Infrastructure

The landscape of infrastructure project financing has undergone significant changes in recent years. Stricter regulations for Independent Power Producers (IPPs) have rendered traditional financing models less attractive, and a decline in participation from medium-sized IPPs has further limited options. BIO's project size limitations have also restricted its involvement in large clean energy projects. The department faces increased competition from other impact investors with deeper pockets and access to blended finance tools. Investors are grappling with additional burdens such as withholding taxes, local currency depreciation, and rising interest rates which threaten project viability. Local Currency Power Purchase Agreements remain problematic in certain countries, and high legal costs associated with non-local legal frameworks add further complexity. Finally, dependence on public subsidies introduces an element of political risk in some projects.

To navigate this new reality, the Infrastructure department must embrace blended finance to offer more competitive solutions. Exploring partnerships with other DFIs for co-financing opportunities can leverage combined resources and expertise. Streamlining internal processes can expedite project approvals and improve efficiency. Finally, advocating for policy changes that incentivise private sector participation in renewable energy is crucial for long-term sustainability.