Invest for Climate Action: Views from the Caribbean
Development and Innovation Deetken Impact invests for climate action, seeing an opportunity to anticipate technologies and services that adapt to and mitigate climate change.
Following high profile losses like Pacific Gas and Electric's "first climate-related bankruptcy", more investors are strategically assessing and managing risks related to climate change. At Deetken, we move beyond climate-proofing to investing for climate action, seeing an opportunity to anticipate technologies and services that adapt to and mitigate climate change.
With the Responsible Investment Association (RIA), Deetken convened leading impact investors Fernando Alvarado, CEO of Sustainable Energy Central America (SECA) and Sandra Kwak, CEO of 10Power to discuss climate action through investment in developing Caribbean economies.
The Caribbean offers financially-sound investment opportunities that advance the UN's Sustainable Development Goals (SDGs). Many Caribbean energy markets are reliant on imported fossil fuel, using diesel to generate power. The result is high electricity prices and dirty grids. Investing in renewable energy and energy efficiency can decrease electricity costs (SDG 7 Affordable and Clean Energy), displace high carbon alternatives (SDG 13 Climate Action), improve air quality (SDG 3 Good Health and well-being), and benefit women and girls through job training (SDG 5 Gender Equality).
Experience and relationships maximize impact and returns
Caribbean economies are small. Projects often need to be "bundled" for institutional investors. Some examples from the Caribbean Basin Sustainable Energy Fund (CABEF) include:
- Small-scale solar rooftop systems for Dominican Republic commercial customers aggregating 12MW. This change is expected to displace 120,000 tons of CO2 over 10 years.
- Hybrid power for Honduras telecommunications towers. This is expected to displace 150,000 tons of CO2 over 10 years, increasing reliability and reducing customer costs.
- Energy efficiency solutions and equipment upgrades in Trinidad and Tobago. These are expected to displace 30,000 tons of CO2 over a decade, reducing customer energy bills by 5 to 15%.
Developing relationships leading to serial investment opportunities helps to scale the effort required to make opportunities investment-ready. It's also crucial to identify strong local partners for environmental and social risk assessment. Not all renewable energy projects have the same impact, and some can have negative impacts. Experienced investors should apply international best practices to manage these risks.
Blended finance allows more diverse investor participation
Sandra Kwak is building a solar development business in Haiti. She was drawn to work in the country to demonstrate solar's compelling investment case as it is economically-viable, unsubsidized, and available in virtually all markets.
10Power exemplifies how blended finance creates sustainable businesses. Kickstarted with grants and soft loans (i.e., loans with flexible terms or a lower interest rate), 10Power secured its first major client, a UNICEF flagship installation. Now it has a project pipeline of 50MW — representing $100 million — and is poised to raise its first commercial capital.
Blended finance absorbs business risks, unlocking private sector capital for investment. The Honduras Renewable Energy Financing Facility (H-REFF), which co-invests with CABEF, benefitted from blended finance innovation with a $5 million "first loss" investment from the Scaling-Up Renewable Energy Program on Low-Income Countries (SREP), a Strategic Climate Fund program. H-REFF also received a technical cooperation facility from the Inter-American Development Bank (IDB) to incubate opportunities for commercial investment.
Diverse investors commit capital for Caribbean climate action, including development finance institutions, foundations, family offices, and individuals. However, the next wave of capital is expected to come from mainstream investors including pension funds, insurance companies, and listed investment vehicles. Ultimately, the Caribbean region offers a rich set of opportunities for knowledgeable and experienced investors to obtain market returns while enhancing global climate resilience.