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t&c
Pascal Terjan
The EDFI Management Company (EDFI MC) launched a new guarantee facility, the T&C Facility, to cover transferability and convertibility (T&C) risks for renewable energy projects located in countries facing significant foreign exchange reserve constraints. EDFI MC, a common platform established by European DFIs to deliver innovative financing facilities in partnerships with the EU institutions, will administer the facility on behalf of Proparco, for a total amount of EUR 26.2 million.

The new T&C Facility, established under the EU Blending Framework, covers inconvertibility and non-transferability risks between local currencies and euros and/or dollars in order to support EDFI members’ financing in favor of Independent Power Producers ("IPPs") particularly exposed to convertibility and transferability risks.

Removing barriers to international financing

The inconvertibility and non-transferability risks are important for the energy sector. IPPs often receive their income in local currency while their debts are mostly incurred in foreign currency. Macro-economic conditions have resulted in countries with export-oriented economies experiencing some difficulties with foreign exchange reserves, and increasing the risks for international investors.

The T&C Facility will facilitate more efficient and effective international financing of renewable energy projects across SE4ALL[1] developing countries by mitigating convertibility and transferability risks through a dedicated reserve account made available to each project meeting the eligibility criteria.

Impact on sustainable development and energy access

The T&C Facility will complement a standard project debt service reserve account designed to cover payment risks, thereby supporting projects particularly exposed to convertibility and/or transferability difficulties. The guarantee therefore aims to unlock financing by improving the bankability of private greenfield renewable energy projects and reduce sovereign financing requirements for the power sector (SDGs 8, 9, 17). The Facility will also support the development of new renewable capacities, with a target of an additional 250 MW, and contribute fighting climate change (SDGs 7, 10, 13).

“Efficient risk management mechanisms to spur renewable energy projects in developing countries require financial innovation and reliable partnerships. EDFI MC is delighted to launch this new facility with EU support, to help European DFIs go even further in clean energy investments that meet development needs,” says Dominiek Deconinck, CIO at EDFI MC.

“Proparco is proud to have contributed with EDFI Management Company, and thanks to the support of the European Union, to the structuring of an innovative financial tool in favor of the development of renewable greenfield projects in countries facing major foreign exchange reserve constraints. In concrete terms, the T&C Facility responds to a real challenge by offering an additional liquidity reserve in the event of an IPP's inability to convert its revenues into foreign currency and/or to transfer its foreign currency out of the host country,” said Ariane Ducreux, Director of Proparco's Energy, Digital and Infrastructures Division.

EDFI MC will monitor the following development indicators, aligning with European DFIs mandate and EU ambition for a green transition in emerging markets and developing countries:

  • senior debt and equity leveraged by the guarantee;
  • new renewable energy generation installed capacity (MW);
  • anticipated increased annual energy output produced from renewable energy sources (MWh);
  • anticipated GHG emissions reduction (tons of CO2eq per year); and
  • anticipated number of jobs (direct and indirect) created to provide for or as a result of the additional renewable energy generation capacity installed.

The facility is available to European DFIs which are EU pillar-assessed as well as to their co-funders. Five to six investments are expected in the initial implementation period, which runs until 2029.

[1] Sustainable Energy for All (SEforALL) is an international organization that works in partnership with the United Nations and leaders in government, the private sector, financial institutions, civil society and philanthropies to drive faster action towards the achievement of SDG7– access to affordable, reliable, sustainable and modern energy for all by 2030 – in line with the Paris Agreement on climate. https://www.seforall.org/

 

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