Today at COP25, the Green Climate Fund (GCF) and MUFG Bank, Ltd. took the first step towards allocating GCF resources to the Espejo de Tarapacá renewable energy project in Chile by signing a Funded Activity Agreement (FAA). The project, which was submitted by MUFG Bank – one of GCF’s Accredited Entities – will be led by the renewable energy developer Energía Valhalla.
The project is expected to decarbonise up to 5 percent of the country’s energy mix, helping Chile achieve its long-term climate objectives, including Nationally Determined Contribution (NDC) targets. The initiative will also support climate change adaptation by diversifying local economies and providing stable water supplies from its associated desalination plant. GCF will invest up to USD 60 million in the project’s equity, and its anchor investment will help to attract additional private sector debt and equity investors to finance the remaining USD 1 billion.
This project involves a number of "firsts" for GCF, including its investment in the project prior to having a Power Purchase Agreement (PPA) in place – which will enable Valhalla to complete the development stage and win a PPA – and, most notably, by mobilising institutional capital at scale.
As the first such initiative in Latin America, signed with the largest bank in Japan and one of the largest banks in the world, the project will combine solar energy with a pumped storage hydroelectric system to offer a continuous and stable supply of low-carbon electricity, reducing Chile’s dependence on fossil-fuels.
"This project exemplifies GCF's financial innovation and willingness to accept higher risks to scale up climate action," said Yannick Glemarec, Executive Director of GCF. "By investing equity in the early development stage, the Fund de-risks the project and catalyses much larger private sector investment," he added. "The unique combination of solar and hydro storage systems will help solve renewable power intermittency, thus transforming the entire energy market in Chile," he emphasised.
"As the formal contact point with the Green Climate Fund, the Chilean government welcomes the investment in this unique and innovative energy storage project," said Ignacio Briones, Minister of Finance of Chile. "Valhalla's Espejo de Tarapacá Project will help our country to achieve carbon neutrality by 2050. We look forward to collaborating with the Fund on additional transformational initiatives, which support Chile in increasing renewable electricity generation," he added.
Juan Camus, CEO of Valhalla, the project’s Executing Entity, said, "We are proud to partner with the Green Climate Fund and MUFG Bank, which are supporting this ground-breaking and innovative renewable seawater pumped storage hydro initiative. The Espejo de Tarapacá Project, which provides cost-effective bulk energy storage of solar generation, will contribute multiple benefits to the country and local communities, including accelerating decarbonisation of Chile’s electric grid. The Fund's commitment will unlock financial barriers, allowing us to complete development and attract private investment for final implementation," he pointed out.
MUFG Bank’s Managing Executive Officer, Randall Chafetz, stated, "As an Accredited Entity of GCF, MUFG Bank is honoured to sign the FAA for the Espejo de Tarapacá Project – an innovative, unique and large-scale renewable power project in Chile. This initiative is also noteworthy as the first project for MUFG Bank since it was accredited by the GCF Board. MUFG Bank will continue to engage with GCF to contribute to the realisation of a sustainable environment and society."
Replicable across Latin America, Asia and Africa, the Espejo de Tarapacá Project is one of 124 projects funded by GCF, which invests in low-emission and climate-resilient development to help vulnerable countries and communities adapt to the impacts of climate change and reduce greenhouse gas emissions. To date, the Fund has committed USD 5.6 billion in financing to support developing countries to raise and realise their climate ambitions and Paris Agreement goals.