Alternative Financing Building
Blocks for Electric Utilities
BRIDGING THE PRIVATE SECTOR GAP AND
UNLOCKING CAPITAL IN DEVELOPING
COUNTRIESUSAID Strengthening Utilities and Promoting Energy
Reform (SUPER) Program

4/1/2024

1

TABLE OF CONTENTS
SectionPage

Context: USAID SUPER3

How to Engage with this Brief

4

Executive Summary

8

Alternative Finance Landscape

18

Alternative Finance Building Blocks

33

Annex 1 Green & Sustainable Bond Primer

52

Glossary

58

CONTEXT
USAID Strengthening Utilities and Promoting Energy Reform (SUPER)
Utility Finance Building Blocks Project• The Strengthening Utilities and Promoting Energy Reform (SUPER) Task Order is a U.S.
based program funded by the United States Agency for International Development (USAID)
and implemented by Deloitte Consulting LLP, which aims to promote utility
commercialization and equitable, effective reforms that will enhance the financial viability andlong-term sustainability of developing countries’ electricity systems.
• The Building Blocks are part of a larger SUPER Utility Finance project designed to strengthen
electric utilities’ financial standing in USAID’s partner countries and to help them be better
positioned to access sources of alternative finance.

HOW TO ENGAGE WITH THIS BRIEF

4/1/2024

4

HOW TO ENGAGE WITH THIS BRIEF• The alternative finance building blocks for utilities issue
brief is part of a packages of resources designed to help
electric utilities in emerging markets and developing
economies access new sources of finance for criticalinvestment needs. This brief can be adapted to various
utility conditions:– They can be applied to all electric utilities,
regardless of overall maturity, current performance,
legal status, and extent of disfunction of the political
economy– Even the most challenging political economy
environment provides some space for change• Although the resources in this brief are valuable for all
utilities, those operating in countries with stable political
economies and stronger enabling environments may havea comparative advantage in accessing alternative financing
more easily and successfully.

KEY DEFINITIONS
For the purposes of this issue brief the following definitions are used:• Sustainability: refers to consideration of economic, environmental, and social factors
in the planning, development, and operation of energy sector investments. This
involves ensuring the long-term resilience of the energy sector by minimizing
environmental impact, optimizing resource use, fostering community engagement, andstrengthening economic growth.
• Sustainable finance: refers to financial products or services which takeenvironmental or social sustainability considerations into account when making
investment decisions, or which lead to increased financial flows into more sustainableeconomic activities and projects.
• Climate finance is a subset of sustainable finance which is specifically used forclimate adaptation or climate mitigation outcomes such as reducing greenhouse gas
emissions by shifting to clean energy sources like solar or undergrounding power lines
to reduce the impacts to the grid from extreme weather.

WHO SHOULD USE THIS BRIEF
This brief is designed for both electric utility staff and USAID staff that are interested in increasing access to newsources of finance for electric utilities in emerging markets and developing economies (EMDE).

EMDE Electric Utility Staff• Electric utility staff should use this brief to:– Improve understanding of new (alternative) sources of finance and how to access them
– Understand what investors look for prior to investment and strengthen those areas to better
position utilities to access alternative finance – namely from capital markets and sustainable finance– These building blocks can be used with the USAID Questions Guide for Alternative Finance[LINK to guide once published] to help identify key entry points to support utilities

EXECUTIVE SUMMARY

4/1/2024

8

ALTERNATIVE FINANCE LANDSCAPE

The electric utilities
are modernizing
their investment
approaches to launch
critical infrastructure
investments and theglobal financial
landscape is shifting
to prioritize
sustainability.

There’s a consequent
need for USAID
practitioners andelectric utilities tobetter understandutility investment
opportunities, sothey can help utilities
shift their investment
approaches toprioritize
sustainability andattract alternative
finance.

Alternative finance(sustainable finance,
climate finance, andcapital markets) could
help utilities fill the gaps
left by traditional finance,
unlocking the funding
necessary for to meetenergy transition needs
and sustainability targets.

Yet, utilities face
several barriers toaccessing alternative
finance. Utilities willneed to achieve abaseline level ofmaturity to attract
alterative
investment.

The Alternative
Financing for
Utilities Building
Blocks are designed tohelp utilities in USAID
partner countries and
USAID staff improvetheir financial
management,
reporting andgovernance, andmarket engagement
so that accessing
alternative finance canbecome possible.

DEFINING TRADITIONAL FINANCE
Traditional Finance is how utilities have traditionally received funding to support their operations and maintenance(O&M) including their day-to-day operations as well as capital expenditures (Capex).
Traditional Utility FinanceApproaches• Traditional approaches for electricutility finance in developing countries
have often been characterized by areliance on public funding andgovernment subsidies• The government assumes acentral role in financing andmanaging electric utility
projects, often leading toinefficiencies, lack of transparency,
and financial strain on national
budgets• State-owned utilities dominate
the sector, with limited participationfrom the private sector, which can
impede competition, innovation, andoverall sector development

Types of Traditional Finance•

Customer Tariffs are a method of
charging a customer for their electricity
consumption. They are submitted to aregulatory entity for approval.

•

Government Allocations are public
sector funds that support the electricutility’s operations.

•Concessional Capital refers to a rangeof below market-rate financial products
provided by multilateral developmentbanks and multilateral funds to accelerate
development objectives.

•

Grants financial assistance provided by adonor organization typically without the
expectation of repayment, to support
specific projects, programs, or initiatives.

•

Export Credit Agency financial
institution or government agency thatprovides financing, insurance, andguarantees to domestic companies
exporting goods and services.
*Sources: World Bank

How do utilities use Traditional
Finance?
Electric utilities have typically relied on
traditional finance to fund their Opex
(operating expenses) and their Capex(capital expenditure).
For utilities, Opex refers to those costs
required to keep the utility operational– those day-to-day expenses that arenecessary to run and maintain the utility.
Examples include salaries, office expenses,
insurance, testing and analysis, and system
repair and maintenance.
Capex, on the other hand, refers to major
physical purchases and large fixed assets
which the utility will use long term.
Examples of Capex include power plants,
equipment and machinery, computers, andvehicles.

SHIFT IN GLOBAL FINANCE LANDSCAPE
The global finance landscape for electric utilities is undergoing a transformative shift, with a pronounced emphasis on integrating
sustainability considerations. This is driven by the recognition that aligning financial strategies with environmental and social goals not
only mitigates risks associated with climate change but also enhances long-term resilience in the face of changing market dynamics.
Changing financial market dynamics are driven by:

1. GLOBAL PROGRESS to achieve the Paris Agreement targets and regulations affecting the utilities sector emission reduction targets,
incentives to increase renewable energy generation, demand side energy savings and carbon pricing have shifted financial flows towards
sustainable activities.
2. FINANCIERS AND INVESTORS are moving to decarbonize their portfolios and have demonstrated a sharp rise in sustainablebased investing – e.g., climate finance, green bonds, and impact investors.
As a result, the market is:⮚ Increasing flow of capital and prioritizing environmentally and socially responsible investments is a priority for the most climate vulnerable countries. For example,
the Green Climate Fund made a commitment to invest $501 million in resources for new climate projects in SIDS, LDCs, and African States. These adaptation funds will
support energy resilience and accelerate RE uptake through fuel switching, reducing deforestation, and advancing electrification. This influx of funds accelerates flow ofcapital to developing countries for renewable energy, grid modernization, and energy efficiency initiatives, bolstering the transition to cleaner and more resilient energy
systems.

⮚ Enhancing assessment and management of environmental and social risks, enhancing their overall financial stability and long-term viability. By aligning financial
decisions with sustainable goals, utilities can reduce exposure to regulatory uncertainties, reputational risks, and potential disruptions, thereby fostering a more secure
operating environment.
⮚ Adopting innovative technologies and operational practices leading to improved operational efficiencies, cost savings, and improved service delivery, thereby
positioning utilities at a competitive advantage in a rapidly evolving energy landscape. Such innovation-driven sustainability not only benefits the utilities themselves but
also contributes to the broader global transition to a low-carbon economy.

WHY ALTERNATIVE FINANCE
As electric utilities across the world work to modernize their operations, integrate and expand renewable energy
generation, and launch critical new investments in infrastructure, their financial needs have grown significantly. Developing
country power sectors need more than $1 trillion in additional annual capital spending to reach net-zero emissions by
2050.
Alternative Finance refers to sources of finance such as commercial finance, bond issuance, andcapital markets, which utilities can use to complement traditional sources (customer tariffs,
Definition
government allocations, concessional capital).
How Utilities Can Leverage Alternative Finance✔ Capacity building that supports transformational planning, budgeting, and programming at the systems level that advances thedelivery of cleaner energy sources and net-zero planning and implementation✔ Innovative business models and technologies delivering high impact solutions that improve capacity and efficiency✔ Mobilize funds at scale to de-risk and unlock additional local and international capital✔ Replication of best practices and facilitation of learning across grid capacity, storage and flexibility for higher penetration ofrenewables on the grid, increasing national and sub-national energy service

Barriers
There are a number of barriers that are discussed in further detail in this material (next slide) why there has historically been limitedaccess to capital markets and alternative finance for electric utilities in EMDEs. Most notably:• Political and regulatory risk/Macroeconomic conditions and in country financial market maturity• Weak utility governance, including lack of transparency and technical gaps
Source: IEA Net Zero by 2050

TYPES OF ALTERNATIVE FINANCE
The primary types of alternative finance available to electric utilities are through accessing the capital markets, as well as
forms of sustainable finance such as climate finance or green bonds.
Common Instruments Deployed1

Capital Markets• Platforms and mechanisms through which electric utilities raise funds by
issuing various financial instruments to investors• Facilitate the exchange of capital between investors seeking financial
returns and utilities requiring funds

2

Sustainable Finance• Financial products or services which take environmental or social
sustainability considerations into account when making investment
decisions, or which lead to increased financial flows into more sustainableeconomic activities and projects

3• Stocks: Ownership shares in a company where investors have thepotential to receive dividends as the company's value increases• Traditional/ Corporate Bonds: Debt securities issued bygovernments, municipalities, or corporations to raise funds• Municipal Bonds: issued by local governments to fund publicprojects such as infrastructure development. Interest earned frommunicipal bonds is often tax-exempt• Green, Social, Sustainable (GSS) Bonds: Separately labeled bonds
whose proceeds are ring-fenced and planned use of proceeds arereported to prospective investors for ESG projects• Green Loans: Are loans specifically for environmental projects andprovide a discounted interest rate or attractive tenure• Sustainability-Linked Instruments: Financial instruments that linkfinancing to a set of predetermined sustainability performance targets

Climate Finance• Financial flows exclusively relating to climate specific financing, andhistorically often attached to development outcomes• Outcomes can be attributed to mitigation (reducing greenhouse gases)
reducing greenhouse gas or adaptation (improving resiliency efforts)• Guarantees: Commitments whereby a guarantor promises tofulfill the obligations undertaken by a borrower to a lender• Concessional loans: Concessional rates for climate activities• Grants and Donations: Do not need to be repaid• Debt swaps: Sale of foreign currency debt by creditor country to
an investor, allowing the debt to be swapped for climate projects

ENABLING ENVIRONMENT FOR ALTERNATIVE FINANCE
The focus of these building blocks is on specific financial areas of improvement, but it is important to note the tenets of a strong enabling environment up front. Progress inthese focus areas typically occurs over a longer timeframe to phase transition involving multiple stakeholders and slow legal/regulatory processes. Below are seven well-known
areas to consider prior to diving into the proposed building blocks for acquiring alternative finance. Improvements in these categories gives utilities a comparative advantage inaccessing alternative financing more easily and successfully.

