NDF Newsletter 2/2015

NDF NEWS

www.ndf.fi 2/2015

A NEWSLETTER FROM THE NORDIC DEVELOPMENT FUND

AFP/Lehtikuva

The citizens of Dakar try to keep their belongings dry during the flooding season.

Protecting cities against climate change threats

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n most days of the year, the streets are dusty and dry. But when the rains come in Dakar, they come with a heavy force.

Grey waters flood the alleys.

Diseases spread and buildings are swamped.

Business slows down. The authorities of Senegal have tried their best to control the regular malaise but their resources are thin.

NDF is one of the institutions contributing to the financing of the flood risk management programmes in Senegal.

NDF and the World Bank have together supported the efforts that are designed to improve drainage and flood prevention systems on the outskirts of Dakar, the capital city. In May the NDF board approved an additional EUR 4 million for the project that is supporting climate resilient urban planning and management in two smaller cities, Diamnia-

dio and St Louis.

“The ultimate objective of the programme is to promote climate-resilient cities for the benefit of local residents in Senegal,” says Martina Jägerhorn, a country programme manager for NDF. The programme is called Senegal Flood Risk Management and its first phase was launched in 2012. At the end of last year, approximately 150 hectares of flood-prone areas and 41,000 residents had been protected from recurrent floods and storm surges. The new activities will include studies on flooding risks and coastal zone instability threats.

The opportunities for private sector involvement will be also explored. According to Martina Jägerhorn, Nordic municipalities and private companies have developed a lot of competence and resilience solutions with regard to green planning and flood control.

“These solutions may be relevant in Senegal too,” she says.

PROJECT

×× Senegal Flood Risk Management ×× Implementation period 2013-2019 ×× NDF additional financing EUR 4 million ×× Total additional project cost EUR 39 million

ALSO IN THIS ISSUE

×× Geothermal challenge of East Africa ×× NCF assessed on Nordic study ×× Growing the green finance network in Africa ×× Road resilience developed in Cambodia

ICEIDA

Know where you drill Geothermal exploration in East Africa is a risky business.

If Nordic partners can help to prevent a single failed well, the entire cost of the project may be recouped.

Reconnaissance efforts reduce drilling risks. However, the potential of the resource can never be known for sure before putting the drill into the ground.

t is a game of chance. High upfront investment costs, high-risk drilling and many years of patience required from development to production means that there are not too many commercial investors in the geothermal energy business in East Africa.

But the big opportunities may be there, steaming deep down under the East African Rift. According to the market estimates, the region’s geothermal potential could be up to

14,000 megawatts.

“The governments in the area are very constrained financially and have difficulties putting funds aside for geothermal exploration studies,” says Engilbert Gudmundsson, the Director General of the Icelandic International Development Agency (ICEIDA). “We can help them to the point where they can get financing for the exploratory drilling stages.”

ICEIDA and NDF are working togeth-

er in a joint project with the objective of accelerating geothermal development in the East African Rift countries. The partnership is called The Geothermal Exploration Project and is focused on the initial stages of geothermal reconnaissance and surface exploration, aiming to identify potential drilling targets and minimize drilling risks. The project also intends to increase local knowhow through capacity building and knowledge sharing in the region.

strument which tries to combine forces and build partnerships between Nordic countries and their partners in the developing world. NCF is financed by NDF and administered by the Nordic Environment Finance Corporation (NEFCO).

The Nordic Council study concluded that NCF is an important enabler of climate projects, mobilising private finance, reducing financial risk and helping to prove the viability of projects.

NCF has gradually succeeded in increasing the share of private sector investment in the projects, achieving approximately 50% of the total project costs.

All NCF projects studied have, according to the Nordic Council report, tmanaged to combine development and climate benefits. The report concludes that NCF can be showcased as a Nordic example of best practices. The specific features of technology development and private sector financing can

be brought up in future climate negotiations.

However, there is still room for improvement. The study underlines the fact that even greater private sector involvement is needed, and calls for better coordination between the export promotion of clean technologies and climate financing. Thematic silos create barriers for providing holistic support to individual projects.

The key challenge identified in the report was the need to scale small projects into larger programmes. Bridges between bottom-up smaller projects and international top-down programmes should be established – and addressing this need should become a central theme for Nordic climate finance institutions.

When established, these bridges may enable the growth of best practices, a more efficient use of resources, better business for the private sector and smaller emissions for the planet.

I

Bridge needed from roots to expansion NCF case study encourages projects to scale-up.

AN AMBITIOUS and globally binding climate agreement in Paris is one of the key challenges the international community needs to address this year. All we need is a fair deal, but that seems very hard to reach.

