Latest update on sustainable energy finance

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

 

Sustainable Energy Finance Update: World Bank and India Team Up on Solar, US$1 Billion Pledged for Sustainable Energy in Pacific

The New Energy Outlook 2016, a long-term forecast published in June by Bloomberg New Energy Finance (BNEF), predicts that coal and gas prices will remain lower than expected. However, with wind and solar costs anticipated to dip relatively lower, the Outlook assures that a fundamental transformation toward renewables is still in the works, with US$7.8 trillion in clean energy investments projected from 2016-2040.

With much of this investment being channeled through international finance institutions such as the multilateral development banks (MDBs), these institutions are significantly contributing to Sustainable Development Goal (SDG) 7 (Ensure access to affordable, reliable, sustainable and modern energy for all) and, consequently, SDG 13 (Take urgent action to combat climate change and its impacts), as well as the objectives of the Paris Agreement on climate change, which was adopted in December 2015.

Nonetheless, according to BNEF, it will require trillions more to rein in emissions enough to stay within the Paris Agreement’s 2°C limit. This month’s Sustainable Energy Finance Update provides a snapshot of the types and extent of emissions-reducing renewable energy projects receiving international public support, as well as those projects aimed at “turning the light on” for those lacking electricity access.

Diverse Renewable Energy Technologies Supported Worldwide

A good mix of renewable energy technologies – biomass, hydropower, geothermal, solar, wind, etc. – can both increase the reliability of the power system and decrease risk in an investment portfolio. Much of the finance news this month mixed technologies this way, with many announcements combining support for two or more renewable technologies. In addition, even where investments focused on one specific project type, there were a wide variety of technologies surfacing to the headlines.

A seven-year tranche of a US$130 million loan from the World Bank’s International Finance Corporation (IFC) to Banco Galicia, for example, is aimed at financing various sustainable energy projects in Argentina. The projects, ranging from solar, wind, biomass and geothermal to energy and water efficiency projects, will take advantage of Argentina’s unique wind and solar resources, grid structure and current energy sector reform process.

During the Pacific Energy Conference hosted by the Government of New Zealand and the EU on 7 June, US$1 billion was committed for sustainable energy projects in the Pacific, representing the potential for every type of renewable energy project imaginable to receive support. Those making pledges included the Asian Development Bank (ADB), Australia, the EU, Japan, New Zealand, the United Arab Emirates (UAE) and the World Bank.

Cambodia’s investment plan under the World Bank’s Climate Investment Funds (CIF) Scaling Up Renewable Energy in Low-Income Countries Program (SREP) was endorsed on 17 June at the CIF governing bodies’ meetings. The approved US$30 million is anticipated to leverage US$135 million from other sources, while supporting both solar and biomass energy development, including solar home systems, rooftop solar, mini-grids, utility-scale solar plants and a biomass power project.

IFC is taking its first equity stake in Viet Nam’s power sector, investing in a 16% share in Gia Lai Electricity Joint Stock Company to help it expand its hydropower portfolio, as well as invest in wind and solar. With 84.4 megawatts (MW) of installed capacity in small-scale run-of-the-river systems, the company is one of the largest private hydropower developers in Viet Nam.

IFC is also becoming a shareholder of Akfen Energy in Turkey, with a 16.7% stake that will help the company almost triple its renewable energy production. Its current portfolio consists of solar and hydropower operations, and the company is expanding into wind.

Solar

With India planning to reach 100 gigawatts (GW) of installed solar capacity by 2022, the World Bank announced it is planning to support the country’s efforts with US$1 billion in lending over the course of fiscal year 2017. India is also leading the International Solar Alliance (ISA) of 121 countries, which aims to mobilize US$1 trillion in investments by 2030. The World Bank signed an agreement with ISA in June, under which it will develop a roadmap for mobilizing financing and developing financial instruments for solar.

The Inter-American Investment Corporation (IIC) of the Inter-American Development Bank (IDB), has mobilized financing of US$44.7 million for Los Loros solar photovoltaic (PV) plant in Chile, which will have a total capacity of 54 MW and sell its electricity to the spot market of Chile’s Central Interconnected System. The French Development Agency is also lending US$19.7 million to the project.

IIC has also announced the financing for El Salvador’s first-ever utility scale solar PV plant, to total 100 MW when finished. Loans from IIC come to US$87.7 million, while additional lending of US$30 million will be provided by the French Development Agency.

A solar auction run by Zambia’s Industrial Development Corporation, with assistance from IFC as part of the World Bank’s Scaling Solar programme, attracted the lowest solar power tariffs seen in Africa to date. The winning bidders submitted proposals at 6.02¢/kilowatt-hour (kWh) (Neoen S.A.S. and First Solar Inc.) and 7.84¢/kWh (Enel S.A). Over the next year, Neoen and First Solar will build a 45 MW plant and Enel will build a 28 MW plant, which will reduce stress on Zambia’s hydropower facilities after two years of drought greatly reduced water levels.

Biomass

A loan agreement for €75 million signed by the European Investment Bank (EIB) and Lahti Energia in Finland will allow the company to build a biomass-fired combined heat and power (CHP) plant to replace a coal-fired plant. Targeted to be operational by 2019, the plant will run on 100% certified renewable fuel, recover condensation from the fuel and recycle ashes into the forest as fertilizer.

Wind

EIB announced the first Austrian project to secure finance under the European Fund for Strategic Investments (EFSI) is the Hof/Seibersdorf wind farm. Financing from EFSI will contribute €40 million for the €70 million project, which consists of 12 3-MW turbines.

Geothermal

A loan agreement totaling €125 million from EIB will help Landsvirkjun, the National Power Company of Iceland, build a geothermal power station in northeastern Iceland. When completed the plant will total 50 MW in capacity.