Internal Factors
1.

Financial Performance• Strong financial performance indicatesfinancial management structures andprocesses to maintain budgets, set andcollect cost-reflective tariffs for
operations, and manage cash flow forlong-term capital investments

2.

Technical and Commercial
Operations

3.

Sector Planning• Asset management processes,
approaches to reduce non-revenue
losses, and maintenance costs thatwork to prevent system losses• Procedures to quantify and collectrevenues, including meter reading andtariff collection• Planning plays a crucial role in creating
a comprehensive and well-defined
strategic investment roadmap• Identifying future demand, growthareas, and technology integration,
enables utilities to articulate a clear
vision and attracting capital for longterm projects

2.

3.

External Factors
1.

Macroeconomic
Conditions• Broad economic factors that canshape the utility's operations,finances, and overall viability includinginterest rate, currency fluctuations,inflation, and energy market prices

Financial Market
Maturity• Reflects the experience and capabilitiesof domestic banks to design successful
tenders and bankable contracts• Capital markets in developing countries
can be poorly developed, creating theperception that the financial landscapeis not favorable for investment

Legal Framework andGovernance• Maturity of the investment landscapefor emerging market power sectors is
tied to the strength and predictabilityof policy and regulatory frameworks,
laws governing deal structuring, andthe market structures

4.

Utility Governance• Policy framework with formalized
rules and governance structures isan essential component to
optimizing utility profitability• Ensures transparent and accountable
practices and establishes confidence
among potential investors

ELECTRIC UTILITY MATURITY MATRIX*
Electric utilities’ readiness to attract alternative investment assumes a minimum level of maturity across four business areas. These factors inform overall utility performance
which is critical for increasing investment by the private sector and other interested third parties. Maturity levels vary greatly among utilities (public and private) and are largely
dependent on the broader enabling environment. Some countries like Senegal, Cote d’Ivoire have found that private utilities are better equipped to deliver reliable service resulting inhigher maturity; however, this can come with higher rates. Maturity is a spectrum and even those on the lower end have made significant progress over time.

1

CHILE

2

3

VIETNAM

LIBERIA

Level 1 Maturity

Level 2 Maturity

Utility

Enel Chile S.A., Chile’s main electricutility, is privately owned by amultinational energy company and islisted on the stock market

Electricity Vietnam (ENV) is a stateowned utility

Liberia Electric Corporation is a stateowned, vertically integrated utility

CreditRatingBBB+
Due to consolidation, which lowered
its financial profile

BB (as of April 2019)
Dependent on Vietnam’s sovereign
rating

No credit rating

Score
Rationale

Enel has made efforts to lower
commercial and technical losses and has
managed to attract private capital due tosector planning and strong performance

EVN is able to access private capital
without sovereign guarantees, despitesome governance and financial
shortcomings

LEC has invested more than $50 million since2010 to strengthen infrastructure and expand
capacity, but still faces challenges including
limited financial reporting and unclear
regulatory frameworks

Level 3 Maturity

Note: These assumptions are based on observational data, industry norms and were developed specifically for SUPER.

.

ALTERNATIVE FINANCING BUILDING BLOCKS FOR UTILITIESNEEDOBJECTIVE

AUDIENCE

Provides electric utilities
in developing countries
with additional
resources, diversificationof funding, increased
financial capacity, andopportunities forsustainable development

Outlines alternative financebuilding blocks underpinningkey criteria which utilities
must meet to satisfy
creditworthiness and risk
expectations of financial
institutions, financing partners,
or investor

USAID Staff and emerging
market and developing
economy electric utility
companies

UTILITY FINANCE BUILDING BLOCKS
By focusing on three key building blocks, electric utilities in developing countries can create a more favorable investment
environment for alternative finance and attract crucial investment for sustainable growth and development.
CREATE A FAVORABLE INVESTMENT ENVIRONMENT
2

1

Financial
Management
Key Actions• Strengthen financial position through utility
financial statements• Improve debt profile• Develop long-term growth strategies• Obtain or enhance credit rating

3

Transparent Reporting& Governance
Key Actions• Implement integrated financial systems• Enhance internal financial reporting,controls, and annual reports• Align with international standards• Improve utility governance• Obtain third-party audit or assurance

Financial Market
Engagement
Key Actions
•
•
•
•
•

Build capacity to engage financial markets
Explore sustainable finance mechanisms
Explore domestic pension funds
Cultivate investor relationships
Leverage support from DFIs

Integrate Sustainability
Key Actions• Set evidence-based targets to align to Paris
Agreement/NDCs• Incorporate resilience planning to reduce
future costs• Incorporate transition planning into financial
management• Optimize utility asset portfolio to align withsustainability goals

Key Actions• Integrate ESG factors into financial
reporting• Align reporting with internationalsustainability standards• Obtain third-party verification or assuranceof ESG financial disclosures

Key Actions• Emphasize sustainability objectives ininvestment approaches• Explore instruments and mechanisms to raise
capital to finance transition to cleaner/moresustainable practices (RECs, internal carbon
price, shadow price, offsets)• Increase direct outreach to ESG minded
investment community

ALTERNATIVE FINANCE: OVERVIEW
AND LANDSCAPE

4/1/2024

18

ALTERNATIVE FINANCE LANDSCAPE

The electric utilities
are modernizing
their investment
approaches to launch
critical infrastructure
investments and theglobal financial
landscape is shifting
to prioritize
sustainability.

There’s a consequent
need for USAID
practitioners andelectric utilities tobetter understandutility investment
opportunities, sothey can help utilities
shift their investment
approaches toprioritize
sustainability andattract alternative
finance.

Alternative finance(sustainable finance,
climate finance, andcapital markets) could
help utilities fill the gaps
left by traditional finance,
unlocking the funding
necessary for to meetenergy transition needs
and sustainability targets.

Yet, utilities face
several barriers toaccessing alternative
finance. Utilities willneed to achieve abaseline level ofmaturity to attract
alterative
investment.

The Alternative
Financing for
Utilities Building
Blocks are designed tohelp utilities in USAID
partner countries and
USAID staff improvetheir financial
management,
reporting andgovernance, andmarket engagement
so that accessing
alternative finance canbecome possible.

DEFINING TRADITIONAL FINANCE
Traditional Finance is how utilities have traditionally received funding to support their operations and maintenance(O&M) including their day-to-day operations as well as capital expenditures (Capex).
Traditional Utility FinanceApproaches• Traditional approaches for electricutility finance in developing countries
have often been characterized by areliance on public funding andgovernment subsidies• The government assumes acentral role in financing andmanaging electric utility
projects, often leading toinefficiencies, lack of transparency,
and financial strain on national
budgets• State-owned utilities dominate
the sector, with limited participationfrom the private sector, which can
impede competition, innovation, andoverall sector development

Types of Traditional Finance•

Customer Tariffs are a method of
charging a customer for their electricity
consumption. They are submitted to aregulatory entity for approval.

•

Government Allocations are public
sector funds that support the electricutility’s operations.

•Concessional Capital refers to a rangeof below market-rate financial products
provided by multilateral developmentbanks and multilateral funds to accelerate
development objectives.

•

Grants financial assistance provided by adonor organization typically without the
expectation of repayment, to support
specific projects, programs, or initiatives.

•

Export Credit Agency financial
institution or government agency thatprovides financing, insurance, andguarantees to domestic companies
exporting goods and services.
*Sources: World Bank

How do utilities use Traditional
Finance?
Electric utilities have typically relied on
traditional finance to fund their Opex
(operating expenses) and their Capex(capital expenditure).
For utilities, Opex refers to those costs
required to keep the utility operational– those day-to-day expenses that arenecessary to run and maintain the utility.
Examples include salaries, office expenses,
insurance, testing and analysis, and system
repair and maintenance.
Capex, on the other hand, refers to major
physical purchases and large fixed assets
which the utility will use long term.
Examples of Capex include power plants,
equipment and machinery, computers, andvehicles.

FINANCING BASICS
The below key concepts and definitions of finance that are essential for framing conversations around the building
blocks and accessing new sources of finance.
How do utilities use finance?
Utilities use finance to fund strategic operations and capital expenses and the creditworthiness of a utility
demonstrates how well the utility monitors and controls all financial resources to achieve business goals.
Key Financial Components
Balance Sheet:
A balance sheet shows thesystem’s net worth – how much autility is worth at a specific point
in time. It gets its name because
the numbers on the sheet must
be in balance: the total assets

must equal the total liabilities andequity.

Income Statement:
The income statement shows
how much revenue the utility has
earned versus the expenses
incurred by the utility over a set
period (i.e., a year). This allows
utilities to monitor theirprofitability.

*Sources: Microsoft Dynamics 365, Rural Community Assistance Partnership (RCAP)

Cash Flow Statement:This statement demonstrates how
much cash is available after theutility’s financial transactions
throughout the year are
accounted for. Transactions are
categorized as financing, investing,or operating.

