Finland to make substantial climate investments in Senegal and Nepal

Ministry for Foreign Affairs 8.4.2019 14.42
News item

Finland will be investing a total of more than 20 million dollars in solar and hydroelectric power in the poorest countries in the world. The power plants to be built in Senegal and Nepal will open the way for commercially viable and emission-free energy production and the eradication of energy poverty.

The new investments in hydroelectric power in Nepal and solar power in Senegal will be made from the Finland-IFC Climate Fund. The fund’s investments are decided by the World Bank Group’s private sector financier International Finance Corporation IFC, based on terms and conditions set by Finland.

“The projects serve to open new paths towards a future of lower emissions, and they were made possible with Finnish funding. Over the longer term, these kinds of projects can be carried out with fully private funding,” says Nina Kataja, Senior Adviser for Development Policy for the Ministry for Foreign Affairs.

The 13.1 million dollar capital investment in Nepal will cover a 218 megawatt hydroelectric power plant to be built in the Trishuli River. The plant will be significantly larger than the biggest one in Finland, the Imatrankoski Power Plant (192 MW). It will also be one of the largest foreign investments in the history of Nepal. Upon completion, the power plant will increase on-grid energy production in the country suffering from an electricity shortage by one-third of the current level.

“In Nepal, you can’t go anywhere without hearing the constant din of diesel generators. The capital Kathmandu is often covered in sooty smog which exacerbates climate change. Soot is generated from cooking with an open fire in the absence of electricity, for example. The hydro power plant can bring about a considerable change, once the distribution begins to run smoothly,” says Antti Rautavaara, Senior Water Adviser for the Ministry for Foreign Affairs, who used to live in Nepal.

The new power plant will be a “run-of-the-river” plant, which does not require a dam. The environmental and social impacts of the project have been analysed extensively. As an example, the country’s first process involving the Free, Prior and Informed Consent (FPIC) of indigenous peoples in the river delta area has been conducted.

The most affordable electricity in Senegal

The investments in Senegal amount to 7.4 million dollars and will be provided as loans. They will cover two solar parks, with a total power capacity of 79 megawatts. Like Nepal, Senegal is among the least developed countries (LDC) in the world. The gross domestic product per capita is one-thirtieth of Finland’s GDP, yet electricity is more expensive in Senegal.

Even with taxes and the much-maligned increased distribution fees, Finns pay 12–18 cents per kilowatt hours for their electricity. The average resident of Senegal has to pay 17 cents for a kilowatt hour.

In truth, the cost of energy production in Senegal is even higher than the consumer price, which is why the national energy company takes a loss for every kilowatt hour produced. The steep price is due to the fact that energy is primarily produced from heavy fuel oil and diesel. The Senegalese power company will be able to purchase the energy from the solar plants at a record-low price.

Massive indirect development impacts

The two solar power plants to be constructed in Senegal are estimated to reduce carbon dioxide emissions by 89,000 tonnes a year until 2044. This equates to the annual emissions of 8,640 average Finns, i.e. the emissions of the entire population of Sodankylä or almost the entire population of Karkkila.

“This investment will pave the way for a market-driven shift of Senegal’s energy market away from fossil fuels, because the price of solar power will settle at a fraction of the cost of fossil energy. This means that the emission cuts will gradually begin to correlate with much larger Finnish populations,” says Henri Horn, Senior Energy Adviser for the Ministry for Foreign Affairs.

Moreover, in the context of both the Senegal and Nepal projects, the indirect and later positive effects of the power plants will be even more significant. In principle, both countries are also well equipped to increase emission-free energy production.

The World Bank estimates that the world’s highest mountains would enable Nepal to increase the production capacity of hydroelectric power by 43 gigawatts in a financially profitable manner. This corresponds to 196 power plants of equal size than the one to be constructed in the Trishuli River. Similarly, Senegal’s location between the Tropic of Cancer and the Equator means that the country gets 2,000–3,000 hours of sunshine a year.

Both projects are the first of their kind: the project in Nepal is the first hydroelectric plant of its size to be built in the country with international funding, while the solar power plants will be the first ones to come from an international competitive bidding process. This makes the projects more expensive and risky than usual. In Nepal, for example, the project will involve coming up with a way to build a large yet earthquake-resistant power plant for the first time.

“Even though the Finnish investments only cover a portion of the capital required for the projects, it is safe to say that they are much more significant than the size suggests,” Nina Kataja says.

The funding provided by Finland will be concessional: for example, loans granted from the Climate Fund can have lower interest rates and longer payment periods than other project loans. The affordability of the funding will open up the markets and make it easier to find capital targetting higher and faster profits for pioneering projects of this kind, enabling public and private capital to be funnelled towards investments that mitigate climate change.

IFC, which manages the Finnish Climate Fund, will also invest its own funds as well as other funds under its management in the Nepal and Senegal projects. The company will also put together the funding required outside the projects.

 

Investing in international climate efforts
  • Finland will be channelling a total of 114 million euros into the Finland-IFC Climate Fund, which was established in 2017. The investment is the most significant one Finland has ever made in international climate efforts.
  • Before the Nepal and Senegal projects, the fund has invested 3 million euros in a large collection of wind power projects spanning a total of nine African nations. IFC will be investing the remaining 83 million euros by the end of 2022.
  • The fund’s term of operations is 25 years. After this, IFC will return the invested funds to Finland along with any possible profits. The repayment and profits depend on the success of the investments.

 

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