Colombia

Energy Efficiency-Renewable Energy Fund Structuring

EXPERTISE : , Financing Mechanisms
SECTOR : , Utilities

client

KfW Bankengruppe

project description

Energía – FNCEs) into the national energy system. Article 10 of Ley 1715 requires creating a national fund to specifically promote investments into FNCEs and energy efficiency (Eficiencia Energética – EE) measures (Fondo de Energías No Convencionales y Gestíon Eficiente de la En-ergía – FENOGE or “the Fund”). The general outline of the Fund has been further detailed by a Presidential Decree, which is still undergoing an approval process. Article 2 requires the Colombian Ministry of Mines and Energy (MinMIas) to issue a resolution containing the “Operations Manual” of the Fund. MinMinas has asked KfW for support for the structuring of the FENOGE based on the existing regulation, and specifically the drafting of the respective Operations Manual. Econoler was commissioned by KfW to develop the Operations Manual and other relevant documents.

Activity 2: Development of a New RE/EE Financial Product for FINDETER
FINDETER is one of the national development banks that can potentially implement RE/EE financial products by working together with the FENOGE and could benefit from FENOGE’s financing and technical assistance (TA). Whether FINDETER would succeed in implementing potential non-conventional RE/EE credit products depends to a large extent on market demand and its capacity to overcome the identified market barriers. A major driver of market demand is FINDETER’s capabilities of assisting project developers in turning potential projects and ideas into bankable projects.
KfW commissioned Econoler to develop a new financial product dedicated to RE/EE for FINDETER. Econoler first assessed the RE/EE market related to FINDETER’s priority areas, namely, cogeneration powered by biomass, biomass boilers, public lighting and small-scale hydroelectric generators and then developed the RE/EE credit product for the promising technologies. To complete the credit product design, Econoler developed a TA package, which was intended to help FINDETER gain an in-depth understanding of the business models of various RE/EE investments in the priority areas identified and develop capacities for identifying bankable and eligible projects. Econoler assessed the capacity of FINDETER and its partner banks so as to determine the type of support they needed. Then, Econoler developed guidelines on how to deliver the recommended TA services.

 

highlights

Activity 1: Fund Structuring Services for Fondo de Energías No Convencionales y Gestión Eficiente de la Energía of the Republic of Colombia

  • Developed a Fund Concept and provide feedback on the Draft Presidential Decree. The Fund Concept includes: (1) institutional setup and structure of the FENOGE; (2) FENOGE’s governance structure, including the roles and responsibilities of the actors involved; (3) specific organizational, strategic and operational management arrangements; and (4) specific requirements regarding the monitoring and evaluation of the Fund’s impacts and performance.
  • Developed the complete Operations Manual based on the Fund Concept and provided detailed guidelines for the administration and operation of the following aspects of FENOGE:
  • Administrative management;
  • Internal decision-making process;
  • Support for initiatives in terms of financing and TA tools, for which FENOGE can provide financing, including beneficiary/program/project eligibility criteria, respective appraisal guidelines, including prioritization procedures;
  • Detailed guidelines for the development and approval of additional support initiatives;
  • Detailed guidelines for the selection of additional partner development banks or partner operators;
  • Detailed guidelines for the monitoring of ongoing support programs.

Activity 2: Development of a New RE/EE Financial Product for FINDETER

  • Conducted a market analysis on the interesting priority areas and the identified the general types of potential project investments, particularly those related to the following technologies: cogeneration powered by biomass, biomass boilers, public lighting and small-scale hydroelectric generators.
  • Reviewing and updating the information regarding Colombia’s legal and institutional frameworks, with a special focus on all the secondary legislation developed or being developed following the law regulating renewable and non-conventional energy in the energy system of Colombia (Ley 1715 de 2014); conducting interviews with key policy-makers; identifying, characterizing and evaluating potential investment opportunities related to RE/EE in the areas targeted by FINDETER;
  • Identifying a potential pipeline of projects by consulting with FINDETER and the key stakeholders in the RE/EE market;
  • Identifying the principal market barriers (financial, regulatory, technical, market and cultural) that are slowing down the implementation of RE/EE and, based on the lessons learned, proposing ways to overcome these barriers; defining the various investment scenarios for RE/EE based on how the market barriers are being mitigated or addressed;
  • Identifying and conducting interviews with key market players available concerning alternative financing/technical assistance programs and estimating the likely levels of involvement of multilateral and bilateral lenders in terms of providing financing and technical assistance to FINDETER;
  • Reviewing the added value of FINDETER in relation to other relevant players;
  • Developing market transformation strategies for developing RE/EE based on a clear understanding of the technical assistance required to open up and foster this market.
  • Performed the detailed design of an RE/EE credit product through an iterative process involving the coordination and cooperation with a number of FINDETER departments
  • Discussing with relevant units in FINDETER to draft a product proposal defining the terms and conditions of the proposed product, such as the financial structure of the product, market scope, target clients, terms and conditions, risk range, pricing, etc.
  • Addressing the following key elements of the financial product: target market, eligibility criteria, financial terms and conditions in line with the project financial parameters, monitoring and evaluation system, recommended supporting activities (technical assistance to remove barriers)
  • Designed a TA Package
  • Helping FINDETER gain an in-depth understanding of the business models of various RE/EE investments in the priority areas identified; developing capacities for identifying bankable and eligible projects
  • Assessing capacity of FINDETER and one of its partner banks so as to determine the type of support they needed
  • Recommending the necessary support
  • Developing guidelines on how to deliver these TA services covering the following critical areas: FINDETER’s capacity, the partner banks’ capacity, clients’ Capacity and TA technical and financial support
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