SHIFT IN GLOBAL FINANCE LANDSCAPE
The global finance landscape for electric utilities is undergoing a transformative shift, with a pronounced emphasis on integrating
sustainability considerations. This is driven by the recognition that aligning financial strategies with environmental and social goals not
only mitigates risks associated with climate change but also enhances long-term resilience in the face of changing market dynamics.
Changing financial market dynamics are driven by:

1. GLOBAL PROGRESS to achieve the Paris Agreement targets and regulations affecting the utilities sector emission reduction targets,
incentives to increase renewable energy generation, demand side energy savings and carbon pricing have shifted financial flows towards
sustainable activities.
2. FINANCIERS AND INVESTORS are moving to decarbonize their portfolios and have demonstrated a sharp rise in sustainablebased investing – e.g., climate finance, green bonds, and impact investors.
As a result, the market is:⮚ Increasing flow of capital and prioritizing environmentally and socially responsible investments is a priority for the most climate vulnerable countries. For example,
the Green Climate Fund made a commitment to invest $501 million in resources for new climate projects in SIDS, LDCs, and African States. These adaptation funds will
support energy resilience and accelerate RE uptake through fuel switching, reducing deforestation, and advancing electrification. This influx of funds accelerates flow ofcapital to developing countries for renewable energy, grid modernization, and energy efficiency initiatives, bolstering the transition to cleaner and more resilient energy
systems.

⮚ Enhancing assessment and management of environmental and social risks, enhancing their overall financial stability and long-term viability. By aligning financial
decisions with sustainable goals, utilities can reduce exposure to regulatory uncertainties, reputational risks, and potential disruptions, thereby fostering a more secure
operating environment.
⮚ Adopting innovative technologies and operational practices leading to improved operational efficiencies, cost savings, and improved service delivery, thereby
positioning utilities at a competitive advantage in a rapidly evolving energy landscape. Such innovation-driven sustainability not only benefits the utilities themselves but
also contributes to the broader global transition to a low-carbon economy.

WHY ALTERNATIVE FINANCE
As electric utilities across the world work to modernize their operations, integrate and expand renewable energy
generation, and launch critical new investments in infrastructure, their financial needs have grown significantly. Developing
country power sectors need more than $1 trillion in additional annual capital spending to reach net-zero emissions by
2050.
Alternative Finance refers to sources of finance such as commercial finance, bond issuance, andDefinition
capital markets, which utilities can use to complement traditional sources (customer tariffs,
government allocations, concessional capital).
How Utilities Can Leverage Alternative Finance✔ Capacity building that supports transformational planning, budgeting, and programming at the systems level that advances thedelivery of cleaner energy sources and net-zero planning and implementation✔ Innovative business models and technologies delivering high impact solutions that improve capacity and efficiency✔ Mobilize funds at scale to de-risk and unlock additional local and international capital✔ Replication of best practices and facilitation of learning across grid capacity, storage and flexibility for higher penetration ofrenewables on the grid, increasing national and sub-national energy service

Barriers
There are a number of barriers that are discussed in further detail in this material (next slide) why there has historically been limitedaccess to capital markets and alternative finance for electric utilities in EMDEs. Most notably:• Political and regulatory risk/Macroeconomic conditions and in country financial market maturity• Weak utility governance, including lack of transparency and technical gaps
Source: IEA Net Zero by 2050

TYPES OF ALTERNATIVE FINANCE
The primary types of alternative finance available to electric utilities are through accessing the capital markets, as well as
forms of sustainable finance such as climate finance or green bonds.
Common Instruments Deployed1

Capital Markets• Platforms and mechanisms through which electric utilities raise funds by
issuing various financial instruments to investors• Facilitate the exchange of capital between investors seeking financial
returns and utilities requiring funds

2

Sustainable Finance• Financial products or services which take environmental or social
sustainability considerations into account when making investment
decisions, or which lead to increased financial flows into more sustainableeconomic activities and projects

3• Stocks: Ownership shares in a company where investors have thepotential to receive dividends as the company's value increases• Traditional/ Corporate Bonds: Debt securities issued bygovernments, municipalities, or corporations to raise funds• Municipal Bonds: issued by local governments to fund publicprojects such as infrastructure development. Interest earned frommunicipal bonds is often tax-exempt• Green, Social, Sustainable (GSS) Bonds: Separately labeled bonds
whose proceeds are ring-fenced and planned use of proceeds arereported to prospective investors for ESG projects• Green Loans: Are loans specifically for environmental projects andprovide a discounted interest rate or attractive tenure• Sustainability-Linked Instruments: Financial instruments that linkfinancing to a set of predetermined sustainability performance targets

Climate Finance• Financial flows exclusively relating to climate specific financing, andhistorically often attached to development outcomes• Outcomes can be attributed to mitigation (reducing greenhouse gases)
reducing greenhouse gas or adaptation (improving resiliency efforts)• Guarantees: Commitments whereby a guarantor promises tofulfill the obligations undertaken by a borrower to a lender• Concessional loans: Concessional rates for climate activities• Grants and Donations: Do not need to be repaid• Debt swaps: Sale of foreign currency debt by creditor country to
an investor, allowing the debt to be swapped for climate projects

ALTERNATIVE FINANCE – CAPITAL MARKETS
What are Capital Markets?
Capital markets are regulated platforms that facilitate the tradingof long-term instruments (usually one year or more) such as
stocks and bonds between entities with funds and seeking
investment opportunities and those seeking funds for investment.
It enables fair and open transactions.
Capital markets are operated by stock exchanges and iscomposed of two segments; the primary and secondary markets.
Primary markets are where new stocks and bonds are issued
for the first time through initial public offerings and secondary
markets are the part that offers liquidity by facilitating theexchanges of stocks and bonds to other investors beside .
Some entities that provide funds in the capital market include,
individuals, institutional investors (mutual funds, hedge funds,
pension funds, insurance companies), commercial
banks, governments,

Case Study: NamPower
Namibia power Corporation Limited (NamPower) is the whollyowned government utility in Namibia that specializes in generationand transmission of electricity. In 2013, NamPower raised
approximately $59 million through medium term Notes with Rand
Merchant Bank as the lead arranger. The Notes were approved andtraded on the Johannesburg and Namibia Stock Exchanges. The
proceeds were to be used for upgrade the issuer’s capabilities andservices in electricity production and delivery. Fitch ratings for
NamPower at the time was 'BBB-’; but with a Stable Outlook.

Common Instruments Deployed• Stocks: Represents shares/equity, referring to ownership of a firm
• Bonds: fixed income or debt securities, referring to the indebtedness orcreditorship of a firm or a government entity• Notes: These are typically short-term debt securities with a maturity of one
to ten years investor, allowing the debt to be swapped forALTERNATIVE FINANCE - SUSTAINABLE FINANCE
What is Sustainable Finance?

Common Instruments Deployed

Sustainable finance refers to processes and financial products or services whichtake environmental or social sustainability considerations into account when making
investment decisions, or which lead to increased financial flows into more sustainableeconomic activities and projects. Climate finance is a subset of sustainable finance.

• Blended: The use of public or philanthropic sources to add capital to private sector
investment in sustainable development. This is used as a risk sharing mechanism or tobuild a market for a new technology or value chain. This is usually employed in thecontext of economic development.
• Green, Social, Sustainable (GSS) Bonds: Separately labeled bonds whose proceeds
are ring-fenced and planned use of proceeds are reported to prospective investors ex
ante and ex post for environmental, social, or sustainability projects. They differ fromtraditional corporate or government bonds where proceeds are used for general
purposes.
• Green Loans: Are loans specifically for environmental projects and provide a
discounted interest rate or attractive tenure.
• Sustainability-Linked Instruments (Bonds - SLBs and Loans - SLLs): Financial
instruments that link financing to a set of predetermined sustainability performancetargets (SPTs) or KPIs. For SLBs, the coupon paid by the issuer is linked to the issuer’sachievement of SPTs/KPIs. For SLLs, the interest rate on the loan is linked to theachievement of certain benchmarks. SLLs are rapidly being deployed across various
sectors, as they offer more flexibility than GSS Bonds, but are vulnerable togreenwashing and reputational risk due to the lack of standardization and comparability
for this relatively new instrument.
• Carbon Markets: Carbon credits and carbon offsets are often used interchangeably,
but they refer to two distinct products that service two different purposes. A carbon
credit only exists in regulated carbon markets in which emissions are capped under a“cap and trade” system (California, EU). A carbon offset is defined as an instrument
representing the reduction, avoidance or sequestration of one metric ton of carbon or
GHG equivalent and which are transacted in the voluntary market. Voluntary offset
buyers are driven by a variety of considerations related to corporate social
responsibility, ethics, and reputational or supply chain risk. Nature and biodiversity
positive carbon credits are emerging instruments that include additional and specificmanagement actions linked to conservation or restoration outcomes.

This is different from environmental, social, and governance (ESG), which is aframework that supports investors in assessing company performance and risk; orsustainability, which focuses on how a company’s operations impact the world
around it. Sustainable finance is an emerging topic, and definitions are still evolving,along with regulations, standards, and the policy environment that govern it.

Case Study: REGIOIFC and HSBC Real Economy Green Investment Opportunity Fund (REGIO) is a green
bond fund focused on providing access to climate finance and supporting well diversified
climate-smart investments in developing countries, including for renewable energy
projects. This will largely be done through green bonds issued by non-financial, or real
sector, companies. REGIO aims to address the demand for climate smart investment by
providing an innovative, diversified vehicle to investors who may lack the capability toinvest in individual green bond transactions, or who want to complement an existing
emerging market debt allocation with a green impact bond solution. The IFC provided
USD 100 million anchor investment, and HSBC has invested USD 75m, which is
expected to catalyze USD 5- 700m. Proparco has also invested EUR 50m. REGIO’s
investment activities will be complemented by a Technical Assistance Facility (TAF).

*Source: Climate Policy InitiativeALTERNATIVE FINANCE – CLIMATE FINANCE
What is Climate Finance?

