The COP 28 commitment to triple renewable energy worldwide by 2030 is a critical step forward in addressing the climate crisis. However, achieving this accelerated deployment demands innovative models that increase private investment and build the capacities of local markets. Borislav Kostadinov, Fund Director, explains how Finance in Motion delivers these solutions where they’re needed most.
Renewable energy is a proven technology and core solution to a number of the world’s most pressing challenges. A decarbonized future is an electrified future, meaning vastly more solar panels and wind turbines are needed to achieve ambitious visions such as the Paris Agreement or the European Union’s commitment to climate neutrality by 2050.
Attending COP28, Borislav Kostadinov, Fund Director at Finance in Motion, emphasizes the urgency to scale proven solutions: “We need to massively and immediately increase investments in renewables if we are to keep the Paris Agreement within reach.”
The good news is that in much of the world renewables are now the most cost-effective investment for electricity generation. Yet too often international investors remain hesitant to commit capital to emerging markets due to perceptions of higher risks. For Borislav, who built his 25-year career upon pioneering green finance and building green banks in emerging markets, these perceptions are misplaced: “At Finance in Motion, we advise proven blended finance vehicles that bring blue chip, private investors into renewables projects across emerging markets. They haven’t lost a penny and we’ve financed over one gigawatt worth of projects”.
Long track record in mobilizing finance in emerging markets
Finance in Motion and its public-private partnership model have demonstrated how to bridge these financing gaps in emerging markets for 15-years. As pioneers in blended finance, the funds we advise leverage public funding to mobilize private capital for impact-focused investments targeting environmental and social outcomes. To date, we have financed over EUR 7 billion in 40+ markets.
Renewable energy is a priority sector for us across many of our regions but nowhere is our footprint larger than in the countries bordering the European Union. Here, we find huge needs to replace fossil-fuel-based infrastructure with cleaner sources, wean economies off coal, and – crystalized following Russia’s invasion of Ukraine – strengthen energy security.
Green for Growth Fund
The Green for Growth Fund (GGF) is a dedicated vehicle for financing climate mitigation investments in Southeast Europe, the Caucasus region, Turkey, and the Middle East and North Africa. It deploys debt and equity to finance renewable energy projects through local partner banks or directly through project finance transactions.
The Fund has invested over EUR 423 million in commercial scale renewable energy projects across these regions since 2009. More importantly, it has played a leading role in market development by successfully demonstrating to the private sector that these investments work and can be replicated.
“At the COP, so much time was spent on the importance of private investment and blended finance as a solution but too few examples were provided”, added Borislav. “We believe our model showcases how public and private investors can come together and not only finance single projects but change how markets finance the sector. We have plenty of successful examples, particularly in Southeast Europe.”
In Serbia, the GGF was instrumental in supporting the country’s first large-scale auction of commercial wind projects, which laid the foundation for this year’s subsequent, and successful, auction of 400MW of additional capacity. In Albania, the fund recently financed the largest non-subsidized solar project in the Western Balkans, demonstrating the viability of commercial, private sector-led projects outside of the traditional structure of state-supported programs.
"We believe our model showcases how public and private investors can come together and not only finance single projects but change how markets finance the sector. We have plenty of successful examples, particularly in Southeast Europe.”
Financing the ‘missing middle’
The GGF is a leading player dedicated to deploying funds for mid-market renewables projects in Southeast Europe, where its investment strategy targets the ‘missing middle’ of project finance. These are projects that are typically too small for international capital markets or development financial institutions (DFIs) but traditionally too large for local banks.
Governments and DFIs play a leading role in structuring and catalyzing markets for renewable energy investments but heightened ambitions for renewables deployment – such as tripling the world’s capacity by 2030 – cannot be met by public and concessional resources alone.
Local banks are crucial for achieving this vision and most are actively financing smaller renewables projects in our markets. They face two key challenges in stepping-up to finance medium-sized projects, which are traditionally financed without traditional banking requirements such as collateral from project sponsors.
First, local banking sectors in many GGF markets are smaller and struggle to finance larger project sizes alone. Second, project finance transactions are complex to underwrite and often require strong institutional know-how and sector-specific experience.
"The GGF addresses both of these barriers as part of its financial and impact mandate”, explains Borislav. “Our impact is multiplied when our partner banks feel confident to finance these types of projects without us”. To that end, the fund, when originating new investments, actively looks to co-invest alongside local banks, helping them to build a project finance track record. Further support can be provided through the fund’s Technical Assistance Facility, which provides tailored technical support to the fund’s partners.
“The Fund has helped facilitate the growth of green financing at a local level with a rising number of home-grown financial institutions now playing a leading role in refinancing financing renewables transactions."
A blueprint for success
Finance in Motion is replicating this successful model across an ever-wider range of markets, continuing to showcase the key experience of the GGF: namely, that financing renewables – or green finance more broadly – can be profitable, impactful, and successful in emerging markets. As this year’s COP made clear, we need more renewables and green finance than ever before, and we need it immediately if we are to achieve the Paris Agreement. If you share this vision, get in touch to see how we together can make this future a reality.
Climate action demands ready solutions that can scale and deliver results - deep greening banking sectors in emerging markets will be vital in delivering the green investments that a Paris-aligned future so urgently needs. Our only chance to get back on track is to repurpose and redirect current financial flows - building the green banks of tomorrow is essential to our success.