Risk addressed: Credit risk

Lack of access to affordable financing, and the ability to pay high upfront costs, is a major impediment to improving energy end-use and efficiency across the developing world. This case study highlights how bundling projects helped address credit risk in the residential solar PV sector in Mexico, enabling households to access to low-emissions solar PV solutions. The project was one of the first debt financings of a portfolio of distributed residential solar assets in Latin America. 

Investment in residential solar PV solutions in Mexico was limited in 2015 as the enabling regulation was only a few years old and the developer ecosystem was small and fragmented. It was hard for households to cover the upfront investment costs, or to access financings, as they sometimes had low or inexistent credit histories.

To address this barrier, IDB Invest (the “private arm” of the Inter-American Development Bank) provided a 13-year local currency credit facility of approximately USD 15 million, including a MXN 228.4 million (Mexican pesos) IDB loan (approximately USD 12 million at the time)1 and an MXN 114.2 million (approximately USD 6 million) equivalent USD loan from the Canadian Climate Fund for the Private Sector in the Americas (C2F). The funds were intended to finance both the existing portfolio and origination of new residential subprojects, supported by a partial liquidity and credit guarantee from the Clean Technology Fund (CTF).

The CTF guarantee and the concessional pricing of the C2F loan provided the credit enhancement necessary to close the financing at a volume and terms not available in the commercial market at the time, with the expectation that the portfolio would develop into a performance benchmark eventually leading to issuances of aggregated residential solar portfolios in the local capital markets. The final portfolio is expected to comprise of approximately 9 MW of generation
capacity, inject 178 GWh of clean energy into the grid, abate approximately 5 700 tCO2/year, and to shave 20% to 27% off the energy bills of residential customers.

Furthermore, the C2F loan includes a gender performance-based incentive mechanism to encourage the participation of women in non-traditional roles. It also included incentives for recruitment objectives for female undergraduates in technical roles with the project sponsor company, which led to a significant increase in the employment, retention, and promotion of women in a fast-growing firm.

At closing, the project was one of the first debt financings of a portfolio of distributed residential solar assets in Latin America, and the first for IDB Invest, helping to support a new asset class.