Main Sources of Climate Finance

While sustainable finance refers to any financial product or service that takessustainability into account. Green finance refers to financial products thatdeliver improved environmental outcomes, and climate finance refers tofinancial flows exclusively relating to climate specific financing, and historically
typically attached to development outcomes.
Historically, climate finance has been dominated by public pools of financethat support countries in financing mitigation and adaptation actions that
address their obligations under the Convention (UNFCCC), which
established a financial mechanism to provide financial resources to developing
countries. The operating entities of the financial mechanism include the
Global Environment Facility (GEF), the Green Climate Fund (GCF), as well as
three funds for adaptation – the Special Climate Change Fund (SCCF), theLeast Developed Countries Fund (LDCF), and the Adaptation Fund (AF).
The largest group of actors providing capital classified as climate finance aredevelopment finance institutions, including national, bilateral, and multilateralentities; with financing evenly split between debt and equity. The vast
majority is allocated toward climate change mitigation, with large portions
flowing into renewable energy generation. Private sector investment isincreasing, but not at the scale necessary to support the transition.
*Source: Climate Policy Initiative

Common Instruments Deployed• Guarantees: Commitments whereby a guarantor promises to fulfill theobligations undertaken by a borrower to a lender• Concessional loans: Concessional rates for climate activities• Grants and Donations: Do not need to be repaid• Debt swaps: Sale of foreign currency debt by creditor country to an
investor, allowing the debt to be swapped for climate/nature projects

CLIMATE FINANCE ECOSYSTEM FOR THE ENERGY SECTOR
The climate finance ecosystem is complex and redefines traditional ODA definitions and boundaries

Multilateral Donor Funded

Bilaterals

UNFCC Designated Financial Entities:
USA & CANADA:
USAID

DFC

FinDevCIDA

UK & EU

EnabelDFID

Other Funds

DANID
A

FFEM

Austrian
Development
Corporation

SIDA

GIZ

KfW

Climate-Kic

Proparco

APAC
JBIC

JICA

KOICA

Aotearoa
NZ

AusAidClimateInvestment Funds••

Clean Technology
Fund
Scaling Up
Renewable Energy
in Low-Income
Countries
Program (SREP)

National Sources (as of 2022, 39 countries
have national climate funds*)

Adaptation
Fund

SCCF

LDCF

AFD
NorFund

Green Climate
Fund

Global Environment
Facility

Private & Philanthropic

FONERWA (Rwanda)

MirovaBezo’s Earth
Fund

India National Clean
Energy Fund

Sustainable Energy for
Africa Fund (SEFA)

Bloomberg
Philanthropies

Rockefeller
Foundation

Bangladesh Climate
Change Fund

Partnership for Just
Transition

Sequoia
Climate Fund

PiscesFoundation

South Africa Green Fund

NordicDevelopment Fund

IKEA
Foundation

MicroVest

Fundo Clima (Brazil)

Energy Sector
Management Assistance
Program (ESMAP)

Multilateral Development Banks

Private Sector

CAF

AfDB

World Bank

IFC

ADB

IADB

EBRD

IDB Invest

Asian Infrastructure
Investment Bank

New Development
Bank (BRICS)

BOAD

EIB

Legend:Implementor/
ChannelFund*https://www.tandfonline.com/doi/full/10.1080/14693062.2022.202722328

ENABLING ENVIRONMENT FOR ALTERNATIVE FINANCE
The focus of these building blocks is on specific financial areas of improvement, but it is important to note the tenants of a strong enabling environment up front. Progress inthese focus areas typically occurs over a longer timeframe to phase transition involving multiple stakeholders and slow legal/regulatory processes. Below are 7 well-known
areas to consider prior to diving into the proposed building blocks for acquiring alternative finance. Improvements in these categories gives utilities a comparative advantage inaccessing alternative financing more easily and successfully.

Internal Factors
1.

Financial Performance• Strong financial performance indicatesfinancial management structures andprocesses to maintain budgets, set andcollect cost-reflective tariffs for
operations, and manage cash flow forlong-term capital investments

2.

Technical and Commercial
Operations

3.

Sector Planning• Asset management processes,
approaches to reduce non-revenue
losses, and maintenance costs thatwork to prevent system losses• Procedures to quantify and collectrevenues, including meter reading andtariff collection• Planning plays a crucial role in creating
a comprehensive and well-defined
strategic investment roadmap• Identifying future demand, growthareas, and technology integration,
enables utilities to articulate a clear
vision and attracting capital for longterm projects

2.

3.

External Factors
1.

Macroeconomic
Conditions• Broad economic factors that canshape the utility's operations,finances, and overall viability includinginterest rate, currency fluctuations,inflation, and energy market prices

Financial Market
Maturity• Reflects the experience and capabilitiesof domestic banks to design successful
tenders and bankable contracts• Capital markets in developing countries
can be poorly developed, creating theperception that the financial landscapeis not favorable for investment

Legal Framework andGovernance• Maturity of the investment landscapefor emerging market power sectors is
tied to the strength and predictabilityof policy and regulatory frameworks,
laws governing deal structuring, andthe market structures

4.

Utility Governance• Policy framework with formalized
rules and governance structures isan essential component to
optimizing utility profitability• Ensures transparent and accountable
practices and establishes confidence
among potential investors

ELECTRIC UTILITY MATURITY ASSUMPTIONSElectric utilities’ readiness to attract alternative investment assumes a baseline level of maturity across fourbusiness areas. These factors inform overall utility performance which is critical for increasing investment by the private
sector and other interested third parties.
Financial Performance

A utility should have accounting and budgeting
processes in place, alongside revenue targets andproper data collection mechanisms

Technical Operations
A utility should have some maintenance planning, aloss reduction strategy, and a basic record of
infrastructure/assets

Commercial Operations

A utility should have a fairly accurate customer
database, customer engagement strategies, andbilling based on meter reading

Utility Governance

A utility should have a mission and vision,competent leadership, basic KPIs, and an
acceptable legal framework▪
▪
▪

Accounting system, including accounts receivable and fixed asset summaries
Budget process with capital improvement planning
Debt and cash flow management processes• Efforts to reduce commercial and/or physical losses• Policies and system for recording all maintenance for assets• Multi-year strategy for managing system losses• Existing customer database that may be updated• Most customers are metered and billed• Plan to attain and/or improve the utility’s corporate governance rules• Procedures and systems for annual reporting on the utility’s management andperformance

Note: These assumptions are based on observational data, industry norms and were developed specifically for SUPER. The ratings that follow are based on an interpretation of this framework.

ELECTRIC UTILITY MATURITY MATRIX*
Electric utilities’ readiness to attract alternative investment assumes a minimum level of maturity across four business areas. These factors inform overall utility performance
which is critical for increasing investment by the private sector and other interested third parties. Maturity levels vary greatly among utilities (public and private) and are largely
dependent on the broader enabling environment. Some countries like Senegal, Cote d’Ivoire have found that private utilities are better equipped to deliver reliable service resulting
in higher maturity; however, this can come with higher rates. Maturity is a spectrum and even those on the lower end have made significant progress over time.

1

CHILE

2

3

VIETNAM

LIBERIA

Level 1 Maturity

Level 2 Maturity

Utility

Enel Chile S.A., Chile’s main electricutility, is privately owned by amultinational energy company and islisted on the stock market

Electricity Vietnam (ENV) is a stateowned utility

Liberia Electric Corporation is a stateowned, vertically integrated utility

CreditRatingBBB+
Due to consolidation, which lowered
its financial profile

BB (as of April 2019)
Dependent on Vietnam’s sovereign
rating

No credit rating

Score
Rationale

Enel has made efforts to lower
commercial and technical losses and has
managed to attract private capital due tosector planning and strong performance

EVN is able to access private capital
without sovereign guarantees, despitesome governance and financial
shortcomings

LEC has invested more than $50 million since2010 to strengthen infrastructure and expand
capacity, but still faces challenges including
limited financial reporting and unclear
regulatory frameworks

Level 3 Maturity

Note: These assumptions are based on observational data, industry norms and were developed specifically for SUPER.

.

ELECTRIC UTILITY MATURITY MATRIX (cont.)
The electric utility matrix criteria was applied to 5 countries to demonstrate the differing maturities across geographic regions andutility types.

USAID Partner Country Utility Maturity Spectrum
Overall
Assessment

Financial
Performance

Technical
Operations

Commercial
Operations

Utility
Governance

SectorPlanning

Chile

1

1

1

1

2

1

Vietnam

2

2

1

2

2

3

Botswana

2
3
2

2
3
2

3
2
2

3
2
3

1
3
1

2
3
2

Country

Liberia
JamaicaKey

Level 1

Level 2

Level 3Of the utilities evaluated, Chile is best position for leveraging the building blocks to access alternative
financing. Countries that fall into level 2 and 3 maturity categories like Vietnam, Botswana, and Jamaica, andLiberia could begin to take initial actions for accessing sources of alternative finance, but utilities should first
focus on improving performance across these areas.
.

ALTERNATIVE FINANCE: BUILDING BLOCKS

4/1/2024

33

ALTERNATIVE FINANCING BUILDING BLOCKS FOR UTILITIESNEEDOBJECTIVE

AUDIENCE

Provides electric utilities
in developing countries
with additional
resources, diversificationof funding, increased
financial capacity, andopportunities forsustainable development

Outlines alternative financebuilding blocks underpinningkey criteria which utilities
must meet to satisfy
creditworthiness and risk
expectations of financial
institutions, financing partners,
or investor

USAID Staff and emerging
market and developing
economy electric utility
companies

INTERPRETING THE BUILDING BLOCKS
Each of the Alternative Financing Building Blocks follow the below structure, containing a description of a specific key action, the minimum maturity
criteria for said action, and a relevant example of this building block in practice. These sections provide recommendations and essential context for
utilities seeking to attract alternative financing. For ease of use and interpretation, this graphic breaks down the purpose and content of each building
block section.

Key Action

Description: Each building block is broken into several “Key Actions” – necessary
steps utilities must take in order to create a more favorable investment
environment. Each slide of the building block starts with a short description of thiskey action.
Minimum Maturity Criteria: The minimum maturity criteria refers to thebaseline indicators that a utility must meet in order to properly and consistently
execute the key action. For these building blocks, minimum maturity criteria arealigned to four business areas: financial performance, technical operations,commercial operations, and utility governance.
Ideal State: This section outlines the characteristics of an electric utility best
positioned to complete this key action and attract alternative finance. The items inthis section go beyond the minimum maturity criteria and convey the best
environment a utility could create to procure alternative finance.
Advanced Sustainability: Some activities have advanced options for utilities toconsider to further integrate sustainability across financial activities and investment
approaches.

Building Block in PracticeName of the utility
being spotlighted
USAID Partner
Country Utility
Maturity Level

1

2

3

Level 1

Level 2

Level 3This section provides contextual evidence for the building blocks anddemonstrates how the key actions work in practice. The following
items highlight the successful implementation of the spotlighted utility:
Utility Structure: What kind of utility is this?
Challenge: What roadblocks prevented this utility from accessing
alternative finance?
Solution: How did the utility apply the lessons from this building blockto improve their investment environment?
Results: How has the investment environment improved, and how has
the utility attracted alternative finance?

