Renewables for Development -RforD-
Renewable Energy for Developing Countries


Financing Solutions for RforD Projects

Separate Accounting for Project Preparation & Execution
Project Bundling to Scale Up Project Volumes
Financing Mix
Revolving RE Fund

Financing development projects is a difficult task, as many RE projects are not economically viable in developing countries. Why?

The price that an independent power producer (IPP) can abtain for the sale of clean renewable energy to the grid is not high enough to cover the high upfront cost of initial investment into RE production sites. Unlike in industrialised countries, there is no customer ready and able to afford to pay the higher price for RE compared to traditional polluting energy. Thus, RE projects are not directly economically viable.

Separate Accounting for Project Preparation and Project Execution

RforD has concentrated on this problem. We have developed a commercial model for RE deployment tailored to the specific needs and capacities of developing countries.

Our innovative approach to RE project financing consists in separating all projects into a non-commercial and a commercial part. By separating all project preparation activities (from site identification to business plans, from active involvement of all stakeholders to empowerment of the future RE production site owners and managers) from the final project execution as such (from technology purchase, transport, and construction phase to operation and maintenance of the RE production site), RforD is able to distill a purely commercial part out of the whole project.

Project Bundling to Scale Up Project Volumes

RforD opens the sector of decentralised RE production to any institutional investor.
In order to make economie of scale, RforD prepares and conducts the highest possible number of single projects in a region at the same time. This multiplication approach allows to

Reduce high up-front cost of RE equipment ba placing large orders
Make economies in logistics cost
Multiply the use of project preparing activities
Improve negociation results with national authorties due to stronger bargaining chips (more projects = more development impact! = higher stakes)
Get important financing institutions involved due to a higher overall financial volume

Why Scale Matters:

Single Project Benefits:
Bringing down average project cost reduces the financial burden of the target population.
Initial investment cost will be amortized more quickly.This reduces the financial risk of any investor.

Overall Benefits:
Single projects are often "too cheap" to get institutional investors involved. Being to small in scale, such projects find no financing. Bundling single projects together increases the total investment volume.
Thus, development banks can lend to socially, ecologically and economically highly beneficial decentralised small projects by dealing with RforD as intermediary who creates the required volume.

Financing Mix

In order to maximise project output while minimising investment risk RforD adopts a new approach to project financing. Able to present a commercial project part to institutional investors, RforD can easily secure financing for this commercial part, out of the following sources or a mix of them:

export credits
commercial loans
green or ethical funds
private investment

For project preparation, traditional and newly emerging funding sources are available:

international carbon funds using the "Clean Development Mechanism" (CDM)
Global Environmental Facility (GEF) funds for RE projects
grants from international organisations or foundations, such as the UN, the EU
Official Development Aid (ODA)
specific project development funds at preferential conditions, such as for the development of a project pileline.

Revolving RE Fund

In order to manage all available financing resources, RforD is setting up a revolving RE project fund. This fund is to be managed by an experienced developing bank that is RforD's partner. We still look for the appropriate candidate to set up and mangage our revolving fund!
The RE fund invests in a larger portfolio of diverse RE projects in different countries, not in single RE projects. It is RforD's job to identify and prepare this project portfolio for investment, paying attention to economic, ecologicall and social aspects.

The RforD RE fund represents an attractive investment because of financial long-term sustainablility of RforD RE projects and excellent direct effects on poverty alleviation and climate change mitigation.

Project Sustainability:

Appropriateness: matching existing needs with existing potential in a commercial manner
Technology: adapted to local capability and capacity, provided by local service facilities
Financial: tapping of all kinds of resources, as well as separate accounting for commercial and non-commercial project components throughout the whole project life-cycle
Social: full empowerment and involvement of target communities in their RE project

Why integrate a rural RE business sector in one’s portfolio?

Secure long-term investment: excellent fund for portfolio diversification
Green investment: a clear support for greenhouse gas emissions reduction
Ethical investment: clear project selection criteria assure a favourable equity impact
Social investment: enables RforD to create means of income generation for the rural poor
Risk management strategies: professional fund management, co-financing, guarantees

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