Climate funds: a brief introduction

Which are the most appropriate climate funds for your project? When and how should you request support?

By Craig Menzies

Hundreds of climate change funds exist today. Each fund has its own specific raison d’être, in terms of its objetives, project types, beneficiaries, exclusion criteria and the types of climate finance mechanisms it uses. Some funds are directed towards Governments, whilst others support private sector market players. Some funds are global in outlook, whilst others have a single-country focus. Funds can be used for climate change mitigation (emissions reductions), adaptation, local capacity building, technology transfer or to deal with major climate-related disasters.

Climate funds use a broad range of finance mechanisms and tools. This helps ensure that funding is provided in the way most likely to yield the best possible impact in terms of each euro, dollar or yen invested. The most common financing mechansisms include: equity and debt financing, concessional loans and grants, guarantees and subsidies, short-term liquidity, risk-sharing mechanisms, in-kind contributions and guarantees to buys carbon credits.

With so many sources of climate finance, and tough competition to access them, it’s no surprise that many potential private market players struggle to understand their full range of options to receive funding. As a result, many private sector companies often miss out on the opportunity to benefit from climate finance support for their project. BlacktoGreen helps private sector companies understand the specific funds which could provide financial support to their climate change project; our help is given through an online and free-of-charge service.

As well as being overwhelmed by the number of climate funds (and struggling to understand what each fund aims to do), project developers are often unsure about which stage in the project development cycle they should try to secure climate finance support.

Generally speaking, a project developer should begin thinking about the role that climate finance support could play at an early stage in the project development cycle. As we’ll see, however, firm applications shouldn’t be submitted to climate funds until a later stage in the development cycle. An example could help to illustrate this.

A typical Energy Efficiency and Energy Management project is likely to follow a project development cycle comprised of five key phases; in chronological order these are:

• Defining the project and its scope. Consideration of the cost-effectiveness of potential savings; the ability to quantify, monitor and verify impacts; candidate technologies; other benefits and constraints of the project.
• Technical design. A robust project feasibility study, covering: candidate technologies and measures; supply chains; the commercial viability; preliminary designs; and drafting organizational and management plans.
• Financing. Investigation and actions to obtain all necessary funding for the project. It’s at this stage that the project developer would formally approach climate funds. The project financial structure is revised and finalised.
• Contracting. Finalising the contracting arrangements to install and commission all the project technology and systems. Several types of contracting arrangements exist, with different degrees of risk-sharing between the contractor and the project developer.
• Implementation and performance monitoring. Construction and commissioning of the project. Monitoring of energy consumption and analysis of energy savings.

A slightly different project development cycle would be used for a typical Wind Energy generation project, in particular:

• Site appraisal and procurement, involving assessments on:
  • Site wind resource
  • Availability of suitable connections to the grid
  • Environmental issues and considerations
  • Accessibility of the site by vehicles
• Planning, permits and financing, involving:
  • Drafting turbine layout plans
  • Undertaking Environmental Impact Assessments
  • Prepare and submit Planning Permission requests to authorities
  • Development of a project financing model and plan. At this stage, formal applications can be submitted to funds for climate finance support
• Construction and commissioning:
  • Development of access roads, turbine foundation and cable installation
  • Assembly of the turbine tower, nacelle and blades
  • Commissioning and commencement of operations

Given the different lead times involved in requesting and securing financial support from different Climate Funds, BlacktoGreen recommends that project developers begin considering, at an early stage in the project development process, the valuable contribution that such support could provide. We provide specialist advice to project developers, on a confidential basis, to help maximise their potential to benefit from climate finance support. Get in touch with us, for an independent and free-of-charge expert review of the climate finance options for your project.