An IDB program financed by a grant from the Scaling Up Renewable Energy Program (SREP) will demonstrate the potential of renewable energy investments in Honduras through the construction of renewable energy projects with a total installed capacity of at least 70 MW.
The projects will include small hydro, wind, and solar technologies. A portfolio of 49 renewable energy projects already have power purchase agreements. Many of these projects could potentially benefit from the SREP program’s support for overcoming present barriers to financing, which include risk and high appraisal costs, lack of training, and financial, infrastructure, and regulatory barriers.
The project.The Grid-Connected Renewable Energy Development Support (ADERC) program is being financed by a US$6.7million SREP grant, of which US$4 million will be managed by the IDB’s public sector. Additional financing could include US$25 million in SREP concessional financing (US$10 millon from the Investment Plan and US$15 million from the SREP Set Aside), US$20 million in financing from multilateral banks, US$205 million from local banks, local and/or private investors.
ADERC will support a first portfolio of renewable energy projects to demonstrate the potential of investments in this sector by providing training to stakeholders—developers, financial institutions, and communities―as well as financing for project investments.
Capacity building and technical assistance for project preparation and for local banks will help close the gap between projects and their financing needs. A study will analyze the potential of candidate projects by providing information on investment opportunities in the market, including the kind of support needed to make each project bankable. Local banks will receive training in project finance, project selection, and investment. Project developers will be trained in preparing business plans and project finance. In addition, financial assistance will be provided for feasibility and engineering studies that meet the requirements of banks and investment funds.
Technical assistance will be provided to low-income people to increase their ability to benefit from renewable energy projects. Included will be training to maximize the role of women in decision-making in energy investments.
The program will also create an SREP-financed capital support fund for renewable energy projects. The fund will catalyze and maximize the amount of finance available from multilateral development banks and other partners by providing temporary support to projects that enhances their bankability. Providing capital investment in the form of equity will lower the project risk to the maximum extent. Additional direct loans from the MDBs would supplement loans from the Honduran financial market, providing financial diversification to further reduce risks. Additional risk reduction will be achieved through partial risk guarantees issued by MDBs.
Another fund will be established to finance the extension of transmission and distribution systems to connect the renewable energy projects supported by ADERC and its financial partners. The fund will catalyze commercial financing from multilateral banks, and possibly other sources, including pension funds, private investors, and/or commercial banks. The SREP grant will help leverage loans from the national power utility ENEE for the necessary electrical infrastructure for interconnection of the potential projects identified.
Climate change impact. The construction of renewable energy projects and associated transmission infrastructure through ADERC will result in an estimated reduction of GHG emissions equivalent to 152,424 metric tons of CO2 annually.
Update on results.ADERC will result in an additional 70 MW of additional installed capacity of grid-connected RE power generation through the financing and construction of new projects.
High-priority on energy efficiency. Honduras is a net importer of hydrocarbons, which exposes the country to price volatility on the petroleum market. As such, the Honduran government has declared its intent to reverse the structure of the country’s electricity sector by 2022 to a ratio of 60 percent renewable and 40 percent fossil fuel, and by 2034, to a ratio of 80 percent renewable to 20 percent fossil fuel. ADERC will contribute to achieving these goals.
The program is aligned with IDB institutional priorities set forth in the IDB’s Ninth General Capital Increase and the Bank’s Integrated Strategy for Climate Change Adaptation and Mitigation, and Sustainable and Renewable Energy. In addition, the program supports the IDB’s country strategy with Honduras for 2011–2014, which designates energy as a priority sector.
Lessons learned. Information on lessons learned from ADERC and best practices from implementation of the projects will be of great benefit for carrying out future renewable energy projects in Honduras and in other countries in the region. It is expected that reports will provide developers, local banks, and policy makers from neighboring countries with valuable information on business models for financing renewable energy projects and technical standards required to finance or approve such projects.