Blended finance, a combination of private and public capital, can offer a viable pathway to accelerate the transition to a low-carbon economy in developing countries, notes a new report from the Institute for Energy Economics and Financial Analysis (IEEFA) and auctusESG. It emphasizes that blended finance can play a significant role in bridging the gap between commercial imperatives and environmental objectives.
The article also highlights the challenges smaller-scale renewable energy projects face in accessing funding.
“Blended finance is typically for projects with combined developmental objectives, which otherwise do not get funded via conventional financing channels, or for those sectors where the risk-return profile of a project is yet to be established but they need to scale,” said the report’s co-author Vibhuti Garg, Director, South Asia, IEEFA in a release. “Its primary role is to bridge the gap between the level and direction of finance flows required from a social perspective and the flows determined by prevailing market conditions.”
Promote renewable energy
The article emphasizes the transformative potential of blended finance in improving energy access and promoting renewable energy applications, particularly in emerging economies like India.
Report’s co-author, Namita Vikas, Founder & Managing Director, auctusESG, adds: “Blended finance’s bespoke structuring approach, involving public and private capital, addresses the perceived financial risks and thus provides comfort to raise commercial capital at scale. Using blended finance judiciously based on contextual factors would not only facilitate finance for energy transition at scale but would create energy access to millions suffering from energy poverty while enabling a climate-smart planet,” she adds.
The report lays out the structure and benefits of Blended finance and suggests strategies for capital providers interested in financing energy transition projects.
“Blended finance can essentially help pay for positive social benefits by combining commercial borrowings with concessional instruments such as grants or subsidized loans from the government, philanthropic resources, and multilateral development banks,” says the report’s co-author, Shantanu Srivastava, Lead Analyst, Sustainable Finance & Climate Risk, IEEFA.
“At the same time, Blended finance is not a grant and demands reasonable financial returns, even if the desired returns may, at times, vary from market returns,” he adds.
