Program is the first in a conditional line of credit of up to $ 2.4 billion and will be carried out by BNDES and accredited financial institutions
Brazil is going to boost long-term credit to finance renewable energy and energy efficiency in the private sector with $750 million in resources from the Inter-American Development Bank and $150 million from the Brazilian Development Bank (BNDES). The investment is part of an IDB conditional line of credit for investment projects (CCLIP) of up to $2.4 billion.
Clean-energy and low-carbon projects are long-term and require a large capital outlay, while maintenance and operating costs are relatively low. The program offers terms and interest rates to satisfy the flows necessary for this kind of investment, supporting financing and the luring of funds for investment in alternative renewable energy sources.
In practical terms, the BNDES is going to use the IDB funds and its own resources to diversify and expand its existing sources and lines of financing in the private energy sector, and transfer resources to accredited financial institutions.
"Participation by the private sector has been and will continue to be crucial to ensuring investment in alternative renewable energy and energy efficiency programs, and to boosting growth in the electrical utility sector," said Luis Alberto Moreno, IDB president. "We believe that long-term credit mechanisms like this are essential to boost these investments".
The resources will be earmarked for projects that focus on increasing use of alternative renewable energy sources, such as wind energy, solar power and biomass in the Brazilian energy grid, and on broadening use of energy efficiency technologies in sectors with major potential for boosting efficient use of energy over the short term.
Brazil has a renewable energy electric grid in which more than 60 percent of the production comes from hydroelectric sources. Although hydro power is a renewable resource, the hydro-basednetworkis increasingly vulnerable to the effects of climate change and periods of drought.
Given this context, the program seeks to promote alternative energy sources, support diversification of the energy grid and enhance the security of the electricity system in the future. This will allow for guaranteeing the supply of electricity to all sectors of the economy. The Brazilian government's 10-year Energy Expansion Plan, for instance, emphasizes alternative renewable energy sources with an average yearly increase in capacity of 10 percent.
The investment will also contribute to achieving Brazil's greenhouse reduction goals under the Paris climate change accord of last year. This is the newest line of credit available since that accord went into effect.
In future phases, the line of credit will be dedicated to projects for small-and medium-size companies and infrastructure, all driven by the private sector. The $750 million loan from the IDB -- the first in this series -- is over 25 years, with a grace period of four-and-a-half years and an interest rate pegged to the LIBOR.
The Inter-American Development Bank is devoted to improving lives. Established in 1959, the IDB is a leading source of long-term financing for economic, social and institutional development in Latin America and the Caribbean. The IDB also conducts cutting-edge research and provides policy advice, technical assistance and training to public and private sector clients throughout the region.