Countries worldwide and in particular emerming countries, have to find new innovative financial means to mitigate and adapt to the numerous effects of climate change. The newly created international climate finance accelerator (icfa), a public-private partnership, is a key example of luxembourg’s efforts to bring the public and private sectors together with the aim of creating future leaders of fund managers investing in climate finance and increase the number of climate finance investment funds.
On the occasion of the first edition of the sustainable finance forum luxembourg last may, it announced the first cohort of international asset managers to join the accelerator. We spoke with the winners, all currently raising capital, to learn more about their innovative key projects and the added value of getting off the ground with the help of icfa.
ACCELERATING CLEAN ENERGY GROWTH FOR ALL
The clean energy revolution is here, but for countries most in need, the transition is far too slow. Electricity consumption in developing countries is 20-100 times lower per capita than in the OECD. While these countries hold significant renewable energy potential, the lack of international equity and debt finance available for decentralised generation is a major hurdle.
Oslo- and Nairobi-based Empower New Energy, a renewable energy impact investment fund, was created in early 2017 to find a solution to the financing gap of the smaller scale projects. Over the next two years, it intends to raise over 200 million USD to finance growing portfolio of small and medium-sized solar and hydropower projects in Sub-Saharan Africa, leading to verifiable CO2 reductions, job creation and community development.
Terje Osmundsen, CEO and one of the two founders explains: “Today, non-recourse project finance in emerging countries is the main solution for financing renewable energy projects, which works well for large scale projects of 40-50 million USD upwards but is not suited for small and medium-sized, because of the time and high transaction costs.”
Today, non-recourse project finance in emerging countries is the main solution for financing renewable energy projects.
Financing problems are to be added to a lack of know-how and resource among local developers, utilities and regulators combined with a lack of transparency, fear of corruption and illegitimate use of climate funds.
“Governments and business communities continue to invest mainly in fossil fuel generation to meet their energy demands due to the lower investment cost, even if the total lifetime cost surpasses that of renewables,” explains Osmundsen.
“Our business model is to apply our standardised project evaluation, financing and management tools for investments in small and medium scale renewable energy projects.
We bundle investments into a portfolio of projects. When projects are built and has been in operation for a period, we raise green bonds to refinance the portfolio of quality solar PV and small hydro projects which span over multiple off-takers and countries,” he adds.
Structured as an impact accelerator vehicle, investment money is deposited for channeling down to each of the project special purpose vehicles in the project portfolio. Investors ranges from DTIs to private impact investors while the sweet spot for investing is 1 to 10 million USD per project.
Empower’s CEO explains that ICFA’s support and coaching will be of valuable importance in the creation process of the fund. “Building up an investment fund management business in a new area like climate finance requires a lot of time and resources, the possibility to get technical and financial support is extremely valuable.”
HYDRO POWER GENERATION
Accelerating the clean energy revolution is also the focus of Serimus Hydro, a Luxembourg-based asset manager focusing on small hydroelectric power plants.
There is a clear need to focus on that technology, especially when it comes to small hydropower assets below 10 MW that are decentralised assets existing in many places worldwide,”explains its Managing Director, Frédéric Brodach.
“We’ve hardly seen any fund that is exclusively focused on hydro power, despite the fact that the CO2 emissions of a hydropower, over its entire lifetime, are lower than any renewable energy technology.”
Small hydropower is a clean, renewable, and predictable energy source. “It is the largest renewable force in the world,” he adds.
Its lifespan that can reach up to 80 years makes it interesting to long-term investors.
“It is often attractive for family offices, foundations and pension funds. Those will be the kind of investors we will speak to,” he adds.
The Serimus Hydro Fund will finance the development and construction of new hydro power plants as well as the modernisation and operation of existing plants in Europe and Latin America, a geographical zone where the International Energy Agency considers that 72% of the technical potential of hydro power is not exploited to date. Current main projects focus on Austria and Chile.
“We’ve hardly seen any fund that is exclusively focused on hydro power, despite the fact that the CO2 emissions of a hydropower, over its entire lifetime, are lower than any renewable energy technology.”
Small hydropower is a clean, renewable, and predictable energy source.
“It is the largest renewable force in the world,” he adds. Its lifespan that can reach up to 80 years makes it interesting to long-term investors. “It is often attractive for family offices, foundations and pension funds. Those will be the kind of investors we will speak to,” he adds.
The Serimus Hydro Fund will finance the development and construction of new hydro power plants as well as the modernisation and operation of existing plants in Europe and Latin America, a geographical zone where the International Energy Agency considers that 72% of the technical potential of hydro power is not exploited to date. Current main projects focus on Austria and Chile.
“Investors interested in this niche sector require specific technical know-how,” he highlights. To address this need and to securely access satisfying deal-flow, the asset manager includes a team of specialised German engineers with a cumulated hydrorecord of more than 40 years.
“Our role will be to bundle several smaller projects, to bring them to the state-of-the-art technical standards, and to invest in order to ensure full compliance with stringent environmental regulation. At the end of the fund’s 12-year lifetime aggregated, digitalised and standard ised projects will be sold off to investors that have less technical knowledge or market access in those regions. We will pursue and measure verifiable social and environmental impact targets,” explains Brodach.
Benefitting from Luxembourg’s networks of experts in the field of sustainable finance is a key element praised by Serimus Hydro’s Managing Director.
“In Luxembourg, you have access to all the service providers in a very small perimeter. It doesn’t take you much time to connect with each other and to get everyone working in
the same direction. There is also a clear focus when it comes to green finance. It is a very good place to do business.”
CLIMATE ADAPTED, SOCIALLY INCLUSIVE AGRICULTURE
“ICFA was our first financial and technical backer for the Akipeo Fund. It accelerated our visibility and gave us additional credibility as it attracted tremendous interest. We are moving faster than we could have done without their support,” explains Serge Mayaka, Founder and Managing Principal of Akipeo Inc, the Toronto-based capital advisory firm launching the Akipeo Fund. The Akipeo Fund will invest in businesses and projects that enable climate smart and socially inclusive agriculture in Sub-Saharan Africa, while enhancing food security and livelihoods.
