The Guaranties Are Intended to Bridge the Gap Between Private Capital and Investment in Renewable Energy and Sustainable Development

HIGHLIGHTS:

  • The Overseas Private Investment Corporation (OPIC) has issued its first "Green Guaranties" to provide financing for a project considered to be in alignment with Green Bond Principles.
  • Under OPIC's Green Guaranties the scheduled interest payments are backed by the full faith and credit of the U.S. government. This backing also helps in reducing the interest rate.

The Overseas Private Investment Corporation (OPIC) has issued its first "Green Guaranties" to provide financing for a project considered to be in alignment with Green Bond Principles.

The U.S. government's development finance arm used its Certificate of Participation (COP) structure to support $47.3 million of private capital raised in the U.S. domestic debt market in September 2014, with proceeds going to the Luz del Norte photovoltaic project now under construction in Chile's Atacama Desert. When completed the plant will be the largest photovoltaic facility in Latin America with a capacity of 141 MW of solar power. OPIC has committed up to $230 million in total financing for the project, including fixed and variable rate direct loans, alongside financing from the International Finance Corporation for up to $60 million.

U.S. Government Backing Serves to Reduce the Interest Rate

Holders of the COPs benefit from the revenue stream generated by the project. In addition, under OPIC's Green Guaranties the scheduled interest payments are backed by the full faith and credit of the U.S. government. This credit enhancement brought the rate on the certificates down to 3.28 percent. The COPs have a 15-year tenor and were sold to private investors.

The COP structure is not new, but this is the first time it has been used by OPIC to finance a project explicitly chosen for its alignment with the Green Bond Principles, a set of guidelines adopted in January 2014 by a consortium of major international banks and capital markets participants.The Green Guaranties are part of a larger effort under way to modify existing financial structures and "bridge the gap" between private capital and the demand for investments in renewable energy and sustainable development.

According to OPIC's President and CEO Elizabeth Littlefield, "This is the kind of innovative, impactful financing that has helped keep this Agency nimble and effective over the past four decades as the world of development finance has been swiftly evolving." The agency has announced it is looking for more opportunities to use its Green Guaranties.