GCF approves $60m for solar power project in Chile

Green Climate Fund’s early equity investment in a solar power and pumped storage hydroelectric project will help decarbonise Chile’s energy mix and catalise private investments to the renewable energy market.

At its 23rd meeting, the Green Climate Fund (GCF) Board approved a USD 60 million equity investment in Espejo de Tarapaca (FP115), a renewable energy project in Chile’s northern province of Tarapacá. The project, which was submitted to GCF by MUFG Bank and will be led by the renewable energy developer Energía Valhalla, will ensure a stable and uninterrupted provision of renewable electricity.

Fossil fuels account for the majority of Chile’s energy supply and the government has been working to increase the share of renewable energy in order to meet the country’s long-term sustainability goals. It has set a target for a 60% share of renewable power by 2035 and 70% by 2050. However, many renewable energy projects encounter intermittency issues where volatile pricing on the spot market can be a great disadvantage.

The Espejo de Tarapacá project will address the intermittency by combining solar power plants and pumped hydro storage. It will generate electricity 24 hours a day, 7 days a week, utilising solar power during daytime and pumped storage hydroelectric at night. The project is expected to decarbonise up to 5 percent of the country’s energy mix, thus helping Chile achieve its long-term climate objectives. In addition, the project will support climate change adaptation in the region by enhancing diversification of local economies and providing stable water supplies from its associated desalination plant.

GCF will participate in the project as an early anchor investor, helping reduce project risk and attract investments from other equity and institutional investors and lenders. It is expected that every dollar invested by GCF will help leverage an additional USD 18 from private investors.

“GCF Private Sector Facility’s aim is to underwrite high development project risk that no other private or public investor is willing to underwrite. In addition to derisking the financial structure and catalysing an additional USD 1 billion in private equity and debt for the project, GCF is supporting climate technology innovation for early and growth enterprises. We appreciate MUFG Bank’s support in bringing this innovative investment to GCF,” said Sergio Pombo, head private equity funds at GCF. GCF is willing to be anchor equity investor of climate technology innovation funds that are investing in developing countries.

“Innovation is key to tackling climate change. The Espejo de Tarapacá Project resolves the principal problem associated with intermittent renewable energy by transforming it into a continuous base-load source, which will open up a new industry and accelerate the transition to a carbon-free energy matrix,” said Juan Camus, Managing Director at Energía Valhalla. “We are extremely pleased with the Green Climate Fund’s decision to invest in the Espejo de Tarapacá Project in order to assist in derisking and unlocking private investment. GCF’s support will provide the foundation for implementing this groundbreaking, transformational and replicable 24/7 renewable energy storage project,” he added.

Mobilising private sector investments in climate projects is at the very core of GCF activities. GCF can accept higher risks to support early stage project development and the crowding-in of private and public partner investment. To date, GCF private sector investments already exceed USD 2 billion, covering a variety of financial instruments such as loans, grants, guarantees and equity.