UTILITY FINANCE BUILDING BLOCKS
By focusing on three key building blocks, electric utilities in developing countries can create a more favorable investment
environment for alternative finance and attract crucial investment for sustainable growth and development.
CREATE A FAVORABLE INVESTMENT ENVIRONMENT
2

1

Financial Management
Key Actions• Strengthen financial position through utility
financial statements• Improve debt profile• Develop long-term growth strategies• Obtain or enhance credit rating

3

Transparent Reporting& Governance
Key Actions• Implement integrated financial systems• Enhance internal financial reporting, controls,
and annual reports• Align with international standards• Improve utility governance• Obtain third-party audit or assurance

Financial Market
Engagement
Key Actions
•
•
•
•
•

Build capacity to engage with financial markets
Explore sustainable finance mechanisms
Explore domestic pension funds
Cultivate investor relationships
Leverage support from DFIs

Integrate Sustainability
Key Actions• Set evidence-based targets to align to Paris
Agreement/NDCs• Incorporate resilience planning to reduce
future costs• Incorporate transition planning into financial
management• Optimize utility asset portfolio to align withsustainability goals

Key Actions• Integrate ESG factors into financial
reporting• Align reporting with internationalsustainability standards• Obtain third-party verification or assuranceof ESG financial disclosures

Key Actions• Emphasize sustainability objectives ininvestment approaches• Explore instruments and mechanisms to raise
capital to finance transition to cleaner/moresustainable practices (RECs, internal carbon
price, shadow price, offsets)• Increase direct outreach to ESG minded
investment community

BUILDING BLOCK 1 – STRENGTHEN FINANCIAL POSITION THROUGH UTILITY FINANCIAL STATEMENTS
Financial management is critical for electric utilities in developing countries and enables utilities to improve financial stability and attract investment. Strong financial
management is the suite of tools and processes including accounting practices that are the most direct and high impact an electric utility can implement to reduce risk andimprove creditworthiness.

Strengthen Financial Position through Utility Financial Statements
Description: Assess a utility’s financial statements to get a quantifiable measure of its financial health anddetermine strategies for mitigating financial risks, including risk of default and operational risks.
Minimum Maturity Criteria:• Determine financial baseline using these indicators: EBITDA, debt service coverage ratio, economic
profit, and CAPEX financed with debt
• Example benchmarks for a well-performing utility: DSCR exceeds 1.2, EBITDA margin greaterthan 5%*• If a utility is below these benchmarks, understand root causes and create a financial strategy
with concrete actions to improve these indicators• Evaluate utility performance across the following: liquidity ratios, consistent revenue growth, andefficient cost management

Ideal State (actions to be best positioned to attract alternative finance):• Evaluate existing default risk through reviewing financial statements, debt profile, cash flow projections,and DSCR. Mitigate default risk through contingency planning, hedging against forex fluctuations andinterest rate risk
• Utility owns assets it operates (or asset ownership is privatized) to increase DSCR and strengthenbalance sheet• Manage financial risks through:• Supplying narrative information to provide context around financial position and risks• Ensuring fiscal burden of utility operations is reflected in budget decision making• Reducing currency mismatch between revenues and debt obligations• Reducing contingent liabilities• Conducting an operational risk assessment (delays and cost overruns in capital project
implementation, acquisition and sale of assets)*Benchmarks are referenced from the World Bank’s Water Utility Turnaround Framework

Building Block in Practice2

Office National de l‘Electricite
et de l’Eau Potable (ONEE) Morocco

Utility Structure: State-owned utility, privatized dist. 1977
Challenge: In the mid-1990s, Morocco’s power sector needed
significant fiscal support to cover the revenue deficit. ONE1
could not meet household electricity demand due to aging
infrastructure and solicited World Bank assistance for T&D
investments. Regulatory risks prevented ONE from receiving
private sector financing.
Solution: The utility has been focused on improving financial
performance, accomplishing the following:• Energy reform program reduced government subsidies forelectricity and allowed real estate to be transferred to the
Moroccan Energy for Sustainable Energy (MASEN)
Results: ONEE has maintained a positive DSCR (greater than
1.2) since 2013 (post merger with ONEP), and has issued bonds
and secured loans from domestic and international financial
institutions• EBRD is considering providing a corporate loan of up to EUR
200 million to ONEE that will be structured as asustainability-linked loan, the first in the country

1 The electric utility was called ONE before its merger with the state water utility, ONEEBUILDING BLOCK 1 – IMPROVE DEBT PROFILE
Improve Debt Profile
Description: Build internal debt financing expertise and develop a fully staffed financial management function
while considering sources of capital and refinancing strategies to address debt burden

Minimum Maturity Criteria:• At minimum, the utility should work to incorporate a full financial management function and progress
towards securing debt financing expertise (can rely on donor organizations at first)• Include cost of capital in a financial performance indicator, using a weighted average cost of capital calculation
Ideal State (best positioned to attract alternative finance)• Establish a structured debt issuance program to access capital markets. This involves issuing bonds or otherdebt instruments to raise funds for capital expenditures or refinancing existing debt
• Consider engaging financial advisors or consultants to assist in assessing and structuring financing
arrangements• Employ strategies such as:• Refinancing high-cost debt by issuing new bonds to repay existing debt, seek syndicated loans, reduce
interest rate volatility through fixed-rate financing, or negotiate a repayment holiday• Extending debt maturities to match the utility’s long-term cash flow generation• Diversifying funding sources• Conducting “stress tests,” assessing utility profitability in relation to debt levels
Advanced Sustainability Activities:• Issue green bonds or access other sustainable finance instruments to diversify existing sources of finance• Optimize the utility’s asset portfolio to align with sustainability goals. Retire older, less efficient, and highcarbon emission-producing assets in favor of cleaner options (e.g., wind, solar). RE investments reduce
exposure to fossil fuel price volatility, allowing for better cost forecasting.

Building Block in Practice1

Interconexion Electrica S.A.
- Colombia

Utility Structure: State-owned transmission company
Challenge: Prior to 2001, Interconexion Electrica had
challenges accessing new sources of capital aside fromrevenue and government subsidies.

Solution: A minority stake in the company was soldthrough the Colombian government’s “shareholdings forall” initiative, and the company has been listed on the
Colombian Stock Exchange since 2001. Additionally, thegovernment decided to list the American depository
receipts on the US stock markets.
Results: Since these reforms, Interconexion Electrica SA
has gained access to new financial markets, primarily the
Colombian and US stock markets. Now, ISA has a BBB
investment grade rating from Fitch (April 2023).

BUILDING BLOCK 1 – DEVELOP LONG-TERM SUSTAINBILITY STRATEGIES TOCAPTURE ADDED VALUE
Develop Long-Term Sustainability Strategies
Description: Align capital investment plans with the Paris Agreement to satisfy investor sustainability
requirements; ensure capital investments are in line with network reliability and upgrades
Baseline Maturity Criteria:• Basic form of capital planning that identifies assets that need maintenance or need to be replaced/upgraded.
Capital planning should be supported by maintenance plans, an asset inventory, and a data management system.
• Incorporate financial planning that reduces reliance on sovereign guarantees. In the event a guarantee isrequired, the amount should have clearly specified monetary limits.
Ideal State (best positioned to attract alternative finance):• Incorporate long-term capital planning, using an integrated resource planning framework. Consider all segmentsof the power delivery value chain, from generation to transmission and distribution planning. Include investment
planning for O&M upgrades and system expansion.
• Establish resource planning to account for distributed energy resources and connecting renewables whilemoving away from fossil fuels.
Advanced Sustainability Activities:• Enhance the integrated resource planning framework by incorporating resilience planning, demonstrating how
the utility monitors climate-related risks and utilizes climate-related scenario analyses in its decision-making andlong-term capital planning• Establish RE-heavy procurement plan with potential investments in mind
• Conduct scenario analyses, leveraging reference scenarios (Transition Pathways Initiative, Science-Based Target
Initiative)• Align operations with the Paris Agreement targets to satisfy investor sustainability requirements; an example
measure could be committing to no new coal generation investments• Disclose 5-year capex budget for renewable deployment

2

Building Block in Practice
Kenya Electricity
Generating Company

Utility Structure: State-owned

Challenge: KenGen’s capital planning did not reflect asustainable energy transition pathway, exposing it toincreased risk.
Solution: The utility developed and registered six Clean
Development Mechanism projects that contribute tooffsetting 1.5 million tCO2e annually. Of these, 550,981
tons were issued by the UNFCCC and made available forsale. The CDM projects one example of approaches thatwere the starting point from which KenGen developed
their long-term sustainable growth strategy. Other
approaches included PPPs and strengthening financial risk
management.
Results:• KenGen built sustainability into their long-term
growth strategy and recorded $3.6 million in carbon
revenue (through carbon market participation) since2010• Now, more than 86% of the company’s production
is from clean sources (wind, hydro, and geothermal)• The country would further benefit from steps toaddress delays in regulatory approvals, and (longerterm) potentially exporting power.

BUILDING BLOCK 1 – OBTAIN OR ENHANCE CREDIT RATING
Building Block in PracticeObtain or Enhance Credit Rating
Description: Identify and engage rating agencies and prepare the utility to develop astrong pitch deck that demonstrates investment-grade capabilities based on revenue
defensibility, operating risk, and its financial profile
Baseline Maturity Criteria: To obtain an investment-grade credit rating, a utility
must have a cost-reflective rate-setting framework (and autonomy to determine rateof service) and meet the baseline requirements set under the “Strengthen Financial
Position” component.
Ideal State (best positioned to attract alternative finance):• Consider drivers for utility/power sector ratings: revenue defensibility, operatingrisk, financial profile, other risk factors (debt structure, management andgovernance, and legal and regulatory risks)• Evaluate operating cost burden (ratio of total electric operating costs to totalenergy kWh sales) and understand approaches to lower• If no credit rating, consider obtaining a private, shadow credit rating as a baseline
to inform future credit rating enhancement efforts. This rating will not be
publicized and will let the utility know how they would be rated if they desired toaccess capital markets.
• Issue bonds on capital markets to expose utility to market risk perceptions andmarket information• The bond issuance process is outlined in Annex 1

2

Namibia Power Corporation (NamPower)

Utility Structure: State-owned, vertically integrated utility
Challenge: NamPower sought a credit rating to attract private finance anddemonstrate low investment risk

Solution: In December 2020, NamPower was able to be assigned a long-term foreign
currency issuer default rating (IDR) of "BBB-“ by Fitch Ratings. Although this is thelowest investment grade rating, the rating agency also assigned a stable outlook to
NamPower, reflecting its expectation of a stable financial performance and credit
profile.
Fitch Ratings cited several factors contributing to NamPower's investment grade rating,including the utility's monopoly position in the Namibian electricity market, its solid
operational track record, and the government's support as the majority shareholder.
Fitch also noted NamPower's reasonable leverage levels and adequate liquidity.
Nevertheless, NamPower’s rating is constrained by the Namibian sovereign (BB-)
under Fitch Ratings’ Government-Related Entities rating criteria.
Results: With an investment-grade credit rating, NamPower will have greater
flexibility in accessing capital markets. Additionally, Fitch noted that NamPower’s rating
upgrades or downgrades are dependent on Namibia’s fiscal reforms andmacroeconomic trends.

