EDFI MC, a common platform to develop partnerships between the European institutions and European development finance institutions (DFIs), launched the Transferability & Convertibility Guarantee Facility for renewable energy projects (T&C Facility) on 17 June. The company will administer the facility on behalf of Proparco, the French development finance institution, for a total amount of EUR 26.2 million, entirely funded by the EU.

The new T&C Facility, established under the EU’s Blending framework, covers the risks of inconvertibility and non-transferability between local currencies and euros and/or US dollars to support DFIs’ high-risk investments in independent power producers particularly exposed to such risks.

Removing barriers to private foreign investments

Convertibility and transferability risks are particularly important for the energy sector as electricity is sold in local currency while power plants are typically financed in US dollars or euros and local governments sometimes do not guarantee such risks. In recent years, worsened macro-economic conditions have resulted in many exporting countries experiencing difficulties with their foreign exchange reserves. More recently, the COVID-19 pandemic has severely hindered developments in energy access. Off-grid developments have been particularly put at risk.

By mitigating convertibility and transferability risks with a reserve account for each project meeting the eligibility criteria, the T&C Facility will facilitate more efficient and effective private financing of renewable energy projects across low-income countries facing particularly high convertibility and transferability risks.

Contributing to the Sustainable Development Goals

The T&C Facility is improving the bankability of private renewable energy projects, thus attracting funding from private financiers. It will contribute to reducing sovereign funding needs; increasing energy access and renewable energy generation capacity; reducing greenhouse gas emissions; and boosting job creation. By doing this, the facility contributes to reaching SDG 7, 8, 9, 10, 13 and 17.

“Efficient risk management mechanisms to spur renewable energy projects in developing countries requires financial innovation and reliable partnerships. We are delighted to launch the T&C Facility, a new blending instrument on behalf of European DFIs and the EU. The T&C Facility will address transferability and convertibility risks, a major barrier to increasing investment in the energy sector, and will focus on renewable energy projects in least developed countries. We at EDFI MC are very pleased to launch the T&C Facility as the first of hopefully a range of new high-impact guarantee facilities,” said Dominiek Deconinck, CIO at EDFI MC.

The facility is open for business for pillar-assessed European DFIs. A total of five to six investments are expected to be contracted over an implementation period of 12 years.