Energy efficiency green bonds in Latin America and the Caribbean

Addressing demand-side energy efficiency in Latin America and the Caribbean through green bonds, by using the concept of aggregation to mobilize institutional funds at scale toward small and medium sized energy service companies.

The Programme addresses demand-side energy efficiency (EE), an area identified by the Intergovernmental Panel on Climate Change as comprising the greatest component of climate finance shortfall for mitigation. EE is one of the most competitive and cost efficient ways of responding to increasing energy demand, while reducing greenhouse gas emissions, lowering production costs and improving productivity. Lack of adequate financing is however a major barrier to private sector initiatives in energy efficiency.

In each targeted country, the Programme uses a two-phased approach to bridge that gap. It will, at first, fund energy efficiency projects using loans. Once a sufficient amount of projects are aggregated, the Programme will “bundle” them such that they will be used to underpin the issuance of partly guaranteed green bonds. In its initial phase, the Programme targets four Latin America and Caribbean countries – Colombia, the Dominican Republic, Jamaica and Mexico (as pilot country) – of which two are Small Island Developing States.

During the eleventh Board Meeting, the Board approved the amount of USD 20 million of Partial Credit Guarantees for the (pilot) Phase I in Mexico and USD 2 million as a programme development grant to facilitate the replication of the financing structure for Phase I into other capital markets in Latin America and the Caribbean under Phase II of the Progamme. The Board also allocated USD 195 million for Phase II of the Programme to be committed, subject to funding approval by the Board, in several tranches over the course of the next five years.

The Programme targets minimum emission reduction of 13.2 million tCO2e (2.5 million tCO2e in Phase I) and 780 million dollars (150 million dollars in Phase I) of private sector bond issuances with potential for further upscaling and replication in other developing countries.

The project page will capture Phase I information only, pending the approval by the Board of the next phase of the Programme.

The project has an estimated lifespan of 6 years.