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Design of Transforming Island Development through Electrification & Sustainability (TIDES) Fund

Overview: Convergence awarded a feasibility study grant to Camco Clean Energy (Camco) for the design of Transforming Island Development through Electrification & Sustainability (TIDES), a developer-focused structured debt and equity fund to finance renewable energy projects in the Pacific.

Of the 16 Pacific Island nations, 10 use diesel for more than 80% of their electricity generation, which is inefficient, expensive, contributes to climate change, and produces air pollution that negatively affects health in the region. Additionally, countries in the Pacific must import their fuel from abroad, which further increases fuel cost, exposes them to oil price fluctuations, threatens supply chains, and places strain on national foreign currency reserves.

Convergence’s grant will enable Camco to explore the feasibility of structuring a $ 50 million fund to partner with local developers in the Pacific and finance a portfolio of different types of renewable energy projects, including: grid connected independent power production, commercial and industrial projects for enterprises, and mini and micro-grid projects for off-grid communities. The fund seeks to provide access to clean and affordable renewable energy to households in the Pacific including unserved communities who would receive first-time access to electricity.

Design question and learning potential for the market:How can a developer-focused fund be structured to attract investment to an aggregated portfolio of different types of renewable energy projects?

During the feasibility study, Camco will develop the structure and operational process of this mechanism. Based on prior vehicles implemented in Sub-Saharan Africa, Camco intends to design this fund for the Pacific context. Deploying private capital to fund renewable energy in the Pacific has been a challenge due to the small size of projects and markets as well as the high perceived investment risk. As part of the feasibility study, the fund will explore setting-up special purpose vehicles with vetted renewable energy developers, to provide them with readily available financing for developing a portfolio of projects. A portfolio of multiple renewable energy projects that are aggregated at a developer level would reduce transaction costs for financing individual projects and diversify risk across different types of projects. The aim of the structure is to expand renewable energy opportunities for developers, through the aggregation model, which enables developers to build and operate more renewable energy assets.