*It is important to mention that, if a utility is state-owned, its credit rating will very likely mirror that of the sovereignBUILDING BLOCK 2 – IMPLEMENT INTEGRATED FINANCIAL SYSTEMS
Unlocks financial transparency and streamlines data management for enhanced reporting and creates accountability and predictability for commercial
practices ensuring alignment to government requirements and global best practices

Implement Integrated Financial Systems
Description: Integrated financial systems include accounting, asset management, andbilling processes. Centralized and optimized financial systems streamline financial
management and ensures reporting accuracy.

Building Block in Practice2

National Electric Power Company(NEPCO) – Jordan

Utility Structure: Incorporated state-owned utility
Minimum Maturity Criteria:• Financial data is regularly and accurately collected• Cash-basis or modified cash-basis accounting• Basic internal controls and auditing practice• Accounting procedures, internal controls, and financial report comply withgovernment requirements
Ideal State (best positioned to attract alternative finance)• Well-established and accurate financial data with consistent categorization• Standardized and comprehensive list of accounts aligned with industry best practices
and regulatory requirements• Full accounting function with a lead skilled financial manager assigned• Accrual-based accounting policies and procedures that align with international
standards

Challenge: NEPCO faced financial challenges due to rising energy
costs and subsidies, which strained its financial resources
Solution: Optimized and improved financial processes by evaluating
existing workflows and identifying inefficiencies

2

Jamaica Public Service (JPS)– Jamaica

Utility Structure: Incorporated state-owned utility

Challenge: JPS faced financial challenges due to accounting inefficiencies,
delayed financial reporting, and outdated systems
Solution: Upgraded accounting system integrating accounting functions,
including accounts payable, accounts receivable, general ledger, andfinancial reporting.

BUILDING BLOCK 2 – ENHANCE INTERNAL FINANCIAL REPORTING
Enhance Internal Financial Reporting & Controls
Description: Accurately and timely report financial statements and provide
comprehensive disclosures communication of financial performance to demonstratetransparency and accountability to investors.
Baseline Maturity Criteria:• Accurate and up-to-date financial data
• Regularly prepare financial report including income statement, balance sheet, cash flow
statement, and liquidity ratios• Basic internal controls and auditing practice
Ideal State (best positioned to attract alternative finance)• Financial report prepared annually and align with International Financial ReportingStandards (IFRS)• Reports and financial statements published on website• Prepare quarterly financial statements with key information used in decision making
generation and T&D, revenue, customer base, energy efficiency, and financial ratios• Robust internal controls to safeguard financial data and ensure compliance with
relevant regulations• Participate in external financial audit and conduct regular internal audits with annual
audit plans• Publish financial audit results in public-facing annual reports

Building Block in Practice3

PNG Power Limited –Papua New Guinea1

Utility Structure: Incorporated state-owned utility
Challenge: Between 2007-2013, PNG Power experienced irregularaccounting on the Profit and Loss Statement (P&L) and balance sheet due toinaccurate financial reporting. This weakened the validity of PNG's financial
statements and undermined PNG Power's ability to attract investment until
2018, when action was taken to address this.
Solution: Auditor General recommended PNG review credit control anddebt management processes.
Results:• 2018 PNG Power hired a new finance management team and external
audit consultants to address financial and accounting challenges• 2019 PNG Power reported no cash losses, and the investments show areturn to financial sustainability and integrity in reporting• Third party audit provided considerable clarity on reporting issues• Well-funded state audit office offers a relatively inexpensive mechanism bywhich to monitor and help improve the reporting performance of anelectricity utility at the local level1 https://www.pngpower.com.pg/news/view/png-power-setting-a-new-benchmark-in-financial-good-governanceBUILDING BLOCK 2 – ALIGN WITH INTERNATIONAL SUSTAINABLITY STANDARDS
Align with International Sustainability Standards
Description: Integrate environmental and climate considerations into the utility's
reporting framework, metrics, and data collection processes ensures the utility's
reporting accurately reflects its sustainability performance. By aligning with recognizedsustainability standards, the utility can effectively communicate its sustainability efforts,
engage stakeholders, and contribute to the global sustainability agenda
Minimum Maturity Criteria:• Data collection protocols and controls that outline the data, metrics, and reporting
requirements for each factor identified• Identification and assessment sustainability factors that are most material for theutility and investors• Basic understanding of the internationally recognized sustainability reporting
standards such as GRI, SASB, or TCFD
Ideal State (best positioned to attract alternative finance)• Robust sustainability strategy and environmental performance indicators that are
essential to utility operations – indicators should enable monitoring and reporting of

the utility’s progress to address environmental/climate considerations andsustainability goals• Conduct assessment to prioritize reporting efforts and ensure that the utility focuseson the ESG issues that have the greatest impact and relevance to potential investors• Revise and/or expand the utility's financial and sustainability reports to align thereporting format, structure, and terminology with international standards• Integrate sustainability considerations into the utility’s decision-making processes suchas investment decisions, project evaluation, and risk management

Building Block in Practice1

Eletrobras – Brazil

Utility Structure: Corporation
Challenge: Eletrobras has been listed on the NYSE since 2014, and theprivatization model was approved in 2021. In parallel, Electrobras has
been working to further demonstrate transparent reporting forsustainability impact in capital investments. This will enable them tounlock and align with shifts in global finance streams.
Solution: Incorporate reporting with existing sustainability and climate
reporting standards, like the Integrated Reporting Framework andGlobal Reporting Initiative, and align with SASB and TCFD todemonstrate commitment and transparency to ESG investments.

Results:• Published their annual report and adapted reporting processes toalign with and include reporting metrics required by global reporting
frameworks since 2021.
• Significant dispersion of the company’s investments to include awider range and the entry of new investors focused on sustainable
investments.

BUILDING BLOCK 2 – IMPROVE UTILTY GOVERNANCE
Improve Utility Governance
Description: Set of policies, procedures, and controls put in place to ensure
responsible and transparent management of financial resources. Budget oversight,
financial reporting, risk management, and adherence to regulatory standards tomaintain the utility's financial stability and safeguard the interests of stakeholders.
Minimum Maturity Criteria:• Operate within a sound legal framework• Governance practices are aligned with the national requirements and withinternational standards, such as the OECD Principles of Corporate
Governance
Ideal State (best positioned to attract alternative finance)• Clearly defined board and management governance responsibilities to ensure
adequate oversight of financial management• Implement financial and non-financial KPIs, increasing in complexity as utility
matures• Maintain a file repository comprised of annual reports, financial statements,
founding laws/charters/constitutions, reports from audit authority, dividends
paid to government and payment from government to utility budget,
outstanding credits to the utility

3

Building Block in Practice
Uganda Electricity Board

Utility Structure: State-owned utility
Challenge: Uganda faced challenges with good governance among its public enterprises,
including its state-owned utility, the Uganda Electricity Board.
Partial Solution: The Government of Uganda enacted legislation to enable restructuringof public enterprises. This required the utility to report financial and operational
performance, including audited accounts with a defined period. Compliance wasmonitored by the government and disclosed to the public.
Results: The combination of disclosure of information on financial performance alongwith clearly defined authority to appoint directors of public enterprises and implement
their restructuring led to the unbundling of UEB and improved governance.

Non-Utility Example

Indonesia: Indonesia’s Ministry of Finance measures SOE financial performance throughreturns on equity, profitability through returns on assets, expense/income ratio, and net
interest income, and solvency through nonperforming loans, capital adequacy ratio,
assets/liabilities, and loans/deposit ratio.
Indonesia’s Ministry of State-Owned Enterprises oversees SOE performance by evaluating
corporate governance and other KPI through its monitoring system, which is based onvoluntary assessments and company reviews. The Ministry conducts performance
management with the support of government auditors.

BUILDING BLOCK 2 – OBTAIN THIRD PARTY VERIFICATION
Obtain third-party verification or assurance
Description: Third party verification of financial reporting and ESG disclosuresprovides independent validation of the utility's financial performance, ensuring accuracy,transparency, and compliance with accounting standards, instilling confidence ininvestors

Minimum Maturity Criteria:• Internal controls, financial reporting, and audit processes to verify and validate
financial statements and performance that complies with government requirements• Financial report that is regularly audited by a government or independent auditor

Ideal State (best positioned to attract alternative finance)• Integrate framework to disclose climate-related information in financial statements:
Climate Disclosure Standards Board (CDSB)• Utilize rating agencies that focus on sustainability, such as Sustainalytics, MSCI ESG
Research, and CDP (formerly the Carbon Disclosure Project), assess and rate
sustainability performance, including climate-related disclosures• Obtain verification using accredited verification bodies recognized by national orinternational standards organizations, provide independent assessments of companies'
climate-related disclosures

Building Block in Practice2

EGAT – Thailand

Utility Structure: Incorporated state-owned utility
Challenge: EGAT was under increasing scrutiny from stakeholders,
including investors and regulatory authorities, to disclose its climaterelated risks and opportunities. EGAT needed to validate theaccuracy and credibility of its climate-related disclosures.

