Is Blended Finance The Answer To Scale-Up Green Infrastructure?

Sourced from Ventures Africa

With the Paris Climate Change Agreement and the Sustainable Development Goals, the global community has been calling for more action and efforts to combat climate change. While this is both inspiring and encouraging, not enough is happening. Sceptics will say nothing has changed but the reality is much more nuanced. There are still barriers to scaling-up the implementation of green projects and the question many are working to answer is: what can be done to break these barriers?

We know that to keep pace with population growth, migration and urbanization trends in a way that ensures effective economic and social development, an increase in low-emission, energy-efficient and climate resilient infrastructure projects is needed. This need is particularly high at the city, state and regional levels, where mid-size projects, typically of between USD 5-50 million in construction costs, offer an unprecedented opportunity to maximize development impact. When appropriately prepared, infrastructure projects that deliver both energy and public services can, indeed, have significant impacts on local populations by reducing greenhouse gas emissions and air pollution, creating employment opportunities and improving overall health. In addition, mid-size projects represent a potentially huge investment market in terms of number and capital required for implementation, and a growing number of investors are showing an appetite for them.

Given the political will, the availability of clean technologies and investors’ growing interest in “green projects, ”why are so few of them being implemented? One of two reasons behind this “market failure” is the lack of bankable projects. Simply put, not enough projects are meeting the expectations of potential investors. This problem comes from the limited degree of collaboration, understanding and interconnection between the actors involved the length of the project development and financing value chain. Policy-makers, clean technology providers and public-private investors tend to work in silos and do not understand each other’s interests nor how their decisions can negatively impact each other and the bankability of projects. The lack of understanding of the wider project development value chain by those influencing project identification and development is also at the root of the second barrier to scaling-up project implementation: access to finance.

It is often assumed that matching projects with investors, regardless of the stage of maturity, is sufficient to result in implementation. What is too often ignored is that for a project to have a chance at accessing finance, it must meet an investor interested in taking on the “risk-return” profile that is specific to the project’s maturity – or development stage – and provide the investor with the information necessary to assess this profile. But the challenge of accessing finance goes beyond matching the right opportunity with the capital that has an appetite for it. Not only must this matching be available to finance each stage of project development and implementation, but it must also be coordinated to assure that projects successfully reach maturity in a timely manner, each successive financing stage following on from the other.

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