Blended finance and concessional capital

Some projects are useful but look too risky or too unprofitable for private investors. Examples are a first-of-its-kind battery storage plant, a solar project in a low-income country, or a water utility in a small town. Private money stays away, not because the projects are bad, but because the risks are new or the returns are too thin.

Blended finance tries to fix this. Public bodies, development banks or philanthropies put in "catalytic" money on softer terms. They might accept a lower return, take the first losses, guarantee part of the debt or pay for project preparation. That makes the rest of the deal safe enough or profitable enough for private investors to join.

The goal is to use a small amount of public money to bring in a much larger amount of private money. The risk is that public money ends up subsidising projects that private investors would have funded anyway.

The main tools

Size of the market

Convergence, the global network that tracks blended finance, reported in May 2025 that:

• 123 blended finance deals closed in 2024, with about $18 billion of financing.
• Volume fell from about $23 billion in 2023, partly because there were fewer very large deals.
• The median deal size rose to $65 million, from $38 million in 2020 to 2023.
• Among the instruments used, guarantees rose from 11% to 27% between 2022 and 2024, while grants fell from 41% to 10%.

Cuts in overseas aid in 2025, including the end of most USAID funding, have put further pressure on the concessional money that blended deals depend on.

India's viability gap funding schemes

India uses viability gap funding (VGF), a form of public concessional support, to bring private developers into new clean energy technologies:

• Battery storage, second tranche (June 2025): ₹5,400 crore of VGF for 30 GWh of battery energy storage, at ₹18 lakh per MWh. Of this, 25 GWh goes to 15 states and 5 GWh to NTPC. The money comes from the Power System Development Fund and is paid 20% at financial closure, 50% at commissioning and 30% after one year of operation. Projects must be commissioned within 18 months of signing their agreements. About 13.2 GWh had already been approved under the earlier VGF scheme.
• Offshore wind (2024): a VGF scheme of ₹7,453 crore to support 1 GW of offshore wind capacity.

Questions to ask about a blended deal

1. Additionality: would the project have been funded without the concessional money?
2. Minimum concessionality: is the subsidy the smallest amount needed, or more than that?
3. Mobilisation: how many rupees of private money came in for each rupee of public money?
4. Exit path: is there a plan for the sector to attract private money without subsidy later?
5. Fair terms: do private investors get returns far above the risk they actually bear?