This is the background for the recent analysis commissioned by the Nordic Council of Ministers. The analysis focused on the Nordic climate finance landscape and chose the Nordic Climate Facility (NCF) as a case study.

NCF is a Nordic climate finance in-

Engilbert Gudmundsson is the Director General of ICEIDA.

Together, the Nordic partners have budgeted 10 million euros for this project.

On an African scale, it is quite a small sum of money, but it is filling an important need.

Gudmundsson estimates that the leverage potential this project creates will be big.

“We are confident that our 10 million will ultimately help generate hundreds of millions of euros of investments, probably in the range of 500-600 millions.”

Operations in eleven countries

The energy infrastructure is crucially important for the social and economic development of all countries. Energy powers water pumps, cools freezers, lights streets and homes in the evening and runs the engines of industry day and night.

Power generation in East Africa relies heavily on imported fossil fuels which are expensive and polluting. Current energy production falls short of demand and there is a strong need for locally produced renewable energy. Great geothermal reservoirs

are difficult to discover but once harnessed for power generation they are cheaper to run and more reliable than other renewable sources such as wind and even hydro power.

“One well can cost between USD 5 and 10 million to drill,” explains Gudmundsson. “If we can prevent a single failed well, the entire cost of our work may be recouped. The logic is almost the same as in oil drilling. You need to know a lot about the earth to make qualified proposals for potential drilling targets.”

The Geothermal Exploration Project has ongoing or planned activities in eleven countries from Eritrea in the north to Malawi in the south.

Geothermal energy has already raised a lot of expectations to East Africa. Kenya now generates about 600 megawatts – half the power of one modern nuclear reactor – but it aims to reach 4,000 megawatts. Ethiopia has just started but it plans to base its industrialisation on the baseload energy provided from geothermal. Eritrea, Djibouti and Tanzania each have probably the potential for hundreds of megawatts.

Gudmundsson notes that in some places the projections have almost grown too big.

“All countries in the area have been tempted to say that they have a lot of potential, but it has to be kept in mind that this potential is different in the eastern and western Rift. In the eastern Rift Valley, there is massive potential for electricity generation but in the west we can expect temperatures that are generally much lower.”

Gudmundsson says that high temperatures are essential for the large scale electricity production. However, the lower temperatures can be utilised directly in rural areas for the drying of food items such as tea, coffee, maize and fish, and also for growing flowers, fruits and vegetables in greenhouses. ICEIDA has commissioned a feasibility

study to explore these kinds of opportunities in the context of East Africa.

The project has also started another study on the potential of geothermal binary power plants in the lower temperature regions.

The binary technology allows for the production of electricity from resources that could otherwise not be used for such a purpose, typically at reservoir temperatures between 100°C and 200°C.

The need for help will increase

ICEIDA is the lead agency in the Geothermal Exploration Project, supported by the significant geothermal experience of Iceland and the cooperation with the World Bank.

There is still a long way to go before geothermal and other renewables can bring about the big boost for the economy of East Africa. The need for the assistance remains for the foreseeable future.

“We learn with every project and we know that the needs of the poorest countries will increase,” Gudmundsson says.

The director general of ICEIDA is very satisfied with NDF’s co-operation. He says that the partners share ideas, think alike on most issues and build their decisions on the same values.

“There is increasing evidence that our efforts will produce very real results. Hopefully, in the next few years we will see the first megawatts come online resulting from these efforts.”

PROJECT

×× Geothermal Exploration Project ×× Implementation period 2013–2017 ×× NDF financing EUR 5 million ×× Total financing EUR 10 million ×× Lead agency: ICEIDA

Growing the green finance network in Africa THE ANNUAL GENERAL MEETINGS of the African Development Bank (AfDB) took place in Abidjan at the end of May and marked the bank’s 50th anniversary as well as the occasion of the election of a new president. After six rounds of voting, outgoing Nigerian Minister of Agriculture ­Akinwumi Adesina was elected as the bank’s next president to start in September.

A team from NDF participated in the assembly as observers and conducted sideline meetings with counterparts from the bank to catch up on the status of joint projects and identify entry points for new collaboration.

“Meetings were extremely positive,” said Pasi Hellman, NDF Managing Director, and “showed that climate change adaptation and mitigation are high on the agenda

of the AfDB and being explored in a variety of ways by a mix of stakeholders across the bank.”

“We have a clear way forward,” he added, “on a number of new opportunities for the two institutions to strengthen collaboration, particularly in the area of green finance, where NDF can leverage experience and lessons learned from our projects in Latin America.”

