The Asian Development Bank (ADB) has approved an umbrella facility of up to $100 million which will 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 ‘Pacific Renewable Energy Program’ will support an estimated 5 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 program will help to build urgently needed capacity for energy sector expansion and private sector interest in clean energy projects in the region,” said PARD Director General Ms. Carmela Locsin. “The objective is to implement more renewable energy projects in the Pacific by working with power utilities to identify transactions at an early stage.”
Funding for power utilities in the Pacific is inadequate. Private sector investment, in particular, is crucial to expand renewable power generation as the region transitions from fossil fuels to clean energy. However, 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 and convertibility, and perceived political risks.
The program aims 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.
“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 Mr. Michael Barrow. “It will help remove barriers to investment by enhancing the creditworthiness of power utilities and mitigating perceived political risk for lenders.”