The International Institute for Sustainable Development (IISD) provides the March update on global developments in sustainable energy finance.
Sustainable Energy Finance Update: Majority of 2015 Renewables Investment Went to Developing Countries
When governments adopted the Sustainable Development Goals (SDGs) in September of last year, they agreed to a goal of ensuring access to affordable, reliable, sustainable and modern energy for all (SDG 7) by 2030. In a separate Goal, SDG 17, they set out targets for the means of implementation (MOI) necessary for achieving the SDGs. As the focus shifts from “the year of decisions” to “the year of implementation,” the MOI necessary for achieving SDG 7, as well as the other Goals, are receiving greater attention. This update examines recent news related to finance MOI, with a view to identifying what governments and intergovernmental actors are doing to mobilize renewable energy, energy efficiency and energy access finance.
In 2015, for the first time ever, the majority of the year’s US$286 billion investment in renewable energy was in developing countries. This finding was published in the 10th edition of an annual UN Environment Programme (UNEP) report, which was released in March and also indicated that “coal and gas-fired generation attracted less than half as much capacity investment as renewables last year.” The US$286 billion figure denotes a new high that surpasses the previous record set in 2011.
Asia and Africa: Current and Future ‘Clean Energy Powerhouses’?
The year 2016 appears to be on track to be another record-setting year, especially based on recent news out of China. According to GTR 2016, China led the way in new investment in renewable energy in 2015, with US$102.9 billion accounting for 36% of the total. This is important not only for SDG 7, but also SDG 13 on climate change mitigation, as China is currently the world’s largest greenhouse gas (GHG) emitter. The country plans to add 15-20 gigawatts (GW) of solar photovoltaic (PV) capacity every year for the next five, tripling solar capacity by 2020, according to Nur Bekri, head of the National Energy Administration (NEA). Bekri spoke at the 9th Asia Solar Energy Forum, hosted on 21-23 March, by the NEA in partnership with the Asian Development Bank (ADB). One of the Forum’s stated objectives was providing other Asian countries the opportunity to learn about China’s experience in developing solar energy projects and advanced technologies. India has already joined China in the GTR 2016 top ten at US$10.2 billion.
On the other hand, the ADB also released a report this month, with special focus on India, Indonesia and Thailand, showing that fossil-fuel subsidies are significant, impeding potential GHG reductions and energy efficiency gains.
In Africa, high-level panelists gathered at the Africa CEO Forum in Abidjan, Côte d’Ivoire, on 21 March, concluded that the continent could be the next clean energy powerhouse. According to an African Development Bank (AfDB) summary, the necessary financing is available, but the “fundamental challenge is having the transparent regulations, the credible off-takers, and above all, the political will to make this happen.” Indeed, the European Investment Bank (EIB) published a summary of its activities in Africa, emphasizing the significant financing it has directed toward achieving SDG 7 on the continent, while also noting the importance of technical assistance it has granted to create enabling environments and engage the private sector.
Of the African countries, South Africa topped the chart in GTR 2016, coming in eighth place globally with US$4.5 billion in investment. With Morocco and Uganda also weighing in at over US$1 billion, Asia and Africa are certainly demonstrating that renewables are no longer, as UNEP put it, “a luxury affordable only in richer parts of the world.”
The Key Leverage of Private Finance: Public-Private Partnerships (PPPs)
Sustainable energy finance news in March was also characterized by prominent PPP announcements. Many institutions are focusing on leveraging public finance to encourage more private investment. This will be critical for achieving SDG 7, as public sources alone will not amount to the necessary financing. It will in turn help achieve SDG 17 (Revitalize the global partnership for sustainable development), which aims to mobilize, redirect and unlock the transformative power of trillions of dollars of private resources to deliver on sustainable development objectives.
For instance, ADB and the Japanese International Cooperation Agency (JICA) agreed to create a US$1.5 billion fund, capitalized with equity from JICA and managed by ADB’s Private Sector Operations Department, specifically to expand private sector infrastructure investments in Asia and the Pacific. According to ADB, the Leading Asia’s Private Infrastructure (LEAP) fund will “target a wide range of quality, private sector infrastructure transactions in energy and power generation—with a strong focus on renewable energy and energy efficiency.”
Another partnership focused on clean energy infrastructure was established between ADB and the US Agency for International Development (USAID), which will combine ADB financing with USAID technical assistance to help select states in India design and develop PPP investment models for solar parks.
Other PPP news included a US$300,000 grant from the World Bank’s Climate Investment Funds (CIF) to Sierra Leone for the creation of a national investment plan that will “crowd-in” private sector financing, a US$24 million AfDB loan for Rwanda’s first regional energy PPP project – the Multinational Ruzizi III Hydropower Project, and a US$9.3 million Inter-American Development Bank (IDB) loan to promote private investment in renewable energy generation in areas isolated or not connected to the grid.