During the course of the visit, NDF also took a practical step toward broadening the green finance network in Africa by signing a Memorandum of Understanding with the African Guarantee Fund (AGF). AGF was established by the AfDB together with the governments of Denmark and Spain in 2012 to catalyse lending to African SMEs through the provision of partial finance guarantees

and capacity development to financial institutions.

Over the coming months, the two institutions will explore opportunities for enabling increased lending to African SMEs working on adaptation and mitigation to climate change. After the signing, Felix Bikpo, the AGF CEO, said, “This signing is a first of its kind for AGF, and we are glad to empower SMEs involved in addressing climate change.”

Summing up the visit, Hellman said, “The range of opportunities and quality of discussions we saw suggest that we can be selective in co-investments with our big bank partner to achieve leverage, additionality and impact for NDF funds.”

“Looking ahead,” he added, “we plan to be back in Abidjan very soon.”

MRD

Road resilience developed in Cambodia

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mproved planning and engineering will be needed in South East Asia for the stability of the road network, which is vulnerable to flooding. The Nordic Development Fund (NDF) has provided a grant of more than EUR 4 million to the Ministry of Rural Development (MRD) of Cambodia to reduce this vulnerability to climate change impacts.

The climate change adaptation (CCA) activities are an output of the Asian Development Bank-financed Rural Roads Improvement Project (RRIP), and co-financing from NDF is allocated to implement the CCA output. The overall focus of RRIP is on road rehabilitation, road asset management and improved road safety measures.

The CCA output has produced novel and promising results, ranging from the preparation of vulnerability maps to the training of local professionals (including MRD officials) and tree planting.

“Trees planted along road embankments will slow down the erosion of roads,” says Stefan Ekelund, Team Leader for CCA output from SweRoad, a state-owned transport consultancy company managed by the

The Cambodian Minister of rural development Chea Sophara (foreground) presided over a tree planting ceremony in May. Swedish Transport Administration.

“The tree roots draw off water, thus reducing the damage caused by flooding. The planting and maintenance of young trees provide job opportunities for local women, and later they can use the fruit and the timber for their benefit.”

According to Ekelund, the output has improved the planning for rural road development and increased its resilience to climate change. There will also be important pilots testing the early flood warning system included. The lessons learned through the output will be used in the design of new roads and the maintenance of existing ones.

NDF reviewed the planned activities under the CCA output in May 2015 together with the ADB. The deputy director of NDF, Leena Klossner, personally grabbed a shovel and planted a mango tree in the ceremo-

ny that was organised by MRD and presided over by the minister, H.E Chea Sophara.

In his speech, the minister requested that residents actively participate in planting and maintaining the trees, as they will provide them with an income and protect the road that serves the community.

“I was really impressed with what I saw,” Klossner says. “We are on the right track in Cambodia.”

PROJECT

×× Rural Roads Improvement Project ×× Implementation period 2011-2015 ×× ADB financing USD 35 million ×× NDF financing EUR 4.2 million ×× Korean Exim Bank financing USD 21 million ×× Royal Government of Cambodia financing USD 6 million ×× Total project cost USD 67 million

IN BRIEF CLIMATE CHANGE has been recognised as a threat to the public health of citizens of the Greater Mekong subregion. Rising temperatures and changing rainfall patterns are sparking a surge of malaria and dengue fever in the region.

To mitigate this problem, the Asian Development Bank (ADB) has pioneered a new initiative which offers technical assistance for co-operation between regional research institutions and authorities to build science-based knowledge and data on climate threats.

The project is financed with a grant of EUR 4 million from NDF and is administered

by ADB, with in-kind counterpart support from the governments of Cambodia, Lao PDR and Vietnam.

STRONG INTEREST continued when the To date, NDF has approved EUR 26 million for Nordic Climate Facility opened its fifth call the five financing rounds of NCF. related to climate resilience in urban and private sector contexts. NCF received a NDF HAS JOINED the group of internationtotal of 65 applications for this financing al financing institutions which tries to harround. Thirty of them were shortlisted to monise GHG accounting. submit their final proposal.

There are many benefits in harmonised “There are many interesting and inaccounting, such as improved consistency novative ideas, especially on the MORE INFO and comparability. This is expectthemes of urban agriculture and www.ndf.fi ed to lead to increased levels of rewater harvesting,” says Hannu Eeliability. Sharing and learning will rola, the NDF country manager who has anbe easier and more efficient. alysed the applications.

The NDF partners in this effort include The maximum amount of finance prothe African Development Bank, the Asian vided by NCF will reach EUR 500,000 for Development Bank, the Inter-American Deeach project. A co-financing share of at least velopment Bank, the World Bank Group, the 20% is required from the partners. The winNordic Environment Finance Corporation ners of this call will be decided in June 2015. and the Nordic Investment Bank.

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