Albion Capital has received a grant from Convergence, a global network for blended finance, to develop a new Green FIDC, a 2016-2017 Lab Instrument. The proponent has already launched a successful pilot in the residential solar market in Brazil and has a project pipeline of close to BRL 1 billion. The instrument bridges the gap between green projects and the Brazilian capital market. Albion developed the mechanism within the Brasil Innovation Lab for Climate Finance, which was endorsed by the Lab in 2017. From Convergence’s press release:
Toronto, 24 July 2019 – Convergence has awarded a Design Funding grant to Albion Capital and Climate Policy Initiative (CPI) to develop a Green FIDC (Portuguese for Green Receivables Fund) for green projects in Brazil.
The Green FIDC builds on a Brazil-specific instrument, the Fundo de Investimento em Direitos Creditórios (FIDC), which is used by companies to raise capital by securitizing receivables through asset-backed securities.
Green projects – in particular renewable energy and energy efficiency projects – are a crucial component of Brazil’s 2030 climate goals. The country aims to increase energy efficiency by 10% and for non-hydro renewables to account for 23% of total power generation. At the same time, the recent economic recession and fiscal restraints have led the Brazilian National Development Bank (BNDES) to dramatically reduce lending to the sector by 63%, resulting in a significant gap in low-cost and long-term financing for green projects.
The Green FIDC mechanism raises funding for projects in two stages. First, capital is raised in a mezzanine tranche from public funders, such as multilateral development banks, to finance the construction and development of green projects. Then, once underlying projects are operational, they are refinanced through the issuance of senior tranches in the Brazilian capital markets to local private sector investors. In this way, the Green FIDCs disintermediates access of green projects to Brazilian capital markets, which can reduce the cost of capital and facilitate long-term financing. A pilot Green FIDC in the residential solar market has been progressing successfully, and Albion and CPI have a project pipeline of close to BRL 1 billion.
“The Green FIDC has been attracting interest from private sector investors as much as from concessional investors – as we could see in the development of the first securitization in the rooftop solar market. We expect this instrument to become an efficient climate finance solution for developers – bridging the gap between green projects and Brazilian capital markets,” said Paulo Todaro, Managing partner of Albion Capital.
In 2017, the concept was selected for development by the Brasil Innovation Lab for Climate Finance, a regional program of the Global Innovation Lab for Climate Finance, with CPI serving as secretariat and analytical provider for the global and regional labs.
“The Green FIDC offers an important way to channel deep private capital to emerging green sectors in Brazil, through the established Brazilian FIDC mechanism. The Brasil Innovation Lab for Climate Finance is proud to have selected and supported the Green FIDC as an innovative and catalytic solution for climate investment. In five years, the Lab’s global programs have helped launch this and 34 other finance solutions, which collectively have mobilized US$ 1.9 billion to date”, said Barbara Buchner, Executive Director of Climate Policy Initiative and Secretariat of the Lab.
Convergence’s Design Funding will be used to develop a new Green FIDC and to support the research, structuring, and fundraising activities required to bring renewable energy/energy efficiency projects to the Brazilian capital markets.
“What attracted us to this concept was how Albion Capital adopted an instrument already familiar to Brazilian investors, the FIDC, and applied it to green projects for the first time,” says Joan Larrea, CEO of Convergence. “Making it possible, through blended finance, to attract local institutional investors in Brazil, not only a large financial market but also a critical geography, into climate-related projects.”
Convergence is the global network for blended finance. We generate blended finance data, intelligence, and deal flow to increase private sector investment in developing countries. The Government of Canada provided funding for the Design Funding program. Convergence is currently seeking additional funders interested in supporting us to pilot new blended finance vehicles that aim to catalyze private capital at scale for sustainable development.
About Albion Capital
Albion Capital is an investment management boutique focused on Private Equity and Structured Finance. Albion developed the Green FIDC/Green Securitization concept – endorsed by the Brasil Innovation Lab for Climate Finance in 2017 and by the P4G Copenhagen Summit in 2018. Albion has been leading two securitization projects – using the Green FIDC concept – in the solar distributed generation market in Brazil.
About Climate Policy Initiative
With deep expertise in finance and policy, Climate Policy Initiative is an analysis and advisory organization that works to improve the most important energy and land use practices around the world. Our mission is to help governments, businesses, and financial institutions drive economic growth while addressing climate change. CPI has six offices around the world in Brazil, Europe, Kenya, India, Indonesia, and the U.S. CPI serves as the Secretariat and analytical provider for the Global Innovation Lab for Climate Finance, and its regional programs in Brazil and India.
Convergence Blended Finance
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