Earlier this year, at its tri-annual board meeting in March, the Green Climate Fund (GCF) approved two projects, worth a combined $1.8651 billion, to target climate-resilient infrastructure and renewable energy across Africa.
The $765.1 million Infrastructure Climate Resilient Fund (ICRF) will be allocated to greenfield climate-resilient infrastructure projects primarily in transport, clean energy, and telecoms across 19 sub-Saharan African countries.
Meanwhile, the Sustainable Renewables Risk Mitigation Initiative (SRMI)-Resilience facility has a total value of $1.1 billion and will invest in renewable energy projects in six African countries, as well as three in Asia. It will create 2.2GW of new renewable energy projects and 570MWh of battery storage, providing electricity access to 3.2 million people.
It is the second phase of the SRMI facility, the first phase was approved by the GCF board in March 2021 and targets the same renewable energy projects in six African countries, including Uzbekistan in Asia. That facility will add 2.5GW of renewable electricity projects in the countries targeted. It has a value of $1.6 billion, bringing the total value the GCF has approved through these three funds addressing Africa’s need for renewable energy and reliant infrastructure to address its energy deficit to $3.4561 billion.
“GCF is driven by the needs and priorities of developing nations to respond to the climate emergency by raising and realising their climate ambitions,” Scott Craig, a spokesperson for GCF told Africa in Fact.
The GCF was initially created in 2010 to help developing countries reduce greenhouse gas emissions and adapt to climate change. Since the Paris Agreement was signed in 2015 this has transitioned to address the funding needs of these countries to reach their respective nationally determined contributions (NDCs), to limit global temperature increases to below 2°C. These NDCs are what individual countries determined they would do to cut their emissions to achieve this goal, but it requires significant investment in low-carbon and climate-resilient development.
The GCF is the world’s largest climate fund, funded primarily by developed countries, which have targeted $100 billion a year for climate mitigation and adaptation in developing countries. Its initial resource mobilisation ran from 2014 to 2019 and saw $10.3 billion pledged, but only $9.3 billion confirmed.
Its first replenishment runs to this year and has seen 34 contributing countries pledge $10 billion. The second replenishment, which will be launched this year when the first one expires, has already seen pledges of €164 million from Austria and Czechia, as well as €2 billion from Germany, making it the largest overall contributor to the fund. Even so, the International Energy Agency (IEA) has put the figure Africa needs to meet its energy and climate needs at $133 billion a year between 2026 and 2030, a number that dwarfs the total size of the GCF.
The GCF distributes these funds through entities that it has accredited and who approach the GCF with projects that they’re looking to fund, mostly in partnership, with the GCF providing catalytic funding to take on the first loss investment. This funding is aimed at encouraging both private and public investors to support projects that would otherwise be unable to get off the ground without a large institution taking the risk of the first loss.
With the two SRMI facilities, the accredited World Bank approached the GCF to provide 18% and then 14% of the total funding through grants, loans, and guarantees to get governments access to the public and private funds needed to address the energy deficit. The ICRF is a project of the Africa Finance Corporation (AFC), which applied to the GCF to start the fund. The ACF declined to speak to Africa in Fact about the fund, citing regulatory sensitivities.
“The entire way of thinking [with SRMI] goes from identifying the right risks, and the right solution for each risk,” says World Bank energy specialist Sabine Cornieti. “And not just thinking from an Independent Power Producer (IPP) perspective, but really thinking about the government’s perspective and how to make a bankable programme from the government side.
“SRMI is a risk mitigation framework. After we’re working on improving the grid, and reducing the risks related to contract bankability, planning, etc, there’s always a residual risk, in particular with African utilities that are not bankable. So, you still need to have guarantees and risk mitigation instruments to cover the offtake risk, or you may have a foreign exchange constraint.”
The foreign exchange problem Cornieti refers to is investments that are signed in local currency but pegged to either the dollar or euro. With the volatility of local currencies, the local utility is tied to paying back investments in those currencies.
“Issues around local currency lending have been something that we’ve been trying to address with the GCF for some time and we hope to find a solution,” says Muhammed Sayed, a specialist in the climate and environmental finance unit at the Development Bank of Southern Africa (DBSA), another GCF accredited entity. “I think that’s also a key fact hindering some entities, such as national development banks that are exploring accreditation, that’s something that from their perspective can be a barrier. Once these [and other] issues are sorted out, we can scale up some of these interventions and start to see more traction in achieving NDC targets.”
Cornieti adds that they are working to “switch or at least partially switch to local currency”.
Yet, is a fund headquartered in the Global North, and the World Bank, best positioned to be deciding that the continent needs clean energy rather than just whatever energy is available at the lowest cost to provide power for its citizens?
Cornieti, however, argues this is not a case of the Global North imposing an energy system of its choosing onto Africa and keeping countries from using the fossil fuels they have to appease the climate demands of the North.
“Yes, coal is the least cost in some countries. But in most countries, it is not,” she argues. “You start with the premise of saying, we’ll work with you on a least cost, reliable generation plan, using the best tools. And when we look at the results together from the new plan, most countries can [be] convinced that, indeed, coal and gas are not necessarily the way to go. The alternative may be a larger increase of solar and wind penetration with important amounts of battery storage.”
This is why the World Bank emphasises its role in not just providing concessional loans and access to GFC funds as mitigation risk for projects with national utilities that wouldn’t get off the ground without it, but also technical assistance to work with countries on energy plans and assess what is needed. This is so countries don’t get locked into an expensive gas or coal project that they won’t need in 10 years time but will have the experience of developing an energy plan with the World Bank, better equipping them to select the right type of energy or IPP for their needs.
But unlike the World Bank, other organisations have not found working with the GCF to be as straightforward. Of the 114 approved accredited entities through which the GCF can disburse funds, only 18 from just 13 countries are based in Africa. This means that those making decisions about how climate finance is spent in Africa are generally not from or based on this continent.
“The developing countries have always pushed for ‘direct access’, where organisations in a country or regional entities directly access resources,” says Olympus Manthata, head of climate and environmental finance at the DBSA. “I think there’s a good argument for that. Developing countries are always behind with regard to their ability to access these resources.
“If we’re to be honest about the experience on the ground working with the GCF we can talk about many challenges,” he adds. “There’s been many efforts to simplify things and increase efficiencies. There’s still a lot of challenges but there’s also been efforts to improve issues.”
The DBSA’s experience of accreditation is typical, taking two years to secure a fast-track application and more than four for it to be effective. Given the GCF’s goal to distribute $100 billion annually, the time taken, and the difficulty African financial institutions have had to access funds, means that remains a distant target.
But whoever ultimately has access to and controls the direction of GCF – and other large multilateral funds – will not provide a quick solution to Africa’s energy deficit. Seeing significant results on the grounds of the SRMI facility approved in 2021 and the SRMI and ICRF this year will be a long one.
“Actual disbursement of the GCF funds will take time because we’re financing transmission lines or power plants that take years to build,” Cornieti concludes. “We are in the business of development, and development takes time. Even if we all want it to be faster, at some point you need to acknowledge that you need to have the right prerequisites in place to make sure that the money will be spent on the right activities and all the analysis for safeguards completed.”
Joe Walsh is a freelance journalist based in Johannesburg. He writes about the environment, energy and the green economy as well as politics and society for British publications, including Environmental Finance, the New Statesman and The New European.
