Latest update on sustainable energy finance

The International Institute for Sustainable Development (IISD) provides the April update on global developments in sustainable energy finance.

 

Sustainable Energy Finance Update: Public Finance Leverages Private Flows to Renewables

Universal access to affordable, reliable, sustainable and modern energy, the seventh of the Sustainable Development Goals (SDGs) agreed last year, starts with access to finance. Looking at the sustainable energy finance news coming out of April, a number of initiatives went beyond simply funding projects. They also built the capacity of developing country governments and companies to develop energy efficiency, energy access and renewables projects that will qualify for finance. Similarly, many of the finance flows were intended to make projects more attractive to private sector investments, compounding the impact of public funds.

In addition to boosting access to clean energy sources, the projects announced last month will support mitigation efforts under the Paris Agreement signed by 177 Parties to the UNFCCC. The Paris Agreement has spurred action not only by the World Bank, which introduced a Climate Change Action Plan in April, and multilateral development banks (MDBs), but also private banks. Action on climate by these financial entities is, in turn, translating into finance for sustainable energy. For instance, clean energy is a high-impact area under the World Bank’s Plan, and, under an initiative spearheaded by Bank of America, a number of private banks have so far pledged US$8 billion for clean energy and sustainable development.

MDBs Support Private Sector, Build Capacity

The European Bank for Reconstruction and Development (EBRD) is among those highlighting how renewable energy financing is supporting both the Paris Agreement and enterprises in developing countries. Celebrating 25 years this year, the Bank published an overview of its renewables investments, pointing out that it finances large projects directly and smaller projects through credit facilities housed by local partner banks. Local banks make loans available to small- and medium-sized enterprises (SMEs), among others.

As part of its strategy to boost financing to both the private sector and renewable energy, the Asian Development Bank (ADB) approved US$175 million in loans to Mytrah Energy (India) Ltd (MEIL) for wind power projects totaling 476 megawatts (MW) and solar photovoltaic (PV) projects totaling 100 MW.

The World Bank’s Climate Investment Funds’ Clean Technology Fund (CIF-CTF) gave the green light to a US$29.65 million concessional loan for two private sector-led geothermal projects in Kenya. The funds, which were secured with African Development Bank (AfDB) support, are specifically intended to enhance the “financial viability and commercial bankability” of these projects through a concessional lending programme. The programme aims to build investor confidence, prop up conventional financing and deconstruct barriers to private investment. The programme fits into the Government’s larger aim of creating a stable investment climate for private sector participation.

AfDB is also partnering with the Global Environment Facility (GEF) on a US$10 million project to help ready renewable energy projects for financing via the AfDB private and public sector windows.

In addition to their financing, MDBs often provide a number of other useful tools aimed at supporting the deployment of sustainable energy. The World Bank’s International Finance Corporation (IFC), for example, released the results of the 2015 survey findings on market conditions for biomass-to-energy projects in Ukraine. According to the IFC, the results will be useful for “decision makers to shape biomass market support responses, for vendors to understand potential market opportunities, and for financial institutions to understand which financial instruments will be best to offer.”

A similarly useful report of note is available from the UN Environment Programme (UNEP), and focuses on the solar market and export opportunities for Ghana. As part of the Green Economy and Trade Opportunities Project (GE-TOP), the report sets out a step-by-step approach for navigating the necessary technical, regulatory and financing aspects of constructing a cross-border transmission line to export power generated from solar PV. The report finds that current technical and legal infrastructure in Ghana is already sufficient to accommodate up to 220 MW of intermittent solar power, and ongoing and planned transmission upgrades between Ghana and Burkina Faso will increase cross-border carrying capacity to 400 MW. With potential for 106.2 gigawatts (GW) of total solar power capacity on available land within 20 kilometers of the power grid, Ghana aims to become a major power exporter in the region.

Innovative Funds Support Renewable Energy

Governments, intergovernmental organizations (IGOs) and MDBs were also busy in April securing funding partnerships with one another and the private sector, with a view to expanding renewable energy and energy conservation.

The firm Berkeley Energy successfully reached the first close of its third dedicated renewable energy fund for emerging markets, with US$112 million of committed capital from, among other investors, the Netherlands Development Finance Corporation (FMO), the IFC and the European Investment Bank (EIB). The ten-year closed-end Renewable Energy Asia Fund (REAF) II is expected to invest in renewables projects that advance both the climate change mitigation and development agendas, with a primary focus in India, Indonesia and the Philippines.

The Inter-American Development Bank (IDB) announced a new agreement with the Japan International Cooperation Agency (JICA) that will triple their current joint financing arrangement. Now at US$3 billion, the Co-Financing for Renewable Energy and Energy Efficiency (CORE) programme will be able to expand the reach of its highly concessional loans to all low- and middle-income IDB borrowing member countries and certain vulnerable Caribbean countries through the Caribbean Development Bank (CDB). The arrangement also includes IDB’s first ever built-in grant mechanism for a co-financing arrangement, known as the Japan Quality Infrastructure Initiative (JQI).

