Published on November 28, 2023

Catalytic Investment to Leverage Private Capital is the New Wave of Development Finance. The Example of Uruguay´s Renewable Energy Innovation Fund (REIF)

Overseas Development Assistance (ODA) is falling short to realise the 2030 Agenda for Sustainable Development. Despite the fact that ODA rose in real terms to its highest level in 2021 and 2022, it was largely driven by the response of the donor community to the COVID19 pandemic and Russia´s invasion of Ukraine. Prior to these two global crises, the financing gap to achieve the SDGs in developing countries was estimated at US$2.5 trillion. As things stand today, the annual investment requirements to achieve the SDGs is around US$5-7 trillion. Even an extraordinary ODA push will not be sufficient in addressing this growing financing gap.

Unlocking private sector investment is critical for the realisation of the SDGs. Leveraging private investment is the present and future of development assistance as long as it serves two purposes: making good business sense for investors and having a developmental impact on people and the environment. Catalytic investment, through instruments like blended finance, is a new financing model through which development finance mobilises public and private sector investments. The mix of development, public, and private capital into one ´fund of funds´ can help mitigate private investors´ concerns over lack of business opportunities and high investment risks. 

The Joint SDG Fund, through its initial portfolio of catalytic financial instruments, has opened new opportunities for private investors to access concessional capital, hence unlocking a massive potential to redirect private financing toward the development sector. Blended finance instruments and supporting institutions to leverage private sector financing are key elements to implement the Addis Ababa Action Agenda for the financing of sustainable development. Building on the momentum and identifying successful cases can speed up the mainstreaming of catalytic investment instruments for development financing. 




Uruguay´s Renewable Energy Innovation Fund (REIF) 

The Renewable Energy Innovation Fund (REIF) in Uruguay is an example of a catalytic investment tool that uses blended finance to support Uruguay in its second energy transition by decarbonising the industrial and transportation sectors. The blended finance window is coupled with a technical assistance facility that supports firms in accessing the fund and removes regulatory barriers facing investors. This program can have a strong demonstrative effect on innovative financing for developing countries. 

US$10 million was awarded by the Joint SDG Fund for the UN system to deploy the REIF in Uruguay in close partnership with Government counterparts. The implementation of REIF lies on two premises: there is enough private sector appetite (both companies and commercial banks) to accelerate investments for a sustainable energy transition and decarbonisation is a government's priority to meet NDC targets and the SDGs. By leveraging financing from commercial banks, REIF has de-risked technology investments in the energy sector and has provided technical assistance to guarantee triple-impact investment.  The program has signed cooperation agreements with the entire financial system in Uruguay. In its first phase, REIF is expected to mobilise nearly US$80 million of public and private sector investment in Uruguay´s 2nd energy transition. 

In September 2023, the REIF approved the first three financial operations for a total amount of US$1 million of reimbursable financing leveraging US$3 million of lending from commercial banks. The approved operations include:

  • Empresa Red Uruguaya de Auxilio Mecanico (Uruguayan Mechanical Assistance Network Company). This company is in the process of transforming its combustion fleet to electric light trucks to provide mechanical assistance. Uruguay´s Heritage Bank is the financing partner;
  • Empresa Alternative Sustentable (Sustainable Alternatives Company). This is an energy service company that supports the acquisition of heat pump, storage and waste-to-energy equipment and assembly for third-party investment projects. REIF will contribute to a credit line approved by ITAU Bank;
  • Empresa Multicar (Multicar Company). This is a vehicle rental company that is shifting towards electromobility. REIF will finance, together with BBVA bank as financing partner, the incorporation of electric vehicles for private use. 

In addition to these operations, there are several other projects being evaluated for an additional REIF contribution of US$1.5 million that will leverage a potential US$5 million through bank financing. In a subsequent phase, starting in 2024, the REIF team will approach investment funds and development financing institutions to capitalise the REIF to increase the fund size that would trigger larger investments in 2nd transition technologies including green hydrogen.  

UNIDO is the lead agency of the REIF program in Uruguay, seconded by UNDP and UNWomen with the RCO acting as coordinator. The national counterparts include the Ministry of Industry, Energy and Mining (MIEM), the Ministry of Environment, the Planning and Budget Office, and the Government-owned power company UTE. 



The Joint SDG Fund's joint programmes are under the prestige leadership of the Resident Coordinator Office and implementing United Nations Agencies. With sincere appreciation for the contributions from the European Union and Governments of Denmark, Germany, Ireland, Italy, Luxembourg, Monaco, The Netherlands, Norway, Portugal, Republic of Korea, Saudi Arabia, Spain, Sweden, Switzerland and our private sector funding partners, for a transformative movement towards achieving the SDGs by 2030.