Bank aus Verantwortung

Lessons From Replication and Scaling-up

of Climate Finance

Katrin Enting

Competence Centre Environment and Climate

KfW Development Bank

OECD, CCXG Global Forum

Paris, 18 March 2014

2

Outline

I Generating Lessons Learnt

II Experiences With Green Credit Lines

III Case Studies

IV Challenges and Opportunities

5

3

I. Generating Lessons Learnt

• Monitoring

• By operating departments

• Annual reporting and on-site

progress assessments

• Final inspection mission

• Evaluation

• By independent evaluation unit, external director, report directly to

Board of Managing Directors

• Post-project evaluation 3-5 yrs after technical completion

• Comparison of actual outcomes against envisaged outcomes and

state of the art benchmarks

• Focus on development impacts using DAC key criteria: relevance,

effectiveness, efficiency, impact and sustainability (score 1-6 i.e. 4)

• Systematic and thematic reviews of evaluations

Sample average 2010-2012

80,3 80,9

0

10

20

30

40

50

60

70

80

90

100

Number of projects Aggregate volume

Su

cess q

uo

ta in

% (

rati

ng

1-3

)

4

II. Green Credit Lines – Domestic Experiences as a Role Model

• KfW Group: New commitments in climate & environment in 2013:

EUR 27.8 bn, thereof EUR 3.4 bn in developing countries

• Dominate domestic working modality: on-lending through regular banks

that do appraisal and build on local and long-standing customers relations

Lessons Learnt:

Efficient use of budget funds and large potential to mobilize private

climate finance

RE/EE finance works best

as part of a promotional

system incl. information and

consulting, legislation, rules

and regulations and technical

standards

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II. Green Credit Lines – Experiences in Development Finance

Credit Lines to support local financial intermediation (simplified):

Basic characteristics:

› Provision of long-term liquidity for climate-related investments of SMEs &

private households

› Building up and consolidation of climate-related portfolios of local banks

through appropriate re-financing (indirect financing mechanism)

› Focus on institutional development of partner bank: TA for product

development, project scouting, development of positive list and

measurement tools, dedicated marketing, training of employees

› Use of local structures (distribution channels and contacts to customers and

producers/importers) for broad coverage

Financial

Intermediary KfW

co

nce

ssio

na

l lo

an

De

bt

SMEs /

Priv. Househld.

Bu

dge

t Fu

nd

s

Inve

stm

en

t

Equity Mobilization of

additional funds

Mobilization of

additional funds

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II. Green Credit Lines – Experiences in Development Finance

› Incentive for investments into green technology (EE + RE) and promotion of their

implementation and broad distribution

› Introduction of specialized credit products in local banks for investments into

green technology

› Support of economic and private sector growth in the host country

Direct private finance mobilization effects

› Support of local markets for green technology incl. the development of local firms

in related sectors (e.g. consulting firms, technology firms, production capacities)

› Long-term anchoring of climate protection in the product portfolio/ strategy of local

banks

› Raising of public awareness and consciousness about the climate change (bank

employees function as multipliers for knowledge transfer)

› Successful implementation of green technology with single clients can have a

signaling effect and create further interest among the broader public

Indirect transformational effects

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II. Green Credit Lines – Experiences in Development Finance

• Scaling-up and replication over time: started with 2 climate credit lines in

2007 to 71 active climate credit lines in 2/2014 (replication) of which 16

are follow-up lines (up-scaling)

• Green lines overall volume (closed, ongoing, preparation): EUR 3.4 bn

• Key sectors: Energy efficiency in SME, renewable energy production,

emissions reduction (only 2 credit lines with adaptation purpose)

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II. Green Credit Lines – Experiences in Development Finance

Lessons Learnt (1/2)

• Limitations: i) still many pilot projects, ii) no systematic ex-post evaluation

yet since projects started very recently, but mid-term evaluations & final

termination mission, iii) private finance mobilized not as objective/indicator

• General:

• Most effective as part of a promotional system incl. regulation and

information/consulting; Fossil fuel/electricity price subsidies lower

attractiveness of scheme

• Amount of finance mobilized depends on project design & context

• Negative abatement cost favor financial sustainability (sustainable

demand and supply)

• Balance political ambition (no BAU), market acceptance (the less

proven, the more concessionality required) and sustainability

Establish credit lines as workhorse for climate finance in small-scale

investments

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II. Green Credit Lines – Experiences in Development Finance

Lessons Learnt (2/2):

• Achieving, measuring and monitoring climate impact:

• Targeted CO2/energry savings on average reached

• Standardization and harmonization btw. donors to avoid duplication of

work and dilution of standards

• Simple eligibility criteria

• User-friendly tools avoid errors in data collection, processing & entering

• Effort to measure and monitor must not be prohibitive for bank & client

• Financial institutions:

• Even in case of negative abatement costs, grant element needed for

initial institutional development of partner bank

• Require, incentivize and monitor for process innovations and innovative

financing products

• Management commitment and staff incentives are critical factors

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III. Case Study (1/2) - Credit Line

EE housing, India

1) Pilot programme –First credit line for EE housing in India

• EUR 50mn concessional loan to National Housing Bank (NHB) which

refinances to commercial banks that provide loans for EE homes

• Capacity building and research to adopted a European calculation

model for energy assessment to Indian conditions (active+passive)

• More than 1900 home loans

2) Second phase (in preparation)

• EUR 100mn concessional loan to NHB

• Support NHB to define and introduce a EE label

using the German EE housing label as a role model

Lessons Learnt/Success Factors

• Adapt a simple but robust tool to Indian conditions

• Identify residential projects with potential, advise developers

• Strong support by Indian government and NHB fully engaged

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III. Case study (2/2) – Project finance / PPP

Wind power, Morocco • National Wind Plan 2010

• Objective 2000MW by 2020, total investment cost USD3.5bn

• 3 components: I) 280 MW already in operation (KfW support

of 2 wind parks, 200MW), II) 720 MW privately financed,

III) “Integrated wind programme”: 1000 MW financed as PPP,

1st phase: Taza (KfW concessional loan for public equity and

debt), 2nd phase: 5 locations (KfW support for 3 wind parks jointly

with EIB (NIF), AfDB/CTF)

Lessons Learnt/Success Factors

• Strong national political engagement & legislation (credible policy

signals): National Energy Strategy 2009 (increase of RE), Renewable

Energy Law 2009 (feed in of privately produced RE electricity)

• Explicit PPP approach in integrated wind programme

• Long-standing cooperation: 20yrs of Moroccan-German cooperation

in the energy sector incl. German-Moroccan Energy Partnership,

various TA activities, KfW’s energy portfolio in Morocco € 1.1bn

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IV. Challenges and Opportunities

Challenges Opportunities

No common definition of mobilized

private finance

Limited systematic ex-post evaluations yet Increase mid-term evaluations

Very case-specific, few generic lessons Share lessons across institutions

Most lessons are not climate-specific Make use of lessons leant in other areas of

development cooperation

Not all projects, sectors and countries

where private finance can be mobilized

are suitable for large scale private sector

investments and entire private sector

takeover of interventions

Target areas with highest private sector

attractiveness for big numbers; Scaling up

and replication of national public support as

alternative objective

Move from projects to programmes, careful

assessment of impacts of (enhanced) direct

access, ensure stable frameworks (incl.

regulations and support schemes)

Bank aus Verantwortung

Thank you !

Katrin Enting

Competence Centre Environment and Climate

KfW Development Bank

Palmengartenstrasse 5–9

60325 Frankfurt am Main

Katrin.Enting@kfw.de