Latest update on sustainable energy finance

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

 

Sustainable Energy Finance Update: MDBs Boost African, Asian Energy Access, European Building, Lighting Efficiency

During the month of July, the International Energy Agency (IEA) released data demonstrating the growing market share of renewable energy, which has reached 13.8% of the world’s primary energy supply and nearly a quarter of electricity production. Over the course of July, significant public investments in energy access, renewable energy and energy efficiency were announced, with financing for energy access largely focused on Asia and Africa, while renewable energy investments tended to be in Europe. The energy efficiency initiatives announced focused on the building and lighting sectors in a variety of countries.

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 climate change mitigation and adaptation objectives of the Paris Agreement, which was adopted in December 2015.

The IEA numbers also show that almost 50% of Africa’s primary energy supply is renewable due to high dependence on biomass. However, the adoption of modern renewable energy is not spread evenly, with developed countries and China driving most of the growth in solar and wind power. With solar photovoltaic (PV), as one example, experiencing 44.1% annual average growth from 1990-2015, MDB investments made now have the opportunity to support SDG 7 by ensuring developing countries capture a significant share of that growth over the next 25 years.

ADB, AfDB Fund Energy Access Initiatives in Asia, Africa

In July, the Asian Development Bank (ADB) announced two funding initiatives, in Azerbaijan and Sri Lanka, with a focus on economic development and poverty reduction through energy access.

Azerbaijan’s power sector is receiving a US$750 million multitranche loan facility from ADB. The programme is expected to improve reliability of the electric distribution network outside of Baku, benefiting more than 1.4 million consumers in secondary cities and rural areas. While the country already generates enough electricity to meet its needs, upgrading the distribution infrastructure and installing smart meters is anticipated to reduce power outages, increase operational and resource efficiency, and support economic growth.

In a similar initiative, ADB approved a US$115 million loan, a US$2 million Japan Fund for Poverty Reduction grant, and a US$1.8 million Clean Energy Fund grant for Sri Lanka to both expand access to electricity and increase reliability in existing service areas. According to ADB, the project will, by 2021, enable “upgrades to the medium voltage network, the rollout of over 2,300 kilometers (km) of low voltage line extensions, and the construction of hybrid renewable energy mini-grids,” especially on small islands and in conflict-affected zones.

As part of its ‘New Deal on Energy for Africa,’ the African Development Bank (AfDB) released a number of funding announcements in July, with a particular focus on electricity access through grid expansion and upgrades.

The Government of Ethiopia is the recipient of a US$104 million AfDB loan intended to extend sustainable electricity access to industry, small businesses, schools and health and social centers for approximately 36 rural villages in the Tigray and Afar regions. Known as the Mekele-Dallol and Semera-Afdera Power Transmission Supply for Industrial Development and Access Scale-Up Project (MDSAPIAP), the loan programme aims to construct 130 km of the 230 kilovolt (kV) Mekele-Dallol transmission line, 175 km of the 230 kV Semera-Afdera transmission line, medium- and low-voltage distribution networks, and substations in Dallo and Afdera. Two existing Mekele and Semera 230 kV substations will be expanded.

Transmission and substation infrastructure is also being funded in the Democratic Republic of the Congo (DRC) where a US$11 million AfDB grant, alongside a €6.5 million grant from the Netherlands, will support the construction of the 95-km 220 kV Goma-Bukavu line, the Buhandahanda substation, the 13-km 220 kV Goma-Gisenyi line and the Goma substation. These improvements will increase access to electricity, primarily from hydropower, in North and South Kivu. As part of the Nile Equatorial Lakes Subsidiary Action Program (NELSAP), these projects will enhance interconnectivity among countries in the region and increase the electricity access rate in the DRC project area from 4% to 7%.

The South African power utility, Eskom, and AfDB signed a US$1.34 billion loan agreement that will support Eskom’s 2016-2020 capital expenditure programme. The financing, which includes participation from nine commercial banks, will help expand South Africa’s electricity generation and transmission network, also allowing planned renewable energy projects to reach power consumers.

Europe Announces More Investments in Renewables

With the exception of a European Investment Bank (EIB) project in Kenya and a World Bank project in São Tomé and Príncipe, multilateral finance in renewable energy projects seems to have been largely concentrated in Europe this month, though a combined renewable energy/energy efficiency project was also announced for Ecuador.

The World Bank project is a US$16 million grant to increase renewable energy generation and power sector reliability in São Tomé and Príncipe. The project, which also has a large capacity-building component to it, will enable the rehabilitation of a small hydropower facility on the island.

