Honduras to Further Decarbonize its Electricity Sector and National Electric Power Company

The Inter-American Development Bank (IDB) has approved a $200 million Conditional Credit Line for Investment Projects (CCLIP) and a first $50 million individual loan under this credit line to support Honduras as it decarbonizes its electricity sector and National Electric Power Company.

For the same purpose, IDB has also approved $5.1 million in non-reimbursable financing and $2 million in non-reimbursable investment financing from the Strategic Climate Fund, as well as a $2.5 million grant from IDB CLIMA.

The program, which has been approved by the Board of Executive Directors of the IDB, will directly benefit 1.9 million customers of the Honduran National Interconnected System by giving them access to reliable and clean electricity. It will also benefit Afro-Honduran women, indigenous peoples, and young people in the project’s area of influence through training on building and installing solar photovoltaic systems, as well as workshops on gender.

The program will also strengthen the capacities of national entities that have a hand in designing public energy policy to mitigate and adapt to climate change, as well as to monitor and report these initiatives.

Although Honduras has made progress on adding non-conventional renewables to its energy mix, the country still has work to do to meet its Nationally Determined Contributions, reduce its dependence on fossil fuels, and become more resilient to climate change.

The credit line aims to help decarbonized the electricity sector, give citizens better access to electricity, and improve the sector’s financial and operational sustainability, through investments that enable a sustainable, reliable, and efficient supply of electricity.

The first individual lending operation will support Honduras’s process of decarbonizing its power generation mix and making it more climate resilient. It will also enhance the sector’s financial sustainability and build capacities to give Honduras the option of issuing bonds in green capital markets so it can meet its climate commitments.

It will therefore finance actions like developing and implementing disaster-resilient solar farms on the grounds of the National Electric Power Company’s substations or hydroelectric power plants, or implementing battery storage systems at substations to guarantee a constant and efficient supply.

It will also build up the National Electric Power Company’s technical and institutional capacity to efficiently manage electricity projects in ways that mitigate and adapt to climate change, and to monitor and report actions and investments in the sector.

The first individual $50 million IDB loan has two components. The first $32.5 million tranche has a 25-year repayment term, a 5.5-year grace period, and an interest rate based on the Secured Overnight Financing Rate (SOFR). The second $17.5 million tranche of concessional resources has a 40-year repayment term and grace period, and a 0.25% annual interest rate.

The $5.1 million in reimbursable financing from the Strategic Climate Fund has a 30-year repayment term, a 10.5-year grace period, and a 0.98% annual interest rate.