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International Finance Corporation inks first certified African green loan

10 May 2021 Keiron Greenhalgh

The International Finance Corporation (IFC), a unit of the World Bank, recently inked its first certified green loan in Africa, which will boost funding for biomass and other renewable projects in South Africa.

The $150 million loan to Absa Bank will support the country's hobbled power generation sector and economic recovery from the COVID-19 pandemic.

The loan is the IFC's fourth green finance investment in South Africa, but the first that complies with the Loan Management Association's Green Loan Principles (GLP).

As a result, lending by Absa for green projects will be disclosed, improving transparency, and encouraging other banks to follow the principles, the multilateral agency said. In addition to the $150 million, the IFC will provide technical advice and share knowledge with the bank to "develop a green, social, and sustainable bonds and loans framework."

An IFC spokeswoman told IHS Markit the IFC has provided more than $1 billion globally in loans that meet the GLP guidelines.

The IFC made climate-related investments totaling $3.3 billion in the 2020 financial year.

So far in 2021, the Azeri government and IFC signed a memorandum of cooperation in April on the development of offshore wind energy in Azerbaijan, aiming to expand green energy sources and reduce carbon emissions by 2030. A month earlier, the IFC granted KCB Bank Kenya a $150-million loan to finance projects, including environmentally friendly ones. And in January, the IFC approved some $212 million in financing for climate-related projects in Vietnam.

The World Bank expects that over the next five years 35% of its financing will have climate co-benefits on average, the spokeswoman said.

South Africa

The IFC estimates there is a $588-billion investment opportunity in climate mitigation across selected sectors in South Africa between now and 2030.

South Africa plans to reduce its GHG emissions by 42% by 2025. Currently, 90% of the country's electricity is generated by coal-fired facilities.

In March, the South African government issued an RFP seeking 2.6 GW of renewable generation, split into 1.6 GW of onshore wind and 1 GW of solar photovoltaic capacity. The government's RFP was the fifth phase of a program to increase the size and reliability of the country's generation fleet as well as decrease its GHG emissions. Bids in response to the 2.6-GW tender by the Department of Mineral Resources and Energy are due 16 August.

Absa, the IFC says, is the leader in arranging financing for South Africa's Renewable Independent Power Producer Programme (RIPPP), having structured and arranged financing for approximately 46% of projects concluded under the program to date.

The government's 2.6-GW RIPPP RFP was issued the same day as the ministry announced the preferred bidders for its Risk Mitigation Independent Power Producer Procurement Programme, another key part of long-running government efforts to shore up energy security. The latter tender was issued specially to fill a near-term power supply gap of 2 GW identified by 2019 government plans.

IHS Markit expects 560 MW of new South African utility-scale solar PV additions on average annually through 2050 and 700 MW/year of wind newbuild, along with more than 400 MW/year of residential and small commercial systems.

The South African renewable generation push will not be unique in Africa. IHS Markit expects renewable generation to account for at least 35% of the continent's generation stack by 2050.

According to the IFC, commercial banks currently provide 67% of the financing for renewable energy projects in South Africa.

"Financial institutions and the private sector have an important role to play helping South Africa to rebuild greener and more sustainably from the impact of COVID-19," said Adamou Labara, IFC country manager in South Africa. "By increasing funding for renewable energy and climate smart projects we can help South Africa strengthen its climate change resilience and increase climate change adaptation."

Absa Bank is a subsidiary of Johannesburg-listed, diversified financial services company Absa Group. The parent group owns majority stakes in banks in Botswana, Ghana, Kenya, Mauritius, Mozambique, the Seychelles, South Africa (Absa Bank), Tanzania, Uganda, and Zambia.

Posted 10 May 2021 by Keiron Greenhalgh, Editor, Climate & Sustainability Group, IHS Markit

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