As reported last month, the World Bank’s International Finance Corporation (IFC) has taken a 16.67% stake in Akfen Renewable Energy, a subsidiary of Akfen Holding in Turkey. In July, the European Bank for Reconstruction and Development (EBRD) announced that it too would invest in the company, also taking a 16.67% stake. Akfen Renewable Energy intends to increase its portfolio to 1,000 megawatts (MW) of hydro, solar and wind power capacity with the capital injection of US$200 million provided by EBRD and IFC.

EBRD is also supporting solar energy in Cyprus, with €10 million in lending for five solar PV parks, totaling 11.9 MW in capacity.

The city of Lviv, Ukraine, is set to construct a biogas unit for sludge digestion at its wastewater treatment plant, thanks to a €5 million loan agreement with the Nordic Environment Finance Corporation (NEFCO), a €15 million EBRD loan, a €7.5 million Eastern Europe Energy Efficiency and Environment Partnership (E5P) grant, and €510,000 from the John Nurminen Foundation. Two sludge digesters are planned, along with a cogeneration plant that will produce heat and power from the digesters’ methane.

On 19 July, EIB’s Board of Directors approved €9.4 billion in loans for 56 projects, including extension of Kenya’s Olkaria 1 geothermal plant, electrification in rural Kenya and expansion of electricity distribution in Bahia state in Brazil. Of this financing, €2.8 billion makes up part of the Investment Plan for Europe and is guaranteed by the European Fund for Strategic Investments (EFSI).

Two EFSI renewable energy initiatives announced by EIB in July will pave the way for investments by two private banks in the sector. The first is a €100 million guarantee agreement signed with Landesbank Saar (SaarLB) that provides for EIB to cover up to 50% of the risk on ten existing loans for solar and wind projects in France. This, in turn, will allow SaarLB to make almost €200 million in additional loans for wind and solar PV projects in France and Germany.

The second, a subscription agreement with SUSI Partners AG subsidiary Sustainable Sàrl, made effective EIB’s €62 million commitment to the SUSI Renewable Energy Fund II. Guaranteed under EFSI, the investment will support the SUSI Fund’s current portfolio of 13 wind and solar farms in France, Germany, Italy, Portugal and the UK, as well as future renewable energy projects.

EIB also announced its first financing contribution under the InnovFin Energy Demonstration Project. EIB’s €10 million contribution is being made available to the Finnish start-up AW-Energy, which is pioneering and commercializing “WaveRoller” wave energy technology in Portugal. WaveRoller is the first project to be supported by the InnovFin Energy Demonstration Project.

With a view to advancing both renewable energy and energy efficiency while empowering female entrepreneurs, IFC has announced a loan of US$55 million to Banco Pichincha in Ecuador. The financing will allow Banco Pichincha to on-lend to women-owned small- and medium-sized enterprises (SMEs) for renewable energy, energy efficiency and other climate-smart projects.

Similarly, EBRD has extended a €1 million credit line to a new partner bank, BPB in Kosovo, for on-lending to SMEs and households for energy efficiency and small-scale renewable energy projects as part of the Kosovo Sustainable Energy Projects framework (KoSEP).

Energy Efficiency Upgrades in Building, Lighting Sectors Funded

Back in Ukraine, this time on the energy efficiency front, a €5 million NEFCO loan and €3 million E5P grant will contribute to energy efficiency upgrades in 33 public buildings of the city of Chernivtsi. The wide-ranging efficiency measures anticipated under the project are expected to reduce heat consumption by 53% and electricity consumption by 19%.

Also in Ukraine, EBRD is loaning up to US$20 million to agribusiness company Astarta to make environmental upgrades at two of its sugar processing plants. Increases in productivity and efficiency will result in significant energy and water savings at the plants.

A €10 million EBRD loan, accompanied by technical assistance, will allow Piraeus Bank in Bulgaria to finance residential energy efficiency upgrades in privately-owned buildings.

In a similar endeavor focused on rural areas in Armenia, EBRD has partnered with SEF International, a VisionFund microfinance institution, to make US$1 million available for energy efficiency investments. As the second such loan to SEF through the Energocredit facility, EBRD expects the sub-loans to rural customers will average approximately US$300-600.

In the lighting sector, ADB is helping the Melaka state in Malaysia install over 100,000 energy efficient light-emitting diode (LED) road lamps through a public-private partnership (PPP). While the project is being financed with private capital, ADB is executing a detailed project study, developing the PPP structure to attract financing, designing the procurement strategy and helping select the private sector partner.

Antigua and Barbuda also plans to install LED street lamps to replace about 14,400 high-pressure sodium and mercury vapor ones. The project is being supported by US$5.9 million in financing from Caribbean Development Bank (CDB).

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