OECD workshop on blended finance guidance for clean energy, 25 April 2022, Paris, OECD

1. Blended finance guidance for clean energy
2nd expert workshop
25 May 2022
10.30 – 18.05 (GMT+1)

2. Financing the energy transition in emerging and
developing economies

3. 3
Meeting a net zero emission pathway will require a surge in clean energy investments to USD 4 trillion per year by 2030
Source: OECD/IEA (2021)
The global energy transition is an unprecedented opportunity to rebalance economies through sustainable
growth and jobs. A massively scale up in finance from all sources is needed to realise this potential.
The majority of the increase will need to come from the private sector
NZE: Net-zero emission Scenario
0
1000
2000
3000
4000
2016-2020 NZE 2026-2030
Clean electricity
Efficiency and end use
Low emission fuels
billion USD/yr
2016-2020 NZE 2026-2030
Private
Public
Investments Financing

4. But public finance needs to more effectively mobilise commercial finance
4
Source: OECD (2021)
Public finance can play a catalytic role by de-risking investments, supporting reforms to improve enabling environments, and supporting
project preparation.
The international architecture and instruments exist, but need to be improved and scaled rapidly with additional concessional finance to meet
the huge investment needs in clean energy.

5. Crowding-in commercial finance requires concerted efforts by governments to de-risk and direct investment,
whilst continuing to tackle wider barriers to infrastructure investment.
5
A wide range of financial instruments to raise green finance and de-risk investment exist
But they need to be scaled rapidly and combined with concerted public sector strategies to crowd-in commercial finance
USD 1 trillion cumulative green bond issuance (2020) –
use of proceeds
Sectoral distribution of de-risking instruments in select countries (USD million)
Source: Climate Bonds Initiative 2021
0 20 40 60 80 100 120 140 160 180 200
Biomass & Waste
Energy Efficiency
Geothermal
Hydro
Solar
Wind
Co-investment (equity) Concessional loans Cornerstone stake (fund level)
Revenue guarantee Co-financing Other
Source:, OECD/IEA 2021
Note:: The above figures provides only a limited set of data and is not intended to represent global totals.

6. More effective private capital mobilisation will require the scaling and more effective use of blended finance
6
Blended finance is being used by donors to leverage greater quantities of private capital, but remains small as a share of total ODA
disbursements.
Best practice guidance on the use of blended finance can support the scaling of instruments; but more public concessional finance, and
better coordination between governments, donors, and private finance, is needed to tap into the increasing stocks private finance now
committed to net zero.
0
2000
4000
6000
8000
10000
12000
2016 2017 2018 2019
Private finance mobilised towards renewable energy by instrument, USD million
Syndicated loans
Simple co-financing
Shares in CIVs
Guarantees
Direct investment in companies and SPVs
Credit lines
Source: OECD (2021)

7. 7
QUESTIONS FOR DISCUSSION
Session 2: Blended finance for clean energy in lower income countries
• What specific barriers to finance and risks facing energy need to be addressed?
• Which blended finance instruments can best address these barriers/risks?
• What indicators should be used to assess commercial sustainability?

8. Off-grid renewables
Barrier / risk / market failure Explanation Blended finance solution
Scale and transaction costs • small absolute returns, and relatively high cost of conducting due
diligence on projects, mean projects are often too small to attract
the attention of commercial investors.
Aggregation and securitisation
Grants to support standardisation of project documentation
Stability of revenues • do not benefit from the stability of structures that allow producers
to sell excess capacity to the grid;
• accurately assessing supply and demand, and setting optimal
pricing can also be difficult, since distributed renewables rarely go
through a system price discovery.
Revenue guarantees
Information asymmetries –
difficulty in assessing viability
of projects
• commercial viability of projects can be difficult to assess;
• business models are relatively new
Revenue guarantees
Partial risk guarantees
Aggregation and securitisation
Information asymmetries –
profile of developers
• most investments are undertaken by consumers and SMEs,
rather than by utilities and energy project developers
• developers typically have little or no track record in renewable
energy investments, and as such have no or poor credit ratings.
Aggregation and securitisation

9. 9
QUESTIONS FOR DISCUSSION
Session 2: Governance and Coordination
• Who are the key stakeholders that need to be involved designing, delivering, and monitoring blended
finance transactions?
• How can in-country governance be designed to best facilitate the effective and efficient deployment
of blended finance?

