This working paper (see end of text), co-produced by the Climate Compatible Growth (CCG) Programme and the Green Grids Initiative (GGI), highlights the important role that climate finance needs to play in the scale up of grid investment required to support a global clean energy transition. By climate finance, we refer to both the designation of investments as such by International Finance Institutions (IFIs) and to the dedicated climate funds that can be used for concessional finance.

A challenge for IFIs, including those focused on development finance, and other funders has been to identify which types of grid infrastructure investments should be counted as eligible for climate finance. Given the many challenges already facing grid investment, particularly in Emerging Markets and Developing Economies (EMDEs), approaches used to determine climate finance need to help not hinder further investment.

In this paper, members of the GGI Finance Working Group reflect on the approaches used to determine climate finance based on 2-3 years of experience. Firstly, it highlights the need for the development of guidelines that enable climate funds to release concessional finance, to help improve economic viability of investments in EMDEs. With such funds required to identify emission reductions from any finance provided, the paper argues for a modelling-based approach to enable estimation, with potential monitoring afterwards to ensure outcomes as projected.

Secondly, for other organisations using established approaches such as the EU Taxonomy and Common Principles, a number of proposed changes are suggested. This is to ensure that IFIs and other organisations are better able to designate projects as climate compatible, making them more investable as the finance community moves to target more climate friendly investments.

This paper follows an earlier working paper Climate Finance for Grid Investments in Emerging and Developing Economies paper published in October 2021, in collaboration with the Green Grids Initiative (GGI) Finance Working Group.