Last month, OPIC approved nearly $500 million for five renewable resource private equity funds, easily surpassing a pledge OPIC President and CEO Elizabeth Littlefield made at the 2010 U.N. Climate Change Conference, to provide at least $300 million for private equity investment in renewables. The five funds, which were selected from 56 funds that responded to OPIC’s call for proposals, span a broad range of industries and regions, from renewable energy generation and recycling in Southeast Asia, to food production in Africa.
Read more about how the final five funds were selected.
There was a great level of interest in this call for funds. What criteria did OPIC use to judge these responses and narrow the field?
OPIC worked with an investment consultant to evaluate the responses, which were judged on multiple criteria, including the credibility and thoughtfulness of the proposal, the clarity of the fund manager’s investment strategy, and the fund’s track record in emerging markets. We also wanted funds that focused more on growth or expansion rather than seed or early-stage investments.
OPIC has placed a priority on investing in Africa, South Asia and the MENA (Middle East/North Africa) region, and gave some preference to funds focused on those areas, although we also strongly considered proposals focused on other regions as well.
The term renewable is often associated with energy, yet two of the five funds OPIC approved (the African Agriculture Fund and the Silverlands Fund) are focused on food production. Explain why food and food security are key parts of the renewables sector.
When OPIC issued the call for funds, it defined renewable resources in the broadest sense, to include renewable energy, resource efficiency and preservation of scarce natural resources such as water, land and forests.
If you think of the ways to produce better and more food, it is important to make sure there is less waste and more efficient transportation of products. One of the agriculture funds we invested in, the African Agriculture Fund, is investing along the whole food value chain, from farming to storage, processing and distribution to improve efficiency. The Silverlands Fund is focused more on the upstream side, on modernizing farming techniques with targeted investment in food staples like grains, fruits and vegetables. This fund also invests in a system that promotes cooperation among small community farms and larger commercial farms. All of this is important to increasing farming yields and ensuring efficient use of limited agriculture resources.
Todd Stern, U.S. Special Envoy for Climate Change, described OPIC’s financing of these funds as “exactly the kind of public-private collaboration we need to get significant clean energy funds flowing to developing countries. Why is private investment so critical to promoting renewable resources and what is the value of public-private collaboration?
It is important for a number of reasons. There may not be sufficient funding available from the public sector and a public-private partnership can bring commercial expertise to those in the public sector. It can also provide different sources of capital such as debt and equity, and can help catalyze further new investments and new businesses.
What are some of the challenges developing nations face in adopting renewable energy?
They need to have regulations and incentive schemes in place: that is needed just to have the wherewithal to promote renewable energy. Incentives can also help to subsidize the cost of the upfront investment. It also helps to have specific goals. Many developing countries have realized the need to have specific goals for adopting renewable energy, and many have quantified these goals.