Financing early project development and mobilising private capital
The IKI engages in financing project development in the early stages where investments are the riskiest as well as investing in blended finance vehicles to mobilise private capital.
There are massive investment needs to finance the climate change transition in emerging market and developing economies (EMDEs) that exceed available public funds. To close the financing gap, it’s crucial to use public funds efficiently to leverage and crowd in private capital for climate investments. At the same time, sound climate projects must be developed on the ground to provide bankable investment opportunities for private investors. The International Climate Initiative (IKI) engages in financing early-stage project development, when investments are the riskiest, and investing in blended finance vehicles to mobilise private capital.
Early-stage financing tackling the clean energy financing gap
One successful facility to finance early-stage pipeline and project development is the Seed Capital Assistance Facility (SCAF) Phase II which is funded by Federal Ministry for Economic Affairs and Climate Action (BMWK) and United Kingdom’s Foreign, Commonwealth and Development Office (FCDO). As a donor-funded public sector facility, SCAF addresses the ‘early-stage financing gap’ to bring renewable energy projects to fruition. Managed by the United Environment Programme (UNEP) and Frankfurt School-UNEP Collaborating Centre for Climate & Sustainable Energy Finance (FS-UNEP), the facility supports private sector investment entity managers and development companies operating in high-risk frontier markets in Sub-Saharan Africa and South East Asia.
SCAF operates in the early stages of project development where costs are comparatively low, but the risks and barriers for investors and developers are extremely high, dynamic, and constantly changing. Through its support lines, SCAF uses a combination of pure and repayable grants to enable private sector fund managers, platform managers and development companies to set‑up climate investment vehicles, build enterprise and local expertise, create strong project pipelines, and develop the most promising projects in Sub-Saharan Africa and South East Asia.
Support ranges from funding feasibility studies and business plans in the pre-investment phase through to the co-financing of approval procedures and due diligence audits in the later stages of the project development phase.
While other facilities and institutions focus on individual project level support, SCAF is unique in that it focuses on supporting its partners at a broader level. This support helps developers build local teams, enter new markets and develop initial pipelines, as well as develop high quality, bankable investment portfolios that attract additional financing, reach financial close, and move on to construction and operation. In addition to the immediate sector‑specific objective of fostering the deployment of renewable energy, the intervention also achieves market‑level impacts that help reduce future barriers and increase risk‑tolerance, while providing sustainable social and environmental co‑benefits, including emissions mitigations and improved energy access, job creation, and local economic development.
SCAF impact up to the year 2024
As of September 2024, SCAF has been working with 24 partners and has directly supported 49 projects in 19 emerging markets. The realised projects amount to 500 MW, with a pipeline of 2.6 GW of projects still in development under SCAF funding. Once operational, the realised projects are expected to avoid over 4.01 MtCO2e emissions per year and have created over 2,340 jobs. To achieve these results, SCAF is disbursing and has committed approximately USD 22.8 million in support through its three support lines reaching a projected total catalysation of USD 1.3 billion in private and public funding. At the project level, SCAF funding has so far directly catalysed USD 285 million for climate mitigation projects, at a leverage of 75.
For instance, in December 2023 the “Kodéni” 38 MW Solar PV Power Plant project by Africa REN’ was inaugurated in Burkina Faso together with the Government of Burkina Faso and is fully operational. It is the largest PV power plant and the first public-private partnership to reach financial close in the country. Co-financing for project development provided by SCAF to Africa REN was used for Kodéni to match costs for legal fees, technical studies, setting up the Environmental and Social Management System and Environmental and Social Management Plan.
While the SCAF support ends after pipeline and project development, finding investors for such projects is key to moving on to construction and operation. One innovative equity financing solution supported by the IKI is the Emerging Market Climate Action Fund (EMCAF).
Mobilising capital for a global energy transformation
The EMCAF is a groundbreaking initiative designed to accelerate climate action in emerging and developing markets. Established through a collaboration between Allianz Global Investors (AllianzGI) and the European Investment Bank (EIB), EMCAF’s mission is to bridge the investment gap in emerging and developing countries by mobilising both public and private sector capital.
Investment strategy and fund structure
EMCAF employs a triple bottom line approach—People, Planet, Prosperity. It adheres to strict the EIB’s Environmental & Social (“E&S”) standards to maximize positive impacts while mitigating potential risks. The fund places an emphasis on climate change mitigation and adaptation, supporting projects that enhance climate resilience and mitigate greenhouse gas emissions. Furthermore, it contributes to advancing the Sustainable Development Goals (SDGs), including SDG 5 (Gender Equality), SDG 7 (Affordable and Clean Energy), SDG 13 (Climate Action), and SDG 17 (Partnerships for the Goals).
EMCAF backs fund managers and developers who develop commercially viable climate change mitigation, adaptation and resilience as well as other climate
The fund aims to accelerate the climate transition by directing investments towards supporting the shift to a low-carbon economy. It also seeks to facilitate energy independence by promoting energy security in target countries. In addition, the fund addresses infrastructure gaps by helping to close the investment shortfall at scale, contributing to sustainable development.
The fund utilises a risk-layered blended finance structure combining public and private capital to lower the risks for private investors to invest in higher risk areas. The junior tranche, funded by public investors, provides downside protection and accounts for 30% of the fund. The senior tranche attracts private investors by offering priority distributions and risk mitigation. This structure generates attractive risk-adjusted returns, encouraging private sector investment in early-stage clean energy projects in emerging markets.
EMCAF Investment Strategy:
How do private investors benefit?
Attractive returns and positive outcomes are not necessarily mutually exclusive. Scarce public financing resources need to be complemented with private capital to fill the funding gap. EMCAF’s private investors can be part of the growing global commitment to clean energy, reducing risks to supply chains, preserving access to natural resources, and sharing responsibility for a more sustainable future.
EMCAF’s impact up to year 2024
EMCAF is a major impact initiative with the potential to mobilise up to EUR 10 billion in climate finance. It will catalyse around 9-10 GW of clean energy capacity. AllianzGI is proud to see EMCAF endorsed by the G7 under German Presidency in 2022 as a model of private institutional capital mobilisation for these markets. EMCAF will deliver large environmental and social impact in its target countries by building up not only the green economy infrastructure but the ecosystems that will sustain it over the long term, allowing countries to be independent and resilient.
EMCAF-Portfolio
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Contact
IKI Office
Zukunft – Umwelt – Gesellschaft (ZUG) gGmbH
Stresemannstraße 69-71
10963 Berlin
Fund data SCAF
Countries: Developing and emerging countries in Africa and Asia (eligible according to the DAC list)
IKI commitment: EUR 16.1m
Duration: 11/2014 to 12/2026
Implementing organisation: United Nations Environment Programme (UN Environment)
Partner: Frankfurt School of Finance & Management gGmbH
Website: https://scaf-energy.org/
Fund data EMCAF
Countries: Emerging markets and developing countries across Africa, Asia, Latin America, South-Eastern and Eastern Europe, the Middle East and North Africa (DAC list eligible).
IKI commitment: EUR 88.3m
Status: Investment Period
Fund Term: 17 years from the final close
Implementing organisation: Allianz Global Investors
Partnership: European Investment Bank (EIB)
Website: https://emcaf.allianzgi.com/
Annual impact report: https://scaf-energy.org/