The Economic Benefits of Tackling Energy Poverty
Upfront cost has often been a debilitating factor in reaching communities lacking electricity access around the globe. However, electricity access delivers clear economic benefits at both the local and national levels. For instance, an ADB report out this month makes the case for accelerating Indonesia’s drive toward 100% electrification, stating that electricity access is a necessary driver of economic growth. The country has an already impressive 84% electrification rate, but the report notes challenges, not least among them sustainable financing, to reaching universality.
Similarly, with a view toward “sustainable social and economic development that is of real benefit to the people,” EIB authorized a €117 million loan for the ENERGOS project in Côte d’Ivoire. ENERGOS is expected to deliver electricity to 100,000 new customers, in addition to improving efficiency.
While connecting all communities to the grid is still an expensive endeavor, off-grid solutions are a promising way to achieve universal energy access as called for by SDG 7. A report put out by the World Bank and Bloomberg New Energy Finance (BNEF) in March holds good news for developing countries and investors alike: the off-grid energy market is anticipated to grow to US$3.1 billion by 2020.
Off-grid solutions do not represent financial gains only for investors and project developers. Just as with traditional grid connections, the adopters of off-grid systems are also reaping financial benefits, finding it easier to open and grow businesses. ADB reported that three solar micro-grids plus storage installed in Nepal through a US$100,000 ADB grant will provide 24-hour reliable electricity supply to 25 local businesses, including agro-processing grinding mills and dairy chillers. Additionally, a new hybrid solar-diesel system on Cobrador Island, the Philippines, is expected to benefit current and spur new local industries, such as fishing and tourism. Like the Nepali projects, the system was developed under ADB’s Energy for All initiative.
Energy Efficiency in Europe and Beyond
While electricity access is less of an issue in Europe, energy efficiency still represents an area of huge potential and attracted financing from multilateral banks in the region in March. Energy efficiency continues to be “low-hanging fruit” that has few technical barriers and can be counted on with high certainty to pay for itself. Last year the International Energy Agency (IEA) found that savings from energy efficiency improvements over the last quarter century amounted to US$5.7 trillion. In that spirit, EIB announced in March a second tranche of €19.5 million (out of a total €42 million loan) for the refurbishment of multi-family housing in Bucharest, Romania, with 50% savings in heating energy consumption expected. The Bank also announced a €300 million research and development (R&D) loan to Airbus for improving energy efficiency in aircraft. And, while not an announcement of new funding, EIB highlighted a previous investment with the inauguration of a near-zero energy municipal building in Bierbeek, Belgium.
District heating in Ukraine is also receiving an efficiency boost, with three new projects approved under the DemoUkrainaDH funding initiative of the Nordic Environment Finance Corporation (NEFCO), Swedish International Development Cooperation Agency (Sida) and the Eastern Europe Energy Efficiency and Environment Partnership (E5P). All the cities selected are each expected to reduce energy consumption by 30%.
In the same vein, IFC announced that an advisory project started in June 2015 with NLB Prishtina, a bank in Kosovo, to help it better identify, evaluate and finance energy efficiency projects, has resulted in the development of two new energy efficiency financial products. Small and medium companies and private households in Kosovo will now have access to lending for energy efficiency projects.
In the Western Hemisphere, Mexico had a notable energy efficiency project approved by the World Bank. A US$100 million loan will assist municipalities in the country with energy efficiency improvements.
Renewable Energy Projects
Renewable energy also continued to be a popular investment, with EIB prioritizing renewable energy among the European Fund for Strategic Investment (EFSI) projects and in financing for its largest member State beneficiary, Poland (where approximately 85% of electricity is still produced from coal).
Wind, Wave and Tidal
In the UK, Scotland will see improvements in its transmission network with a GBP500 million loan from EIB for the Caithness Moray transmission link. The link will connect wind, wave and tidal renewable energy with the national power network. Wind is receiving a boost in Austria and Sweden with EIB loans of €36.7 million and €16 million, respectively, for wind farm construction.
The Cardiff Energy Recovery Facility in the UK, which diverts more than 95% of non-recyclable waste from local authorities and businesses in South Wales and generates electricity, will soon benefit from a GBP110 million long-term EIB loan.
Under the Scaling Solar initiative, IFC signed an agreement with the Government of Madagascar to help the country design and tender a partnership for privately-developed utility scale solar PV, such as a 30-40 megawatt (MW) facility that could increase the reliability of electricity in the country.
Domestic Public Finance
Another announcement during March that is of interest for those following sustainable energy finance was that by the Government of Australia, which unveiled a A$1 billion Clean Energy Innovation Fund to provide both debt and equity to Australian businesses to help emerging clean energy technologies move from demonstration to commercial deployment.