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This section is intended to be a living document and will be reviewed at regular intervals. The Guidelines have not been prepared with any specific transaction in mind and are meant to serve only as general guidance. It is therefore critical that the Guidelines be reviewed and adapted for specific transactions. Unless expressly stated otherwise, the findings, interpretations, and conclusions expressed in the Materials in this Site are those of the various authors of the Materials and are not necessarily those of The World Bank Group, its member institutions, or their respective Boards of Executive Directors or member countries. For feedback on the content of this section of the website or suggestions for links or materials that could be included, please contact the Public-Private Partnership Resource Center at ppp@worldbank.org.

 

 

 

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Key Enablers of ERC Finance

Through a series of working group meetings and additional consultations with experts in the field of ERC finance, the World Bank ERP Finance Working Group identified four key risks that influence ERC transactions (Figure 10) and the most effective or promising tools or approaches for mitigating those risks. ERC generation as an economic activity and the associated technologies and practices remain unfamiliar to most financiers, and the market is still small and shallow and is fundamentally policy driven. When considering ERC activities, financiers are particularly focused on addressing credit, operational, market, and political risks. Governments, project developers, development finance institutions (DFIs), insurers, commercial financiers, and concessional financiers have a range of options to address these risks and mobilize ERC finance. This chapter highlights some of the key enablers (Table 2) to consider when structuring ERC activities and finance, because they have been demonstrably used in recent financial structures that are successfully tapping into capital markets and international investors, including those highlighted in Financing structures to address key risks, or they are enablers that potential financiers broadly acknowledge would help scale up private-sector ERC financing. While each of these enablers can be effective at addressing key risks that affect an ERC transaction, they are ultimately insufficient without the support of clear and consistent policy frameworks to guide how ERC markets are regulated. There are several efforts to further the development of these frameworks and enhance regulatory capacity, especially in emerging markets.1

Figure 10. Key ERC-related risks for financiers.

 

Table 2. Summary of spotlighted enablers of ERC financing, the types of risk they address, and for which case studies (ERLB, FSF, or LCF3) they were most relevant based on publicly available information.

 
Credit risk
Activity-level risk
Market risk
Political risk

Financial Enablers

Guarantees (LCF3)

Principal protection
(ERLB)

First-loss / concessional capital (LCF3)

 

Securing demand (LCF3)

Price support

DFI participation
(ERLB, LCF3)

Political risk insurance

Operational Enablers

 

Local stakeholder engagement (All) and benefit sharing (LCF3)

Project preparation support (LCF3) Operational insurance

Credit integrity (All)

Government engagement (ERLB)

Enabling Environmen Enablers

 

 

Registries (FSF)

Rights to ERCs and their benefits (LCF3)

Cross-border trade (ERLB, LCF3)

Footnote 1: See, for example, World Bank, Partnership for Market Implementation (PMI), 2023; VCMI, VCM Access Strategy Toolkit, 2023; UNDP, Carbon Payments for Development, 2023.

Sections

Credit Risk in ERC Finance Transactions Credit risk is a major, fundamental consideration in every ERC finance transaction. 
ERC Activity Risk Operational and reputational risks of ERC are relatively manageable mainly through good activity design and development…
Market Risk for ERCs ERC market risk remains high and still needs to be mitigated directly to facilitate scaling up ERC financing while the… more
Political Risk for ERC Activities
Political risks are acute for ERC activities and arguably the most important and challenging to address to attract… more
Note/s:

This section is intended to be a living document and will be reviewed at regular intervals. The Guidelines have not been prepared with any specific transaction in mind and are meant to serve only as general guidance. It is therefore critical that the Guidelines be reviewed and adapted for specific transactions. Unless expressly stated otherwise, the findings, interpretations, and conclusions expressed in the Materials in this Site are those of the various authors of the Materials and are not necessarily those of The World Bank Group, its member institutions, or their respective Boards of Executive Directors or member countries. For feedback on the content of this section of the website or suggestions for links or materials that could be included, please contact the Public-Private Partnership Resource Center at ppp@worldbank.org.