Last year, the Inter-American Development Bank (IDB) approved a record $736 million in loans for large scale private sector projects in renewable energy and energy efficiency, and it plans to do the same this year.
That’s a lot when you compare it with what the Bank spent from 2000-2010 – just $663 million for the entire decade.
The Bank is ramping up because it got its largest capital increase ever and that’s contingent on putting 25% of its lending portfolio to work on climate change and green initiatives, which include renewable energy.
It plans to finance wind, solar and hydropower plants in particular, in Latin America and the Caribbean.
Big hydropower plants are destructive to the environment, so these should be viewed with scrutiny.
In terms of energy efficiency, IDB estimates the region could save billions of dollars by reducing energy consumption 10% over the next decade. The bank finances projects that help specific sectors like biofuels and water utilities save energy by deploying efficient technologies. It’s underwriting programs to reduce electricity transmission losses and build smarter power grids in countries and across borders.
What’s the Inter-American Development Bank?
Established in 1959, the Bank is the largest source of development financing in Latin America and the Caribbean. The financing is intended to reduce poverty and inequality.
The Bank borrows in international markets at competitive rates and transfers that benefit to its members, which consists of 48 countries, 26 of which are Latin American and Caribbean borrowers.
While it gives loans in the same way as a typical bank, IDB also provides grants, technical assistance and conduct research.
Members are asking for more financing of renewable energy and energy efficiency projects. One of the goals set in IDB’s capital increase agreement says, "The Latin America and the Caribbean region is committed to reducing its greenhouse gas footprint.’"
IDB provides access to tailored long-term financing, not readily available in local capital markets for these types of projects."
Energy demand in the region is expected to increase by 50% by 2030 because of increased private transport and land use changes, requiring estimated global investments of up to $1.5 trillion, according to the International Energy Agency. In the next decade alone, the region will require a 26% increase in its installed energy generation capacity to meet annual projected economic growth of as much as 6%.
Projects Financed
IDB says it helped supported $4.1 billion in climate friendly investment last year, reducing greenhouse gas emissions by over 3.5 million tons a year.
The biggest renewable energy projects it financed include Peru’s second biggest hydropower power facility, Mexico’s biggest wind farm and wind farms in Brazil and Uruguay.
IDB also provides loans to regional financial institutions to support sustainable businesses. Last year, for example, IDB approved a $20 million loan to Banco Atlántida in Honduras to support their green business line and another $50 million for Espírito Santo Investmnent Bank to support infrastructure and renewable energy projects throughout the region.
Besides financing, the IDB also offers technical assistance grants, including energy efficiency and small-scale renewable energy assessments, financial models and project designs. In 2011, these assessments resulted in the installation of the first solar PV plants in Chile and Brazil.
The Bank’s technical assistance also supports cleaner manufacturing plants, commercial building improvements, and agricultural methane capture systems in several countries in the region.
Last year, the Bank formed a 1.5 million euro partnership with Nordic Development Fund to provide grants for energy audits and clean energy feasibility studies to identify concrete efficiency improvements.
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