The Abu Dhabi Fund for Development (ADFD) and the International Renewable Energy Agency (IRENA) are cooperating to ensure the US$350 million in their renewable energy development facility is targeted as effectively as possible. Specifically, ADFD has pledged an additional US$6 million of technical and administrative support over the next four years to raise awareness among eligible countries, solicit proposals, conduct due-diligence, evaluate projects, consider financing paths and measure effectiveness.

In other big fund news, Saudi Arabia announced its Vision 2030, which involves plans to sell shares of up to 5% of Saudi Aramco and to turn the Public Investment Fund into a US$2 trillion sovereign wealth fund. While the portion of the Fund that may be dedicated to renewable energy is still unknown, the Vision does include an initial target of generating 9.5 GW of installed generation capacity from renewable energy. The country will also look to build the sector by localizing much of the renewable energy value chain, such as research and development (R&D) and manufacturing, in the domestic economy.

Other Renewable Energy Project News

Hydropower

A key piece of infrastructure in Tajikistan’s energy system came online in April, thanks in part to ADB support in the form of US$55 million granted in 2008. The newly-inaugurated 500 kilovolt (kV) switchyard replaces Nurek hydropower plant’s former 30-year-old switchyard that required 100 times more space and was located in a geologically unstable site. The ADB grant paved the way for State power utility company Barki Tojik to invest US$12.1 million in the project.

For a hydropower project to be a tenable and sustainable solution to energy problems, it also has to be a socially- and environmentally-sound project. A series of events hosted by IFC in April encouraged bolstering environmental and social standards in the Pakistani hydropower sector. As IFC is investing in several hydropower projects designed to relieve power shortages in Pakistan, it is working to advise the implementing entities on confronting the biodiversity impacts, which have proven a challenging barrier to the safe development of the projects.

Offshore Renewable Energy

Already home to Asia’s first floating wind turbine, Japan now plans to host the world’s largest floating solar installation. The Japanese company Kyocera will build the 2.9 MW project and plans to subsequently develop 30 2-MW floating projects. These and other solar projects are benefiting from growing government incentives, which were strengthened after the Fukushima nuclear disaster.

Belgium’s offshore renewable energy is also receiving a boost. A project off the Belgian coast was among the 31 recipients approved for loans totaling €5.12 billion from the EIB.

Energy Efficiency Initiatives

Meeting the world’s energy needs with renewables will be much easier if their deployment is coupled with energy efficiency measures. The benefits of energy efficiency have not been lost on China, which leads the Group of Twenty (G20) this year. A G20 Energy Efficiency Leading Program is under development this year. A 15 April workshop was hosted in Shenzhen, China, back-to-back with the G20 Energy Sustainability Working Group Meeting, to share best practices in enhancing financial flows to efficiency in the building sector. Participants considered innovative financial products, supportive policies and how to stimulate demand for efficiency improvements in the building sector. This ‘national policy-industry dialogue’ was organized by SWITCH-Asia in close cooperation with the UNEP Finance Initiative (UNEP FI).

Building on its own experience in creating facilities to increase energy efficiency finance flows, EBRD has launched the Ukraine Residential Energy Efficiency Financing Facility (IQ energy). At €75 million, IQ energy’s funds will be used to reimburse up to 20% of loan amounts for individual borrowers and up to 35% of loan amounts for housing associations. The eligible investments include a range of measures, from insulation to installation of solar thermal systems. IQ energy is being supported by a €15 million grant from the Eastern Europe Energy Efficiency and Environment Partnership (E5P), of which the EU is the largest supporter. E5P and the Swedish International Development Cooperation Agency (Sida) are both providing technical assistance funding for the programme’s implementation.

Also in Ukraine, the Nordic Environment Finance Corporation (NEFCO) is helping the city of Chuhuiv carry out energy efficiency measures through its Nordic Energy Efficiency and Humanitarian Support Initiative for Ukraine (NIU). Upgrades at a school and day care center under the grant agreement will save the municipality €37,000 per year, decrease nitrogen oxides and dust in the environment, and reduce CO2 emissions by 120 tonnes. Refugees who have fled the conflict in Eastern and Southern Ukraine will benefit from the project.

Energy Access

Energy efficiency and renewables are closely tied to the pursuit of 100% electricity access. Indonesia, where 39 million people lack electricity access, will soon benefit from efficiency improvements in conjunction with an expanded grid on Sumatra island. A US$500 million World Bank loan, called the Power Distribution Development Program for Results, is expected to increase electricity access on the island to 90%.

In a similar bid to bring rural communities online, ADB, the Papua New Guinea (PNG) Department of Petroleum and Energy, and PNG Power announced the National Distribution Grid Expansion Plan. Electricity access stands at 12% in PNG. The new plan, which was developed with ADB support, will contribute to the Government’s goal of connecting 70% of the population by 2030.

UN-Habitat and the city of Beira, Mozambique, have introduced a ‘Multifunctional Community Centre for Renewable Energy,’ which will host innovation and learning, produce electricity, and support local economic development and urban resilience. The site has a briquette production system, solar technology and a biogas plant that uses human waste. Youth and women will have the opportunity for training, and the community will have better access to sanitation, clean water and energy. The project was financed in 2013 with US$158,000, including support from the German company BASF STIFTUNG and the Local Agency for Economic Development of Sofala (ADEL Sofala).

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