IFC works to do more than keep the lights on in Brazil

By Miguel Toledo and Kimberley Dewhirst

Electricity blackouts in the southeast of Brazil at the beginning of November – some of which lasted for more than 50 hours – highlighted the growing need for electricity network resilience in the face of the increase in the frequency of severity of climate-related events.

Over the past year IFC has been working closely with distribution companies in Brazil to boost the capability and resilience of the energy network. Not only does the financing of companies such as Coelba and Elektro help to meet country targets regarding climate adaptation, but these partnerships are also delivering positive climate mitigation impacts, social (including gender) benefits, as well as simply providing energy companies with important corporate finance during a time of stress in the markets for bank debt, as well as the local debt capital markets.

Capex catalyst

Regulatory incentives in Brazil have been an important catalyst in requiring Brazilian distribution companies to generate new capex programs. There have been additional requirements for these companies to improve the efficiency and resilience of their distribution grids, and to improve access and reliability of the network. The companies also need to expand their transmission and distribution capacity, to enable third party renewable energy companies to ‘plug-in’ clean generation, which leads to higher capital requirements to deliver these system upgrades.

IFC has grasped the opportunity to partner with these companies to deliver not only the financing capacity, but also to structure this debt through structures that incentivize the completion of sustainable development targets. ?In terms of climate, these programs boost adaptation by creating a more robust grid: digitalization means outages are more easily localized – preventing widespread blackouts – and enabling a quicker restoration of power throughout the network. This boost to resilience also blends with the greater renewable power transmission capability to help reduce GHG emissions, and thereby mitigating climate change.

Timelines for both climate change mitigation and adaptation implementation are becoming so tight that avoiding any slippage on capex programs is critical. IFC’s counter-cyclical role in Brazil was evident during the 2022 and 2023 period as access to local capital markets slammed shut for many companies and banks. These became increasingly cautious due to high-profile bankruptcies and stepped back from corporate lending. The ability of IFC to step in – with its private sector partners – and keep liquidity flowing to this sector will be, in many cases, the difference between hitting timelines and having to scale back the ambition for improving network effectiveness.

Sustainably finance

By delivering the financing through sustainability linked loans, which include Sustainability Performance Targets (SPTs), for example those linked to improving the proportion of female electricians employed by the distribution company, IFC is leveraging the power of its lending portfolio to improve social employment dynamics.

IFC is also delivering network improvements elsewhere in Latin America. This strategy for delivering capital to energy companies that directly generates climate and social improvements could be easily replicated throughout Latin America and the Caribbean.

IFC’s track record of providing counter-cyclical financing to generate such climate and social benefits is just one strategy being employed to boost the effectiveness and robustness of the region’s transmission and distribution system. We are also working to innovate in the distributed generation space, which will help reach more efficiently and affordably small SMEs and residential consumers. Today we are working hard on closing the financing of such projects, which will provide IFC with its next phase in sector evolution and modernization, and we look forward to bringing you the details of these shortly.

Miguel Toledo is Chief Investment Officer for Infrastructure and Energy at IFC

Kimberley Dewhirst is Senior Energy Specialist at IFC