Solution: Utilized reputable assurance provider to assess and verify
the accuracy and reliability of its climate-related financial information.
Results:• Enhanced credibility and transparency of climate-related
disclosures, providing stakeholders including investors withgreater confidence in the accuracy of the reported information• Increased investor confidence.
• Investors rely on independently verified data to makeinformed decisions. The assurance process helped attract
sustainable financing and strengthens the utility's positionin the market.
• Ensured compliance with global reporting standards and bestpractices for climate-related disclosures

BUILDING BLOCK 3 – BUILD CAPACITY TO ENGAGE FINANCIAL MARKETS
Build Capacity to Engage with Financial Markets
Description: Internal training to strengthen understanding of financial markets,
investment practices and investment such as accessing expert advice and developing a
project portfolio tailor to attract investors
Minimum Maturity Criteria:• Strive to establish and maintain an understanding of alternative finance sources andcapital market functions• Basic strategic plan that articulates its long-term vision, investment priorities, andgrowth strategies

Ideal State (best positioned to attract alternative finance)• Invest in development of utility staff in project capital markets, investment trends,
and financial instruments• Form strategic partnerships with larger utilities, international organizations, or
private investors that have experience in capital markets• List utility on stock markets to create capital market discipline• Monitor capital market trends and conduct market research to identify potential
investors and understand their preferences
Advanced Sustainability Activities:• Prioritize environment, climate, and other sustainability related projects andpractices. This could include directing investment towards renewable energy, energy
efficiency.
• Tailor engagement strategies, financial reporting practices, and sustainability
initiatives to align with investor expectations and market dynamics

Building Block in Practice3

ESKOM – South Africa

Utility Structure: State-owned electricity company
Challenge: ESKOM did not have adequate internal expertise andknowledge of capital markets and external investors. This lowered theirability to accessing financing and attract investment critical for theutility’s sustainability objectives and clean energy projects.
Solution: Held capital market workshops and trainings for its financial
team to develop a deeper understanding of capital markets, investment
trends, and financial instruments. Actively engaged with various
stakeholders, including government authorities, international financial
institutions, and private investors
Results:• Allowed Eskom's financial experts to navigate complex financialtransactions more effectively• Communication facilitated a better understanding of investor
expectations and helped address concerns related to the utility's
financial performance and governanceBUILDING BLOCK 3 – EXPLORE SUSTAINABLE FINANCE MECHANISMS
Explore Sustainable Finance Mechanisms
Description: Determine new or tailor current utility investment opportunities toappeal to impact investors based on available sustainability-linked instruments suchas positioning for green and sustainable loans, standard risk mitigation instruments,
and carbon markets
Minimum Maturity Criteria:• Identified different sustainable financing options available in capital markets(equity financing, debt financing, and public-private partnerships)• Assess the feasibility and suitability of each option based on the utility's financial
needs, risk tolerance, and market conditions

Ideal State (actions to be best positioned to attract alternative finance):• Issue sustainability-linked, green and/or infrastructure bonds on either thedomestic or international markets to attract sustainability-focused investors.
These types of bonds typically require large ticket sizes (due to transaction costs
and investor demand), meaning that these bonds can group several large-scale
projects.
• Explore sources of climate finance, particularly those involving blended finance,
to access available financing that has gone under-utilized. Leverage USAID’s
Climate Finance Toolkit for electric utilities to navigate the climate financelandscape.
• Consider voluntary carbon markets as a potential source of financing by sellingcarbon credits

Building Block in Practice1

KenGen – Kenya

Utility Structure: Primary state-owned
Challenge: KenGen was having trouble financing planned RE projects.
Solution:• 2013, KenGen issued Kenya’s first infrastructure bond worth KES 25 billion(approx. $290 million). Kenya also enacted domestic debt market reforms,
lowering the cash ratio for commercial banks to release liquidity and reducing
short-term interest rates. Kenya streamlined the domestic borrowing cash
plan in favor of bonds and eased the pension market availability.
Results:• The bond was oversubscribed and played a crucial role in funding thecompany’s energy projects, including the Okaria geothermal power plants.

2

Ethiopian Electric Power (EEP)- Ethiopia

Results:• EEP made efforts to integrate ESG principles into its financial strategies• 2020 they issued a green bond, the first-ever by an Ethiopian entity, to raise
funds for renewable energy projects• Bond proceeds are dedicated to financing the country's ambitious renewableenergy goals, supporting Ethiopia's transition to a greener energy mix

CASE STUDY – GHANA
Explore Domestic Pension Funds
Description: Determine new utility investment opportunities to appeal to domestic investors particularly pension funds by offering
enticing returns and security of long-term investments at the same time solving acute power supply shortfalls.

Building Block in Practice
CENIT Energy – Ghana
Challenge: Coming out of a major power crisis in 2007, the state-owned generation company, Volta River Authority (VRA) was in the process of adding a 110 MW
thermal plant to its generating fleet. Experience had shown that building two 110 MW plants (2 x 110 MW) in the same location would make it possible to switch tocombined-cycle mode and produced an additional 110 MW at minimal cost, giving a total of 330 MW. VRA did not have the funds to do that. The pension fundadministrator Social Security and National Insurance Trust (SSNIT) saw this as an opportunity to invest long term and therefore engaged with the government and the
project developers.
Solution:• SSNIT, a workers’ pension fund created an SPV (CENIT Investment Limited), to negotiate and purchase the additional 110 MW simple cycle thermal plant. SSNIT
initially sought to provide bridge finance for the project. Presently, SSNIT owns 100% equity in the CENIT Energy power plant and is in negotiations with VRA toadvance the combined cycle project. This investment required engagement with stakeholders including financiers, government, regulators, off takers, to assess all risks
financial, constructional, operational, legal, and economic. The plant has a 25-year PPA with the state-owned electricity distribution company, Electricity Company of
Ghana (ECG) and has a transmission service agreement with the system operator GRIDCo.
Results:• The 110 MW CENIT thermal plant has been an important component of the power generation fleet in Ghana since 2012. The availability of the plant during the powercrisis in Ghana helped to minimize the impact of the rolling blackouts. To date, this investment has been one of the most profitable investments of the pension fundand the investor is seeking to transform the plant to combined cycle mode which will increase efficiency and lower the average cost per kWh generated.

BUILDING BLOCK 3 – CULTIVATE INVESTOR RELATIONSHIPS
Cultivate Investor Relationships
Description: Build relationships with local and international investors such as financial
institutions and private entities to strengthen their familiarity with the utility’s efforts toimprove performance and investment needs.
Minimum Maturity Criteria:• Basic understanding of existing public and private investors• Align strategic plan with the country's energy sector goals including climate targets
like NDCs and highlight the utility's potential for expansion and revenue generation
Ideal State (best positioned to attract alternative finance)• Conduct market research to identify potential private sector investors who align with
its strategic goals and have the necessary expertise, resources, and interest in theenergy sector• Establish a dedicated internal investor relations function to effectively communicate
with capital market participants. This involves regular engagement with analysts,
investors, and rating agencies to provide accurate and timely information about theutility's operations, financial performance, and growth plans.
• Actively participate in conferences, roadshows, and industry events to showcase
investment potential and establish relationships with key market participants
Advanced Sustainability Activities:• Increase direct outreach to ESG-minded investment community• Target and prioritize specific investors for engagement, maximizing the chances ofbuilding fruitful relationships

Building Block in Practice2

PLN – Indonesia

Utility Structure: State-owned electricity company
Challenge: PLN desired to improve investor relations and enhancetransparency to attract investment for sustainable development including
financing for infrastructure projects.
Solution: PLN and Ministry of Environment organizes an Energy
Investment Day to attract investors to the country's power sector. The
event features presentations on PLN's investment projects, renewableenergy targets, and regulatory updates. PLN held conversations withinvestors to help finance projects to accelerate early retirement of coal
fired power plants to meet net carbon emissions target.
Results:• Provided a platform for investors to network with key stakeholders,
explore investment opportunities, and gain a deeper understanding of
the Indonesian energy landscape• Partnership with ABD and a private power firm, deal would reduce
lifetime of power plants by 9 years and secure affordable financing

BUILDING BLOCK 3 – LEVERAGE SUPPORT FROM DFIS
Leverage support from DFIs
Description: Develop approaches to strategically utilize existing public funds oraccess to concessional capital from DFIs and IFIs to mitigate private sector risks andmeet investment criteria
Minimum Maturity Criteria:• Clear and comprehensive business plan with short- and long-term investments• Transparent financial performance and reporting• Align investment pipeline with national sustainability goals (NDCs)

Ideal State (best positioned to attract alternative finance)• Conduct targeted outreach and form strategic partnerships with public financial
institutions, such as development banks or government agencies
o Partnerships can help secure concessional loans or grants that complement
private investment, reducing perceived risks for private investors• Seek government guarantees or support for specific projects, assuring private
investors of reduced financial risks and providing a level of certainty in theirinvestments• Present transparent and well-structured investment opportunities that align withthe country's development goals and energy need

Building Block in Practice2

Ethiopian Electric Power – Ethiopia

Utility Structure: State-owned electricity company
Challenge: EEP desired to expand its energy infrastructure to meet thegrowing demand for electricity and promote sustainable development andlacked sufficient finance. One project was the Corbetti Geothermal Power
Project which will deliver up to 520MW.
Solution: Blended finance approach leveraged 25% equity financing and 75%
debt financing. The Ethiopian government and international development
organizations, like the World Bank and the African Development Bank(AfDB), provided grants, concessional loans, or guarantees to support theearly stages of the project, including exploration and feasibility studies. Publicfinance was crucial in de-risking the initial phases of geothermal development.
Results:• 2015 InfraCo Africa provided an equity investment of $15 million, $5
million was used for early-stage site development and the remaining $10
million towards drilling exploration• 2018 an additional $15 million was provided by the company which willcontribute towards exploratory drilling and development of thepowerplant

PHOTO CREDIT: SHUTTERSTOCK

Thank you!

4/1/2024

USAID SUPER TO

51

ANNEX 1: SUSTAINABLE BOND
PRIMER

4/1/2024

52

THEMATIC BONDS
Thematic bonds include green, blue, social, gender, sustainability, and sustainability-linked bonds. These bonds arealso collectively known as GSS; GSS+; environmental, social, and governance (ESG); or sustainable bonds.
GSS and Thematic Bonds Universe
GREEN BONDS
Green Bonds finance projects that have clear
environmental benefits – e.g., energy efficiency,

building efficiency, sustainable agriculture

SOCIAL BONDS
Social Bonds finance projects that create a positive social
benefit – e.g., gender, housing, women, health, education

SUSTAINABILITY BONDS
Sustainability bonds finance projects that combine socialand environmental benefits – e.g., Sustainable Development
Goals, socially responsible investment. Bonds referred to as
SDG bonds that are linked to the delivery of SDGs are
generally issued by sovereign entities.
SUSTAINABILITY-LINKED BONDS
SLBs are forward-looking, performance-based instrumentswith coupon step-up/step-downs linked to achieving SPTs
based on measurement of pre-defined KPIs. Expected to be asignificant growth area, given the more flexible format.

