Climate finance is crucial for reducing greenhouse gas emissions, building energy sector resilience, adapting to the impacts of climate change, and achieving decarbonization targets. A key aim of USAID's 2022-2030 Climate Strategy is mobilizing $150 billion in climate finance from the private and public sectors. The levers outlined below can assist with energy sector efforts to achieve this goal.
From May to August 2021, USAID and the U.S. Department of Energy’s National Renewable Energy Laboratory (NREL) conducted a short-term assessment to identify opportunities to incorporate climate finance into existing or planned energy sector programming. NREL identified ten climate finance levers that could be applied to USAID programs to increase the scale of investment in clean energy and energy efficiency in partner countries. The first three levers focus on the project pipeline, while the remaining eight levers are related to policy and infrastructure. To maximize impact, programs should combine all the levers in ways that respond to regional and local climate finance barriers, opportunities, and priorities.
Lever One: Blended Finance to Catalyze Projects and Companies and Provide Utility Refinancing
USAID navigates the dynamic realm of clean energy initiatives through collaboration with entities like the U.S. International Development Finance Corporation and deploys mixed finance mechanisms such as Climate Investor One. These efforts facilitate essential project preparation and derisking, and leverage USAID’s network of diverse stakeholders to scale financial resources. USAID is an impactful catalyst, as exemplified by the success story of CrossBoundary Energy, which received a $1.3 million grant that ultimately attracted $17.5 million in debt and equity.
Lever Two: Capacity Development to Scale Project Pipelines and Improve Access to Climate Finance
Technical advisors can assist public sector partners in project identification, feasibility assessments, and financial modeling. A successful example from Mexico showcased a strategic collaboration with Evensen Dodge, which aggregated small clean energy projects into portfolios totaling $100 million to attract institutional investors.
Lever Three: Clean Energy Contract Standardization and Support for Securitization to Increase Liquidity
Collaborative efforts are important to establish regional or subregional frameworks for asset-backed securitization, which are pools of loans that are packaged together into an investable security. USAID can provide guidance to develop standardized energy savings performance contracts, power purchase agreements, solar, mini-grids, and other contracts aligning with international investor standards. The World Bank Scaling Solar program, which USAID is partnered with through Power Africa, developed a one-stop shop to support financial tools and services to make privately funded, grid-connected solar photovoltaic projects more cost-competitive.
Lever Four: Development of Public and Infrastructure Investments for Sustained Growth
The development of green recovery packages and government-funded initiatives is key for inclusive clean energy job growth. Notably, a partnership between USAID and the U.S. Department of Energy’s Lawrence Berkeley National Laboratory worked with the South African Department of Mineral Resources and Energy to conduct a study analyzing the impact of South Africa’s Appliance Energy Efficiency Standards and Labeling Program, focusing on energy savings and mitigation of greenhouse gas emissions.
Lever Five: Improvements to Enabling Environments to Attract Long-Term, Private Sector Investment
USAID can leverage its robust policy expertise to drive transformative change by advocating for Integrated Resource and Resilience Planning (IRRP), streamlined grid access, and reduced fossil fuel subsidies. In Tanzania, USAID facilitated an IRRP approach, collaborating with the government to assess climate risks associated with hydropower facilities given expanding electricity demand. As a result, USAID proposed diversified investment portfolios for enhanced energy resource management.
Lever Six: Formulation of National Strategies to Define Climate Finance and Clean Energy Opportunities
Partner countries can engage the private sector to receive support for crafting resilient clean energy investment strategies aligned with their Nationally Determined Contributions. This engagement can occur through forums aimed at securing investment commitments, developing collaborative solutions, and encouraging broad stakeholder cooperation. Currently, USAID is partnering with the Government of Indonesia to mobilize $5 billion in public and private financing for renewable energy and energy efficiency projects that advance strategies towards a net-zero-emissions future.
Lever Seven: Establishment of Markets to Capture the Full Value of Clean Energy
Expertise in market design can help effectively recognize the value of energy efficiency, demand response, and distributed energy resources. Supporting markets for carbon bonuses and tradable renewable energy certificates can fill gaps in project financing.
Lever Eight: Capacity Development for Entrepreneurs to Drive Technology and Business Model Innovation
Deploying clean energy, information technology, and digitalization solutions, particularly with a focus on small and medium enterprises, can build the capacity of entrepreneurs to develop local clean energy innovations. USAID’s Development Innovation Ventures team introduces clean energy entrepreneurship programs that intersect with sectors like agriculture, water, and waste. Through the Private Financing Advisory Network, USAID helps bridge the gap between investors, clean energy entrepreneurs, and project developers by offering support to identify, finance, and deploy innovative renewable energy projects.
Lever Nine: Support to the Financial Sector to Develop Green Finance Products and Regulations
USAID can broaden existing strategic donor partnerships with entities like the Global Environment Facility and the Green Climate Fund. Collaboration with national development banks and commercial banks enhances access to climate finance resources, improves capacity for green financing product design, and supports the development of related guarantees or clean energy funds.
Lever Ten: Provision of Data, Information, and Analysis to Inform Climate Risk-Averse Investment
By conducting assessments comparing fossil fuels to clean energy technologies, USAID can begin to address the lack of localized data. The Greening the Grid platform facilitates data-driven decision making by offering valuable information and guidance for power system transformation and grid modernization.
Through collaborative efforts, targeted financial support, and innovative approaches, USAID can strategically utilize these ten levers to achieve a world where clean energy and resilient growth are at the forefront of global sustainable development.
For more information, explore this primer as well as the full report.
Sophie Schrader
Sophie Schrader is a communications coordinator for the National Renewable Energy Laboratory’s International Partnerships. Previously, Sophie supported USAID communications through the Sharing Environment and Energy Knowledge (SEEK) and Advancing Capacity for the Environment (ACE) programs, including as the Content and Social Media Manager for Climatelinks under SEEK. Sophie holds a B.A. in Sociology and Studio Art from The College of Wooster and completed a thesis focused on the real life impact of hashtags utilized in digital movements.
