Joining forces to help fill the gaps in financing for demand-side energy efficiency, the Green Climate Fund (GCF) and the Inter-American Development Bank (IDB) have committed USD 328 million to promote energy efficiency green bonds in Latin America and the Caribbean. GCF funding includes a grant of USD 2 million and USD 20 million in guarantees, while the IDB is co-financing with 306 million dollars worth of 10-year loans.
Lack of adequate financing for demand-side energy efficiency projects is proving to be a major barrier to private sector initiatives. The GCF-IDB programme, entitled Energy Efficiency Green Bonds in Latin America and the Caribbean, is designed to address this gap, using the concept of aggregation to mobilize institutional funds at scale toward small- and medium-sized energy service companies.
In its initial phase, the programme will be implemented in four Latin American and Caribbean countries: Mexico, Dominican Republic, Jamaica and Colombia.
In each of the four countries, the programme will use a two-step approach. At first, targeted energy efficiency projects will be funded through loans. Once a sufficient amount of projects are aggregated, the programme will “bundle” them to underpin the issuance of partly guaranteed green bonds.
The programme’s target is a minimum emission reduction of 13.2 million tCO2e and USD 780 million of private investment with a potential for further upscaling and replication in other developing countries.