Risk to Reward 2025

One emerging model is the DevCo-YieldCo structure. DevCos83 acquire “ready-to-build” projects from developers under performance guarantees, paying via milestones. Once operational, assets transfer to a YieldCo, enabling broader equity participation from investors unwilling to take development risk at the construction phase. For example, Revego Africa Energy illustrates how a YieldCo can aggregate small-scale renewable assets into a single, investable portfolio, delivering scale, revenue stability and inflation- hedged returns for institutional investors (see Box 17).This model creates an aftermarket for asset sales, allowing developers to reinvest capital into new projects and expand project pipelines. It also accommodates investors with varying risk appetites – those comfortable with construction risk and those willing to invest in operational assets. While DFI and MDB participation may support pilot phases, the goal is to demonstrate that the model can operate with commercial capital alone. Investors often shy away from opportunities that are overly complex. By creating a portfolio of assets through securitizations led by national banks we can attract more long-term investors, such as pension funds. Laurence Tubiana, Chief Executive Officer, European Climate Foundation Revego Africa Energy, South Africa BOX 17 Revego Africa Energy, Africa’s first renewable-energy YieldCo, manages a 2 billion rand (ZAR) portfolio of operational solar and wind assets – over 650 MW capacity including a 50 MW concentrated solar power (CSP) plant at Bokpoort and 360 MW across three wind farms – all under long-term, inflation-indexed power purchase agreements (PPAs) with Eskom, South Africa’s electricity public utility. The fund targets an annual dividend yield of consumer price index (CPI) + 5-7% with a long-term yield maturity of around 11% and has delivered an annualized total shareholder return exceeding 15%.84 This combination of scale, revenue stability and inflation-hedged returns positions Revego as a model for institutional- grade renewable infrastructure investment in emerging markets. In this constrained financial landscape, innovative mechanisms are urgently needed to mobilize capital at scale for climate action in EMDEs and this is precisely where Article 6 can play a transformative role. Carbon markets harness the power of trade to channel cost-effective capital into climate action, driving progress towards net-zero goals, especially in EMDEs. However, today’s carbon markets, whether voluntary, compliance-based or international remain fragmented, lacking shared standards and trust in credit quality. Article 6 of the Paris Agreement is an international framework designed to integrate rigorous standards, robust governance and transparent transaction tracking. This framework creates a trusted infrastructure to prevent double counting and facilitate scalable climate finance. Article 6 introduces two core market mechanisms: –Article 6.2: Enables country-to-country trade of carbon credits through bilateral or multilateral agreements (Internationally Transferred Mitigation Outcomes or ITMOs), where an emissions reduction project host nation can transfer credits from the project to a funding nation that can use those credits to meet its NDC.85 –Article 6.4: enables a centralized carbon market where various organizations – nations, private sector companies and other entities – can register credits from emissions reduction projects to be bought and sold. Today, Article 6 markets are shifting from concept to reality, especially for private sector investors. While the Article 6 rulebook was only finalized at COP29 in November 2024, early signs of progress are promising: –Growing project pipeline: Over 1,389 Clean Development Mechanism (CDM) projects have applied to transition under Article 6.4, in addition to newly developed projects.86 –National frameworks emerging: Countries including Zambia and Thailand have begun rolling out eligibility criteria, authorization pathways and monitoring, reporting and verification (MRV) protocols. While Article 6 markets carry inherent complexity, with multiple stakeholders involved, this is a necessary feature ensuring high-integrity, transparent operations that align with national climate strategies.2.2 Why Article 6 matters From Risk to Reward: Unlocking Private Capital for Climate and Growth 42