Engie Chile to pilot monetising the cost of decarbonisation

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IDB Invest is providing $125 million through an innovative financial structure towards the decarbonisation of Chile’s energy matrix.

The funds, with a tenor of up to 12 years, will be used to build, operate and maintain the Calama wind farm with an installed capacity of approximately 151MW, which will be located near the city of Calama in the Antofagasta region in northern Chile.

The project is part of Engie’s energy transformation plan, which, in addition to the successive closure of its coal-fired units, includes building more than 1,000MW of wind and solar initiatives in Chile over the next few years.

The innovation in the deal comes from the structuring of a pilot financial instrument to accelerate decarbonisation activities in Chile, by monetising the displacement of greenhouse gas emissions when closing thermoelectric coal plants early and replacing them with clean technology projects.

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The financial package consists of a $74 million senior loan from IDB Invest, $15 million of blended financing from the Clean Technology Fund and $36 million from the Chinese Fund for Co-financing in Latin America and the Caribbean.

The financing structure establishes a minimum price for the offset emissions by lowering the financing cost in the Clean Technology Fund’s loan tranche. To calculate the cost of the displaced emissions, IDB Invest has developed a methodology tailored made to the project.

The agreement to develop this financial instrument was announced during the United Nations COP 25 event in 2019. It is expected that it will serve as a model for replication to accelerate decarbonisation in other projects in Chile and in Latin America and the Caribbean.

In the event that a regulated carbon market is created during the life of the loan, both the Clean Technology Fund and Engie would share any increase in the minimum carbon price.

Chile’s decarbonisation goal calls for the gradual closure of its 28 thermoelectric plants up to 2040. These plants, which will be replaced by others that use renewable energy, represented 35% of the country’s electricity production in 2020.