International organisations and the UK government will launch a new public-private investment fund on Friday to provide seed finance for at least £3bn of green energy projects in emerging and developing countries.
With the UK offering £110m of capital, the private equity fund aims to attract private finance to invest in commercial solar, wind and hydroelectric power plants, generating more than 7,000 MW of clean energy – the equivalent of two-thirds of the current renewable energy capacity of the UK.
The announcement marks one of the first steps for the UK’s Climate Public Private Partnership fund, a relatively new measure aimed at catalysing low carbon investments in developing countries.
Supporters hope the Climate Public Private Partnership, known as CP3, will be able to tackle market failures and inertia that prevent private sector investment in low carbon projects in developing countries.
The initiative, part of a collaboration between the International Finance Corporation, the private sector arm of the World Bank and the Asian Development Bank, is modelled on the idea that the projects are commercially viable but the private sector would not take the risk of investment without partnership with government and international organisations.
In advance of launching the initiative at the World Economic Forum in Davos, Andrew Mitchell, UK International Development Secretary, told the Financial Times: “Our support will reduce the risk of investing, helping the private sector to tackle this global problem by investing in some of the fastest-growing economies in the world.”
Lars Thunell, IFC executive vice-president, said: “Private equity is well suited to jump start climate-friendly investment in emerging markets. We hope that the fund will help make the business case for these kinds of investments and encourage additional private sector investment into innovative climate projects”.
If the investments come to fruition, the public sector partners aim to raise at least 30 times as much private sector cash as their initial equity investment.
The partners insisted the funds would be run on a commercial basis by professional fund managers, demonstrating that investment in climate projects in developing countries offers commercial returns for investors with the ambition that in the longer term the public sector would not be needed to finance such projects.
However, predictions the new funds will lead to plants generating more than 7,000 MW of clean energy and create 40,000 jobs are likely to be regarded with scepticism.
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