DB Invest, a member of the IDB Group, has awarded a USD 125 million financial package to Engie Energía Chile, a subsidiary of the Engie Group, in a bid to accelerate the decarbonization of the country’s electricity sector. The funds, with a period of up to 12 years, will be used to build, operate and maintain the Calama wind farm with an installed capacity of approximately 151 MW, which will be located in the vicinity of the city of Calama, in the Antofagasta region. The project is part of Engie’s energy transformation plan, which in addition to the successive closure of its coal-fired units, considers developing more than 1,000 MW of wind and solar initiatives in Chile over the next few years.
The innovation of the operation comes from the structuring of a pilot financial instrument aimed at accelerating decarbonization activities in Chile, by monetizing the actual displacement of greenhouse gas emissions avoided by the early closure of coal-fired power plants and replaced by clean technology projects.
The financial package consists of a senior IDB Invest loan of USD 74 million, USD 15 million of mixed funding from the Clean Technology Fund (CTF) and USD 36 million from the Chinese Co-Financing Fund in Latin America and the Caribbean (China Fund). The financing structure sets a minimum price for emissions that is offset by a lower financing cost in the loan tranche granted by the CTF. A methodology tailored to the project has been developed for the accounting of displaced GHG emissions. It is expected to serve as a model and be replicable in other projects in Chile and Latin America and the Caribbean, with the aim of accelerating the energy decarbonization of the region.
The agreement to develop this instrument was announced during the United Nations Climate Change Conference (COP25) in 2019, and will potentially contribute to Sustainable Development Goals 7 and 13. IDB Invest, through its Invest in Reverse strategy, joins forces with various private sector actors, innovating financially to help countries in the region meet their goals in the Paris Agreement, such as Chile’s decarbonization plan, which provides for the gradual closure of its 28 thermoelectric plants between 2019 and 2040. These plants, which will be replaced by those using renewable energy, accounted for 35 per cent of the country’s electricity production by 2020. Eight of them will be withdrawn in the first five years of the plan, which will reduce emissions by 20 per cent.