10. 10
QUESTIONS FOR DISCUSSION
Session 3: Sector deep dives
• What specific barriers to finance and risks need to be addressed in each clean energy sector?
• Which blended finance instruments can best address these barriers/risks?
• What indicators should be used to assess commercial sustainability?

11. Energy efficiency
Barrier / risk / market failure Explanation Blended finance solution
Public goods • Access to affordable finance of local or regional governments
may be limited by high outstanding debt levels or low credit
ratings
• Large capital investment requirements in the case of public
transport and EV charging networks may create barriers to
investment
Equity capital fund for energy efficiency
Scale and high transaction
costs
• Small projects have relatively high transaction costs for investors.
• Unique nature with varying project characteristics results in
unfamiliarity and higher perceptions of risk.
Aggregation and securitisation
Energy savings insurance
Asset backed securities
Information asymmetries and
confidence in projected energy
savings
• Performance impacted by operational know-how and local
climate and resource factors.
• Performance in untested new markets suffer from inadequate
data on asset performance.
Energy savings insurance
Partial risk guarantees
First loss facilities
Collateral requirements • SMEs and ESCOs lack capital base necessary to access
affordable debt finance.
• Loans for EE investments often declined due to insufficient
collateral or access to guarantees.
• For ESCO investments on behalf of asset owners, cash flows and
equipment not recognised as collateral by banks.
Equity capital fund for energy efficiency
Energy savings insurance
Partial risk guarantees
Energy subsidies • Create market distortions, leading to wasteful consumption of
fossil fuel and electricity, and reduce cost-saving incentives for
investment in efficiency.
None – policy to phase out/ remove subsidies required

12. Utility-scale renewables
Barrier / risk / market failure Explanation Blended finance solution
Long planning and
construction phases
• Long planning, development and construction phases expose
projects to a high degree of political and policy risk.
• This makes it difficult to raise capital early in the project cycle.
Political risk insurance
Guarantees
Counterparty, off-taker, and
transmission line delay risk
• Weak credit-worthiness of local partners, such as power utilities,
increases real or perceived risk of non-payment.
• Projects depend on construction on new grid infrastructure in time
for generation.
Partial risk guarantees
Guarantees
Performance insurance
Exchange rate volatility • Exchange rate volatility creates fluctuations between obligations
and revenues priced in different currencies.
Currency risk hedging instruments
Currency risk guarantees
Revenue volatility • Inexperience can result in inaccurate assessments of and
imbalances between supply and demand.
Grants (project development)
Financial stability • Single buyer model creates financial stability risks for banks
exposed to single entities, who therefore limit exposure.
Debt (on market terms, concessional, or subordinated)
Fossil fuel subsidies • Distort market dynamics in favour of incumbent technologies.
Heightened by subsidy volatility reflecting international input price
fluctuations.
None – policy to phase out/ remove subsidies required
Resource uncertainty • High up-front prospecting costs for geothermal
• Weather-related uncertainty for hydroelectric and wind.
• Bioenergy exposed to fuel input risks
Grants (project development)
Guarantees
Performance insurance

13. Other clean energy and integration
Barrier / risk / market failure Explanation Blended finance solution
Externalities • Lack of adequate carbon pricing makes business case for CCUS
unattractive.
• CCUS difficult to monetise.
None – requires adequate carbon pricing.
Revenue uncertainty • Lack of compensation models for energy storage.
• Cross-value chain revenue risk for CCUS due to complexity of
value chains.
Revenue guarantees
Viability gap fund
Information asymmetries • Inadequate performance data for new technologies in new
markets leads to higher financing costs.
Partial risk sharing or first loss facilities
Viability gap fund
High capital requirements • CCUS and green hydrogen projects large and capital intensive
with high perceived risks.
Equity capital
Viability gap fund
Partial risk sharing or first loss facilities
Foreign exchange risk • Imported equipment in foreign exchange requires hedging, which
is expensive.
• Foreign investors with more experience in newer technologies will
also be exposed to currency risk.
Foreign exchange guarantees
Supply chain risk • Batteries dependent on critical minerals such as lithium, cobalt
and nickel, which often need to be imported and can be subject to
international market price fluctuations.
None – public sector not best placed to manage risk

14. 14
QUESTIONS FOR DISCUSSION
Session 4: Cross-cutting issues – using blended finance to scale institutional investment
towards clean energy
• How can blended finance be used to support the development of secondary markets?
• What financial products and instruments can be used to attract larger scales of global institutional
capital towards clean energy?
• What support to EDEs need to facilitate pooling/aggregation of projects?