Energy Efficiency and Renewable Energy

Another set of projects is supporting renewable energy in conjunction with energy efficiency – a pairing that helps optimize the use of renewables.

The European Bank for Reconstruction and Development (EBRD) announced an additional US$110 million to support Akbank’s financing to Turkish companies for renewable energy and resource efficiency projects. The Turkish Ministry of Energy and Natural Resources and the EU, with a €1.9 million grant, are supporting the financing, which falls under EBRD’s Mid-size Sustainable Energy Financing Facility (MidSEFF). Potential projects include solar, hydropower, wind, geothermal, waste-to-energy, energy efficiency, water saving and waste minimization projects.

Adding to the Global Network of Regional Sustainable Energy Centres, the UN Industrial Development Organization (UNIDO) and the Austrian Development Agency supported the creation of the East African Centre for Renewable Energy and Energy Efficiency (EACREEE). EACREEE will act as a think tank assisting in the promotion of renewables and energy efficiency through capacity development, knowledge management, awareness raising and investment and business promotion. The center will work toward dismantling political, regulatory, institutional, technical and social barriers to sustainable energy development.

In addition, during its 13th meeting held from 28-30 June, the Green Climate Fund (GCF) Board approved funding for three sustainable energy projects, two related to energy efficiency and one to renewable energy. The Board aproved US$21.7 million for energy savings insurance for private energy efficiency investments by small and medium-sized enterprises (SMEs) in El Salvador; US$20 million for de-risking and scaling-up investment in energy efficient building retrofits in Armenia; and US$49 million for climate action and solar energy development in the Tarapacá region of Chile.

Energy Efficiency

Even as a measure by itself, energy efficiency has many merits, including being the lowest cost energy resource while significantly reducing emissions. The benefits are clearly not lost on the multilateral lending institutions or their borrowers. Indeed, during the 2016 Summit of the Global Commission on the Economy and Climate, EBRD President Suma Chakrabarti emphasized, “Energy efficiency can deliver significant results and climate action in the short to medium term…as required technologies already exist and financial returns are often positive, even in the current context of low oil prices.”

Energy Efficiency in Buildings

A €5 million loan from EBRD’s Residential Energy Efficiency Credit Line (REECL), alongside technical assistance, is being provided to United Bulgarian Bank to help finance efficiency upgrades in the Bulgarian residential building sector. On-lending will target homeowners, housing associations and privately-owned service providers, which will also be able eligible for grants from the Kozloduy International Decommissioning Support Fund.

EIB is providing a €130 million loan to YIT of Finland to build a near-zero energy building as part of an urban redevelopment project in Helsinki. EFSI is guaranteeing the loan.

Under the Jessica II fund, EIB, in partnership with Šiaulių bankas, is supporting residential energy efficiency improvements in Lithuania through a €110 million loan for the Government’s ‘Multi-Apartment Buildings Modernization (Renovation) Programme.’

The Sustainable Energy for All (SE4All) Partnership and its Global Energy Efficiency Accelerator Platform have announced that the Bitten and Mads Clausen Foundation is providing DKK9 million in new funding for the UN Environment Programme (UNEP) District Energy in Cities initiative. The funding will allow UNEP to deploy energy experts to help retrofit and develop efficient district energy projects in up to 31 cities over the course of three years.

Energy Efficiency in Transport

During the ‘Green Freight and Logistics in Southeast Asia’ regional workshop organized by ADB and the German International Cooperation Agency (GIZ), a €2.4 million project to support green freight in the Greater Mekong Subregion (GMS) was announced. The project will be funded by the EU and implemented by the GIZ. According to ADB, greening freight, including by improving logistics and training drivers, will result in fuel efficiency gains and help the GMS achieve the SDGs regionally.

A €50 million loan agreement signed by EIB and the Finnish ferry operator Finnlines will support the implementation of propulsion and fuel efficiency measures on 11 ships. Optimized propellers and reduced hull friction are expected to improve fuel efficiency, thus reducing carbon dioxide (CO2) emissions.

Grid Upgrades and Energy Access

No amount of renewables is worth anything without wires to transport the electricity to the end-user. A notable amount of finance to improve and expand grids, along with electricity access, was announced this month.

AKCEZ, a Turkish electricity supplier and distribution operator, is the recipient of a refinancing and capital expenditure package from EBRD, IFC and UniCredit. The US$325 million package will be used to expand the distribution network, decrease energy losses, improve energy efficiency, replace older distribution lines and installed advanced metering systems.

The African Development Bank (AfDB) announced a US$135 million loan in support of the second phase of an energy project called ‘Kenya Last Mile Connectivity,’ which is expected to provide electricity access to 1.5 million Kenyans. Phase 2 aims to install 300,000 new connections, complemented by construction of low-voltage distribution lines and capacity building. In addition, the World Bank approved a US$68 million in additional financing for Kenya’s Electricity Expansion Project. The loan will support expansion of geothermal resources, scaled slum electrification, and technical assistance and capacity building. The project has a wide scope, with overall plans of increasing electricity access in urban, peri-urban and rural areas.

AfDB further approved a US$150 million line of credit to a large commercial bank in Nigeria, United Bank for Africa Plc. The line of credit is expected to finance power sector projects in particular, helping support economic diversification and growth.

In an effort to promote efficient and reliable access to electricity, IDB is providing a US$70 million loan to Suriname to improve the sector’s governance and its ability to develop sustainably.

World Bank financing of US$200 million for the Tanzania Rural Electrification Expansion Program was approved, which aims to provide access to the electric grid of approximately 2.5 million Tanzanian households.

Finally, the World Bank also approved a US$470 million loan for six states in the northeastern region of India, with a view to improving the electricity supply and economic development of the local population. The financing will provide new connections to households and augment the transmission and distribution networks.

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