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Possible Modalities of Government Support
for 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 Government IBRD Instrument CTF Instrument
Projects Role to support GOT
Private Projects Partial Guarantor IBRD Loan ( to CTF Loan
(SME-type RE (credit risk of private backstop GOT
&EE) entities through FI obligations)
administrator)
Public Partial Guarantor IBRD Partial CTF Loan or
Infrastructure (credit risk of public Credit Guarantee CTF Guarantees
Projects borrowers)
Public-Private Partial Guarantor IBRD Partial Risk CTF Loan
Infrastructure (limited contractual Guarantee
Projects undertaking)
IBRD can provide Loan and Guarantee for the same project,
depending on specific project needs
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?
Guarantee Program
IBRD Loan Agreement Implementation Agreement
GOV
withdraw upon
guarantee signing ownership withdraw upon
guarantee call
World Bank Guarantee Program
(IBRD) Partial Credit Guarantee Administrator
Program Escrow Account ( Local Guarantee Company, etc.)
CTF
Partial Credit Guarantees
(could be
portfolio guarantee)
Local Commercial Banks for risk sharing
between GOV and lenders
loans
Entities engaging in clean business (renewable SPPs, ESCOs etc.)
IBRD-supported Local Partial Credit Guarantee Program
with a Local Guarantee Company as Program Administrator
How to leverage GOV resources?
1. Risk sharing between
GOV and lenders under guarantee fee income to offset the
Partial Guarantees cost of the Guarantee Program
2. Professional management &
close monitoring to result
in truly revolving nature of Partial Credit Guarantee Guarantee Program
fund resources Administrator
Program Escrow Account (Guarantee Company)
3. Borrowers’ own resources
for borrowing discipline Partial Credit Guarantees
& to become credible
borrowers
Local Commercial Banks
loans
Entities engaging in clean business
What are World Bank Partial Credit Guarantees
?
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/agency
Policy-Based Guarantees (PBG) for
Development Policy Lending (i.e., fiscal
support)
PCG can be offered for local currency debt 5
World Bank Partial Credit Guarantees (PCG)
PCG can be structured flexibly
A. World Bank’s guarantee of a single coupon payment on a rolling basis
PV=3%
Single Coupon Payment USD 300 m
B. World Bank’s guarantee of the principal
PV=56%
World Bank Support for Principal
Repayment
0 10
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
Loans
Project Commercial
Company Lenders
Government
Guarantee
Undertakings
Indemnity
Agreement
Government World Bank
7
World Bank (IBRD) Partial Risk Guarantee
For Limited-Recourse Debt or Sponsor Loan
Possible application for Clean Energy/Transport Projects
Government
Indemnity
Government
CTF Undertaking or Repayment of
Guarantee commercial debt
Incremental Cost covered by PRG for
Support government risks
Project
Equity Company
(Wind Power, Commercial
Private
Hydro Power, Bank
Investors Urban Transport
Project Loan
Sponsor Loan Etc.)
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.
Clean Technology Fund
CTF 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 Fund
CTF 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
