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IDB ramps up financing for green projects in Latin America and the Caribbean

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Bank approved record $736 million in loans last year for private sector projects in renewable energy and energy efficiency

The Inter-American Development Bank (IDB) is ramping up lending for private sector projects related to renewable energy and energy efficiency to help bridge the gap for long-term financing for green investments in Latin America and the Caribbean.

Last year alone, the IDB approved $736 million in financing for private sector environmentally-friendly projects, compared with the $663 million invested by the Bank between 2000 and 2010. For 2012, the Bank expects to approve more than $700 million in financing for private sector renewable energy projects, particularly wind, solar and hydropower plants.

The increase in the IDB lending for renewable energy and energy efficiency projects reflects both an increase in demand from its 26 borrowing members and a strategic shift for the Bank following its capital increase. One of the goals set in the IDB’s capital increase agreement calls for 25 percent of Bank’s lending portfolio to support climate change and environmentally-friendly initiatives, including renewable energy.

“The Latin America and the Caribbean region is committed to reducing its greenhouse gas footprint,’’ said Hans Schulz, head of the IDB’s Structured and Corporate Finance Department (SCF), which is responsible for financing large scale projects in the private sector. “Several countries are beginning to develop their potential for wind, geothermal, bio energy production and solar energy, often through private sector leadership. The IDB provides access to tailored long-term financing, not readily available in local capital markets for these types of projects.”

The push for renewable forms of energy comes as Latin America and the Caribbean face strong pressure to meet demand. According to the International Energy Agency, energy demand in the region is expected to increase by 50 percent by 2030 because of increased private transport and land use changes, requiring estimated global investments of up to $1.5 trillion. In the next decade alone, the region will require a 26 percent increase in its installed energy generation capacity to meet annual projected economic growth of as much as 6 percent.

Project Highlights

Non-sovereign financing provided by the IDB last year helped support $4.1 billion in climate friendly investment, which will result in a reduction in greenhouse gas emissions of over 3.5 million tons of carbon dioxide per year. The biggest private sector renewable energy projects financed by the IDB last year, include Peru’s second biggest hydropower power facility, Mexico’s biggest wind farm as well as wind farms in Brazil and Uruguay.

The IDB also supports green investments by providing loans to financial institutions in the region to support sustainable businesses. For example, last year the Bank approved a $20 million loan to Banco Atlántida in Honduras to support their green business line and another $50 million for Espírito Santo Investmnent Bank to support infrastructure and renewable energy projects throughout the region.

Besides financing, the IDB also offers technical assistance grants, including energy efficiency and small-scale renewable energy assessments, financial models and project designs to its clients. In 2011, these assessments resulted in the installation of Chile’s first solar photovoltaic plant for the fruit industry as well as the construction and operation of Brazil’s first solar photovoltaic power plant connected into the national electricity grid.

Moreover, IDB technical assistance has also supported cleaner manufacturing plants, commercial building improvements, and agricultural methane capture systems in several countries in the region.

Grants to help companies identify energy saving opportunities are expected to increase after the IDB formed a partnership with Nordic Development Fund (NDF) last year to launch a 1.5 million euro investment program to support companies in Central America to adopt clean technologies and improve their energy efficiency.

The program, which will target companies in Costa Rica, El Salvador, Guatemala, Honduras and Nicaragua, will provide grants to finance energy audits and clean-energy feasibility studies that will help companies identify concrete investment opportunities for climate-friendly improvements.