IDB Invest and ENGIE Chile debut the world's first pilot project to monetize the cost of decarbonization
- The strategic alliance between both entities seeks to contribute to the decarbonization of Chile's energy matrix through an innovative financial structure.
IDB Invest, a member of the IDB Group, provided a $125 million financial package to ENGIE Energía Chile, a subsidiary of the ENGIE Group, with the aim of accelerating the decarbonization of the country’s electricity matrix.
The funds, with a tenor of up to 12 years, will be used to build, operate and maintain the Calama wind farm with an installed capacity of approximately 151 megawatts (MW), which will be located near the city of Calama, in the region of Antofagasta. The project is part of ENGIE's energy transformation plan, which, in addition to the successive closure of its coal-fired units, includes building more than 1,000 MW of wind and solar initiatives in Chile over the next few years.
The innovation in the deal comes from the structuring of a pilot financial instrument to accelerate decarbonization activities in Chile, by monetizing the displacement of greenhouse gas emissions (GHG) when closing thermoelectric coal plants early and replacing them with clean technology projects.
The financial package consists of a $74 million senior loan from IDB Invest, $15 million of blended financing from the Clean Technology Fund (CTF) and $36 million from the Chinese Fund for Co-financing in Latin America and the Caribbean.
The financing structure establishes a minimum price for the offset GHG emissions by lowering the financing cost in CTF’s loan tranche. To calculate the cost of the displaced GHG emissions, IDB Invest developed a methodology tailored made to the project. It is expected that this will serve as a model and be replicable in other projects in Chile and in Latin America and the Caribbean, with the goal of accelerating the energy decarbonization of the region.
In the event that a regulated carbon market is created during the life of the loan, both the CTF and ENGIE would share any increase in the minimum carbon price.
The agreement to develop this instrument was announced during the United Nations Climate Change Conference (COP 25) in 2019, and will potentially contribute to two Sustainable Development Goals: Affordable and Clean Energy (SDG 7) and Climate Action ( SDG 13).
Through its Investing in Reversing strategy, IDB Invest joins efforts with private sector actors, financially innovating to help the countries in the region meet their Paris Agreement targets, including Chile's decarbonization goal calling for the gradual closure of its 28 thermoelectric plants between 2019 and 2040. These plants, which will be replaced by others that use renewable energy, represented 35 percent of the country's electricity production in 2020. Eight of them will be closed in the first five years of the plan, which will reduce emissions by 20 percent.
About IDB Invest
IDB Invest, a member of the IDB Group, is a multilateral development bank committed to promoting the economic development of its member countries in Latin America and the Caribbean through the private sector. IDB Invest finances sustainable companies and projects to achieve financial results and maximize economic, social and environmental development in the region. With a portfolio of $13.1 billion in asset management and 385 clients in 25 countries, IDB Invest provides innovative financial solutions and advisory services that meet the needs of its clients in a variety of industries.
About ENGIE Energía Chile
ENGIE Energía Chile S.A. (“EECL”) participates in the generation, transmission and supply of electricity and in the transportation of natural gas in Chile. EECL is the fourth largest electricity generator in Chile and one of the most relevant players in the northern part of the SEN (formerly SING). As of December 31, 2020, it maintained 9% of the SEN's installed generation capacity. The firm provides electricity directly and primarily to large mining and industrial clients and also covers the electricity supply needs of distribution companies throughout the country. Currently, the shares of EECL are 60% owned by the French group ENGIE S.A. The remaining 40% is publicly traded on the Santiago Stock Exchange.
About the Climate Investment Funds (CIF)
With more than ten years of climate action, the $8.3 billion Climate Investment Funds are one of the world's largest multilateral climate finance instruments. CIF provides developing countries with climate-resilient, low-carbon development finance. These grants, concessional loans, risk mitigation instruments, and capitalization leverage significant additional financing from the private sector, multilateral development banks (MDBs), and other sources. Five MDBs: the African Development Bank (AfDB), the Asian Development Bank (ADB), the European Bank for Reconstruction and Development (EBRD), the Inter-American Development Bank (IDB) and the World Bank Group (WBG), implement CIF financed projects and programs.