Demonstration effect

Demonstration effect

PIDG works at the frontier to demonstrate the viability of investing in infrastructure in the places that need it most.

PIDG helps to overcome financial, technical or environmental challenges, creating blueprints which can be replicated by the private sector, including:

  • introducing new technologies, processes, or financial instruments in nascent markets
  • providing capacity building for local partners to improve regulatory environments
  • financing projects during the riskier early stages of construction and operation
  • sharing risk with private sector investors while they gain knowledge of a market, enabling them to invest in future deals without PIDG support.

By contributing to increased private sector participation and greater willingness to invest and take on risk, these effects can transform a sector. One critical element of PIDG’s intervention logic is that once the market becomes self-sustaining following this crowd-in effect, its companies will focus on new challenges at the frontier.

Demonstration effects in a growing hydropower market

Lower Solu is an 82MW run-of-river hydropower plant in north-eastern Nepal. The project reached financial close in December 2014, making it the first internationally funded hydropower plant to reach financial close in the country in nearly two decades. An in-depth case study of the project found that local and international banks had become more comfortable with large scale hydropower projects in Nepal as a result of Lower Solu. The study also identified growth in the pipeline of infrastructure projects that can be guaranteed and, crucially, an increase in the availability of local currency funding for infrastructure projects.

Knowledge of ESG standards and good procurement policy also improved, although more work is needed to translate this into lasting improvements in practice.

Lower Solu, Solukhumbu District, Nepal

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