GSS Bonds vs. Sustainability-linked bonds (SLBs)
Sustainability-linked bonds (SLBs), for which the coupon paid to investors depends on the issuer’s performance against
measurable targets, are a newer type of debt instrument. In the case of use-of-proceeds bonds (green, social, andsustainability bonds), the issuer commits to using the funds exclusively to finance environmentally sustainable projects
or activities. The use of proceeds is easy to track, and the annual reporting of expected environmental impact isrelatively simple.
SLB proceeds, on the other hand, can be used for general purposes. This flexibility allows issuers that may not haveenough green or social capital expenditure to access sustainability focused investors. Many issuers who can't meet thecriteria of green or social bonds have been able to successfully issue SLBs. SLB’s are inherently more flexible because
they are not tied to specific projects. However, labeling a bond as an SLB can be more complex than labeling it as ause-of-proceeds bond. The issuer must select key performance indicators (KPIs) and one or more sustainability
performance targets (SPTs) according to key performance indicators. The KPIs should be material to the issuer’s coresustainability strategy, measurable or quantifiable, and externally verifiable.

Investors view Sustainability-linked instruments with greater scrutiny
According to a World Bank survey of debt management offices in emerging markets, investors pay even closer
attention to: key performance indicators (KPIs), level of disclosure, the ambition of sustainability performancetargets, and impact reporting when evaluating the investment potential of an SLBs than use-of-proceeds bonds. Key
factors:• An independent, external review of baseline data for sustainability performance targets (SPTs) and performance• A dedicated assessment framework for the SLB• Standardized KPIs

PREPARING TO ISSUE A SOVEREIGN THEMATIC BOND
• Issuance of thematic bonds involves steps that are not required for conventional bonds:– Adopt a framework that sets the basis for identification, selection, verification, and reporting of theexpenditures or projects eligible to be financed by the bond and management of such proceeds– Ensure that the framework is aligned with accepted standards such as the International Capital Markets
Association Green Bond Principles, Social Bond Principles, and Sustainability Bond Guidelines.

• Following these steps is important to ensure that the bond can be identified as a labeled thematic bond. Although
the time required from start to finish varies, a first-time issuer can expect the entire process to take 6 months.
• It is recommended that an issuer establish some kind of entity (such as a task force or steering committee)
comprised of members across an organization’s different functions. This multi-disciplinary approach can support athorough understanding of the requirements, support a robust value proposition, conduct a detailed analysis ofeligible expenditures, and design a work plan.

STEPS TO ISSUE A GREEN BOND
1

Use of Proceeds The foundation of agreen bond is the utilization of the proceedsof the bond for environmental projects,
which should be appropriately described in
the legal documentation and covenants. All
designated project should indicate clear
environmental benefits that will be assessedand quantified by the issuer. Eligible green
categories include:•
Renewable energy•
Energy efficiency•
Green buildings

4

Green bond principles

2

Process for project evaluation andselection: The issuer must clearlycommunicate to investors:• The environmental sustainability
objectives;• The process in determining how projects
fit within the eligible green projects
categories• The related eligibility criteria, including, if
applicable, exclusion criteria or any otherprocess applied to identify and manage
potentially material environmental andsocial risks

ReportingIssuers should make and keep readily
available, up-to-date information on the useof proceeds to be renewed annually until full
allocation, and on a timely basis in case ofmaterial developments. The annual report
should include a list of the projects to which
Green Bond proceeds have been allocation,
as well as a brief description of the projects
and the amounts allocated, and their
expected impact.

5

3Management of Proceeds: The net
proceeds of the green bond should be
credited to a sub-account, moved to a
sub-portfolio, or otherwise tracked by
the issuer in an appropriate manner,and attested to by the issuer in aformal internal process linked tolending and investment operations forgreen projects.

External Review
It is recommended that issuers obtain external
review and assurance to ensure alignment to
the GBP. According to the Green Bond
Principles Voluntary Process Guidelines for
issuing green bonds, independent external
reviews are grouped into the following:• Second Party Opinion• Verification• Certification• Green bond scoring/rating

WHAT DO INVESTORS CONSIDER WHEN INVESTING IN EMERGING
MARKET THEMATIC BONDS?
Investors are still primarily concerned with typical credit fundamentals and risks when investing in fixed-income
securities, including thematic bonds, because the associated risks and returns are similar to those of conventionalbonds.
In addition to this criteria, ESG-minded investors are also concerned with greenwashing, which can result in significant
backlash and reputational risk. Investors who choose to invest in GSSS and thematic bonds look to these instruments
as ways to diversify their portfolios, and complement conventional bond holdings, while addressing growing clientinterest in sustainability and supporting integration of ESG as part of institutional investment strategy.
FINANCIAL
Credit profile & macroeconomic outlook
Political Risk

ESG
Issuers sustainability strategy and commitments
Type of bondCurrency

Bond Framework

Volume Liquidity

Transparency in allocation of proceeds & impact report

Risk & return of investment

Controversies/Reputation of issuer

Pricing characteristics &comparison with existing bonds ofissuer and peers‐ Overall quality, alignment with international
principles, quality of second-party opinion‐ Criteria and definition of eligible expenditures
categories‐ Level of ambition, credibility, and relevance of
selected key performance indicators andsustainability performance targets, theiralignment with international goals, and theireffective measurements‐ Strength in the use-of-proceeds governanceprocess, eligible project selection andevaluation*
Source: World Bank GSS Bonds Survey 2022

EMERGING MARKET SUBNATIONAL THEMATIC BONDS•

Although most subnational borrowers in emerging markets lack the authority and autonomy to borrow from global capital
markets, some regularly issue bonds in the domestic market, and some even do so in the international capital markets, forexample the City of Cape Town issued a green bond in 2017, and eventually sold at 133 basis points above the ZAR186
government bond.

•State-owned enterprises and national companies play an important role in supporting the achievement of government policy
objectives. Energy and water utilities and other infrastructure entities are leading emitters of GHGs and as such as critical in
supporting Paris Alignment and transitions at the national level. They are key actors in achieving SDG 7 (affordable and clean
energy) and SDG 11 (sustainable cities and communities).

•

The critical role of subnational entities in the energy transition is one draw for investors, although there are challenges associatedwith project scale and transparency.
Case Study: PT Indonesia•••

PT Indonesia Infrastructure Finance (IIF), a private national company and non-bank financing institution, is supporting the flow of private capital into
infrastructure development and reallocating resources from carbon-intensive to low-carbon and climate-resilient infrastructure by issuing a Sustainability
Bond for longer-term financing of infrastructure projects.
IF developed a Sustainable Financing Framework, defining 11 green and social categories of eligible projects and a transparent governanceprocess compliant with the ICMA Sustainability Bond standards. IIF listed the USD 150 million bond on the Singapore Stock Exchange in 2021.
According to IIF’s 2021 Sustainability Bond Impact report. 100% of the proceeds of the bond were allocated toward drinking water supply infrastructure,
renewable energy, healthcare, and telecom projects, including the 70MW Wind Power Plant Project in South Sulawesi, which contributed 200.7 GWh ofrenewable energy to the South Sulawesi national grid, while also supporting delivery Indonesia’s NDCs by mitigation 190,724 tCO2eq in GHG emissions.

Source: IIF 2021 Sustainability Bond Impact ReportGLOSSARY

4/1/2024

58

ACROYNYMS
AcronymDefinition

AcronymDefinition

ADB

Asian Development Bank

EIB

European Investment Bank

AF

Adaptation Fund

EMDE

AFD

French Development Agency

Emerging Markets and Developing
Economies

AfDB

African Development Bank

ESG

Environmental, Social, and Governance

AUSAID

Australian Agency for International Development

ESMAP

Energy Sector Management Assistance
Program

BOAD

West African Development BankEU

European UnionBRICS

New Development Bank

EVN

Vietnam Electricity

CIDA

Canadian International Development Agency

FFEM

French Facility for Global Environment

DANIDA

Danish International Development Agency

FONERWA

Rwanda Green FundDFC

US International Development FinanceCorporation

GCF

Green Climate Fund

DFIs

Development Finance Institutions

GEF

Global Environment Facility

DFID

UK Department for International Development

GHG

Greenhouse Gas

EBRD

European Bank for Reconstruction and Development

GIZ

German Development Agency

ACROYNYMS
AcronymDefinition

AcronymDefinition

GSS

Green, Social, Sustainable

RECs

Renewable Energy Certificates

IADB/IDB

Inter-American Development Bank

REGIO

IFC

International Finance Corporation

Real Economy Green Investment
Opportunity FundJBIC

Japan Bank for International Cooperation

SCCF

Special Climate Change Fund

JICA

Japan International Cooperation Agency

SLB

Sustainability Linked Bonds

KfW

German Investment BankSLL

Sustainability Linked Loans

KOICA

Korean International Cooperation Agency

SPT

Sustainability Performance Target

KPI

Key Performance Indicator

SUPER

Strengthening Utilities and Promoting Energy
ReformLEC

Liberia Electric CorporationTO

Task Order

LDCF

Least Developed Countries Fund

UNFCCCNDC

Nationally Determined Contribution

United Nations Framework Convention on
Climate Change

ODA

Official Development Assistance

USAID

United States Agency for International
Development

TAF

Technical Assistance Facility

ACROYNYMS – BUILDING BLOCK 1
AcronymDefinition

CAPEX

Capital Expenditure

DSCR

Debt Service Coverage Ratio

EBITDA

Earnings before Interest, Taxes, Depreciation, and Amortization

IDR

Issuer Default Rating

ISA

Interconexion Electrica SA

MASEN

Moroccan Energy for Sustainable Energy

ONEE

Office National de l‘Electricité
et de l’Eau Potable

ONEP

Office National de l’Eau Potable

O&M

Operations and MaintenanceRE

Renewable Energy

SUPER T.O,

ACROYNYMS – BUILDING BLOCK 2AcronymDefinition

CDP

Carbon Disclosure Project

CDSB

Climate Disclosure Standards Board

EGAT

Electricity Generating Authority of Thailand

GRI

Global Reporting Initiative

IFRS

International Financial Reporting Standards

JPS

Jamaica Public Service

NEPCO

National Electric Power Company

P&L

Profit and Loss Statement

PNG

Papua New Guinea

OECD

Organization for Economic Co-operation and Development

SASB

Sustainability Accounting Standards Board

SOE

State Owned Enterprises

TCFD

Task Force on Climate-related Financial Disclosures

T&D

Transparency and Disclosure

UEB

Uganda Electricity Board

ACROYNYMS – BUILDING BLOCK 3
AcronymDefinition

ECG

Electric Company of Ghana

EEP

Ethiopian Electric PowerIFIInternational Financial Institutions

PLN

Perusahaan Listrik Negara

PPA

Power Purchase Agreement

RE

Renewable Energy

SPVSpecial Purpose Vehicle

SSNIT

Social Security and National Insurance Trust

VRA

Volta River Authority

SUPER T.O,