Possible Modalities of Government Support for Private Clean Energy Investments/Financing

1. Possible Modalities of Government Supportfor Private Clean Energy Investments/Financing • Government support could be in different forms depending on types of “barriers” perceived by private investors & lenders: • TA (grants) to help develop business; enhance capacity of lenders & borrowers • Grants/concessional loans to make projects economical (investment costs; transaction costs); to address lenders’ liquidity • Guarantees to mitigate risks that private lenders cannot take/are reluctant to take, for example: • Credit risks of borrowers (start-ups, SME sponsors) • Risks as to the stability of emerging clean energy regulations • IBRD support requires sovereign government indemnity

2. Possible Modalities of IBRD/CTF SupportGuarantee support could mitigate different risks IBRD can provide Loan and Guarantee for the same project, depending on specific project needs

3. IBRD-supported Local Partial Credit Guarantee Program with a Local Guarantee Company as Program Administrator How to address the credit risk of borrowers that banks will not take fully? Guarantee Program Implementation Agreement GOV IBRD Loan Agreement withdraw upon guarantee signing ownership withdraw upon guarantee call World Bank (IBRD) Guarantee Program Administrator ( Local Guarantee Company, etc.) Partial Credit Guarantee Program Escrow Account CTF Partial Credit Guarantees (could be portfolio guarantee) for risk sharing between GOV and lenders Local Commercial Banks loans Entities engaging in clean business (renewable SPPs, ESCOs etc.)

4. IBRD-supported Local Partial Credit Guarantee Program with a Local Guarantee Company as Program Administrator How to leverage GOV resources? 1. Risk sharingbetween GOV and lenders under Partial Guarantees 2. Professional management& close monitoring to result in truly revolving nature of fund resources 3. Borrowers’ own resources for borrowing discipline & to become credible borrowers guarantee fee income to offset the cost of the Guarantee Program Guarantee Program Administrator (Guarantee Company) Partial Credit Guarantee Program Escrow Account Partial Credit Guarantees Local Commercial Banks loans Entities engaging in clean business

5. What are World Bank Partial Credit Guarantees ? • For sovereign or agency borrowing in the commercial market for IBRD countries, chiefly in support of public projects/fiscal support • Cover a portion of debt service payment for bonds/loans: • Principal and/or interest (e.g., late maturities) • Coverage can be structured flexibly • Two types of credit guarantees: • Partial Credit Guarantees (PCG) for investment projects: borrower can be Government/agency • Policy-Based Guarantees (PBG) for Development Policy Lending (i.e., fiscal support) • PCG can be offered for local currency debt

6. World Bank Partial Credit Guarantees (PCG)PCG can be structured flexibly A. World Bank’s guarantee of a single coupon payment on a rolling basis PV=3% Single Coupon Payment USD 300 m B. World Bank’s guarantee of the principal PV=56% World Bank Support for Principal Repayment 0 10

7. What are World Bank Partial Risk Guarantees? Partial Risk Guarantee (PRG) covers lenders in case of debt service defaultcaused by Government not meeting its commitments to private projects Loans Project Company Commercial Lenders Government Undertakings Guarantee Indemnity Agreement Government World Bank

8. World Bank (IBRD) Partial Risk Guarantee For Limited-Recourse Debt or Sponsor Loan Possible application for Clean Energy/Transport Projects Government Indemnity Government Undertaking or Guarantee CTF Repayment of commercial debt covered by PRG for government risks Incremental Cost Support Project Company (Wind Power, Hydro Power, Urban Transport Etc.) Commercial Bank Private Investors Equity Project Loan Sponsor Loan PRGs can also be structured with a deemed loan or a letter of credit structure to benefit project companies (i.e. equity investors) as well.

9. Clean Technology FundCTF Guarantee Instruments for Public Sector Operations • CTF resources may be deployed as guarantees to promote low carbon technology projects and programs • CTF support “incremental risks” (vs. conventional risks) that are not assumed by sponsors & lenders • Technology & economic performance risks: • Application of commercially viable technologies in new markets • Unfamiliarity resulting in requirement for higher returns • Unwillingness of manufacturers to warranty performance • Increase in O&M costs; degradation of performance beyond warranty • Commercial & financial risks: • Perceived credit risks resulting in unavailability of financing • Small project scale and high transaction costs [Country & political risks: CTF would not address these risk for “public sector” projects]

10. Clean Technology FundCTF Guarantee Instruments for Public Sector Operations • Guarantee support can be structured flexibly and may take various forms, but two categories have been proposed: • Loan Guarantee: up to 100% (but sharing in encouraged) to extend the maturity of commercial loans • Contingent Finance: disbursed to the project upon underperformance of a low carbon technology (not commercially insurable or beyond the insurable period) • Borrower: government, sub-national governments, SOEs, etc. • MDB issues guarantees/provide contingent finance backed by funds in the CTF - no sovereign government indemnity required • Guarantee charge: 0.1% per annum • US dollars only