InfrastructureProjects

Partial Guarantor (credit risk of public borrowers)

IBRD Partial Credit Guarantee

CTF Loan or CTF Guarantees

Public-Private Infrastructure Projects

Partial Guarantor (limited contractual undertaking)

IBRD Partial Risk Guarantee

CTF Loan

IBRD can provide Loan and Guarantee for the same project, depending on specific project needs

Partial Credit GuaranteeProgram Escrow Account

GOV

Local Commercial Banks

Entities engaging in clean business (renewable SPPs, ESCOs etc.)

Guarantee Program Administrator

( Local Guarantee Company, etc.)

World Bank(IBRD)

IBRD-supported Local Partial Credit Guarantee Program with a Local Guarantee Company as Program Administrator

How to address the credit risk of borrowers that banks will not take fully?

ownership

Partial Credit Guarantees(could be

portfolio guarantee)

for risk sharing between GOV and lenders

Guarantee Program Implementation AgreementIBRD Loan Agreement

withdraw uponguarantee call

withdraw upon guarantee signing

loans

CTF

Partial Credit GuaranteeProgram Escrow Account

Local Commercial Banks

Entities engaging in clean business

Guarantee Program Administrator

(Guarantee Company)

IBRD-supported Local Partial Credit Guarantee Program with a Local Guarantee Company as Program Administrator

How to leverage GOV resources?

Partial Credit Guarantees

loans

1. Risk sharing between GOV and lenders under Partial Guarantees

2. Professional management & close monitoring to result in truly revolving nature of fund resources

3. Borrowers’ own resources for borrowing discipline & to become credible borrowers

guarantee fee income to offset the cost of the Guarantee Program

5

For sovereign or agency borrowing in the commercial market for IBRD countries, chiefly in support of public projects/fiscal support

Cover a portion of debt service payment for bonds/loans:Principal and/or interest (e.g., late maturities)Coverage can be structured flexibly

Two types of credit guarantees:Partial Credit Guarantees (PCG) for investment

projects: borrower can be Government/agencyPolicy-Based Guarantees (PBG) for

Development Policy Lending (i.e., fiscal support)

PCG can be offered for local currency debt

What are World Bank Partial Credit Guarantees ?

World Bank Support for Principal Repayment

A. World Bank’s guarantee of a single coupon payment on a rolling basis

PV=56%

PV=3%

Single Coupon Payment USD 300 m

100

B. World Bank’s guarantee of the principal

World Bank Partial Credit Guarantees (PCG)PCG can be structured flexibly

7

What are World Bank Partial Risk Guarantees?

Partial Risk Guarantee (PRG) covers lenders in case of debt service default caused by Government not meeting its commitments to private projects

Commercial Lenders

Project Company

Government

Guarantee

Indemnity Agreement

Government Undertakings

Loans

World Bank

GovernmentIndemnity

Project Company

(Wind Power, Hydro Power,

Urban TransportEtc.)

Commercial Bank

PrivateInvestors

Equity

Project Loan

World Bank (IBRD) Partial Risk GuaranteeFor Limited-Recourse Debt or Sponsor Loan

Possible application for Clean Energy/Transport Projects

Sponsor Loan

GovernmentUndertaking orGuarantee

Repayment of commercial debt covered by PRG for government risks

PRGs can also be structured with a deemed loan or a letter of credit structure to benefit project companies (i.e. equity investors) as well.

CTF

Incremental Cost Support

Clean Technology FundCTF Guarantee Instruments for Public Sector Operations

• CTF resources may be deployed as guarantees to promote low carbon technology projects and programs

• CTF support “incremental risks” (vs. conventional risks) that are not assumed by sponsors & lenders – Technology & economic performance risks:

• Application of commercially viable technologies in new markets• Unfamiliarity resulting in requirement for higher returns• Unwillingness of manufacturers to warranty performance• Increase in O&M costs; degradation of performance beyond warranty

– Commercial & financial risks:• Perceived credit risks resulting in unavailability of financing• Small project scale and high transaction costs

[Country & political risks: CTF would not address these risk for “public sector” projects]

Clean Technology FundCTF Guarantee Instruments for Public Sector Operations

• Guarantee support can be structured flexibly and may take various forms, but two categories have been proposed:– Loan Guarantee: up to 100% (but sharing in encouraged) to

extend the maturity of commercial loans– Contingent Finance: disbursed to the project upon

underperformance of a low carbon technology (not commercially insurable or beyond the insurable period)

• Borrower: government, sub-national governments, SOEs, etc.• MDB issues guarantees/provide contingent finance backed by funds

in the CTF - no sovereign government indemnity required• Guarantee charge: 0.1% per annum• US dollars only