Latest update on sustainable energy finance

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

 

Sustainable Energy Finance Update: IEA Releases ‘World Energy Investment 2016,’ New Financing Channels Open

This month’s update recaps the findings of the International Energy Agency (IEA) on global investment in sustainable energy financing, as well as many of the multilateral financing announcements that were made in September. In addition, the ‘Go-To Resources’ section below includes a number of country-specific reports that have lessons learned for future projects, both in-country and abroad.

International finance institutions, such as the multilateral development banks (MDBs), are behind much of the finance reported on in this update, with a view toward achievement of 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 objective of the Paris Agreement, which was adopted in December 2015.

However, a global look at 2015 sustainable energy financing by IEA experts finds that, while energy investment is flowing increasingly toward clean energy, it is not flowing at the rate necessary to achieve the Paris Agreement’s goals. The first such detailed analysis of the world’s energy system investments, the report concludes that the 8% drop in investment in 2015 was largely attributable to a decrease in upstream oil and gas spending. According to the authors, investments in renewables, electricity networks and energy efficiency continued to be robust.

The report, which IEA plans to release annually, finds that renewables were the largest source of power investment, at US$313 billion and that although spending on renewable capacity did not grow from 2011-2015, power generation from the new capacity rose by one-third, demonstrating steep technology cost declines. However, the report finds clean energy investment lags behind what is necessary for climate stabilization.

One way to free up public funds for investment in renewables and efficiency is to eliminate the fossil fuel subsidies being doled out by national governments. Group of Twenty (G20) members committed in 2009 to phasing out “inefficient fossil fuel subsidies that encourage wasteful consumption.” This month, China and the US became the first G20 members to release voluntary peer reviews of their fossil fuel subsidies. The reviews, which found subsidies worth US$8.2 billion in the US and US$14.5 billion in China, are a significant step toward examining efforts and creating plans to phase out these subsidies.

Creating, Extending and Expanding Finance Channels

There are a number of ways countries could choose to redirect funds freed up from eliminating subsidies, whether through investments at home or abroad. News this month offers a snapshot of the types of initiatives that can channel public financing toward sustainable energy abroad.

For instance, China announced a partnership with the World Bank to support African development. The Memorandum of Understanding (MOU) signed by the World Bank and the Chinese Government will strengthen energy cooperation in Africa, including for clean power like solar, wind, geothermal and hydro, as well as grid investment and off-grid solutions. Intended to encourage investment across Sub-Saharan Africa, the MOU was signed at the Investing in Africa Forum (IAF) on 7 September in Guangzhou, China.

In another example, a new €8 million credit line under the Belarus Sustainable Energy Finance Facility (BelSEFF) was initiated by European Bank for Reconstruction and Development (EBRD) this month. The new line of credit will not only help Belinvestbank to finance energy efficiency and renewable energy in Belarus, but also to carry out a planned privatization process.

Also in Belarus, an MOU signed by JSC Belagroprombank and Nordic Environment Finance Corporation (NEFCO) created a credit line related to agricultural improvements that will include producing biogas and improving energy efficiency on farms.

The European Investment Bank (EIB) Board of Directors approved €7.3 billion in financing for 47 projects, including €1.3 billion for wind projects in Belgium and Greece, small hydropower plants in Italy and zero energy buildings in Finland. The Board also approved, in principle, the extension of the European Fund for Strategic Investments (EFSI) beyond its original three-year life. EFSI, as part of the EU’s Investment Plan for Europe, helps guarantee projects approved for financing, including 18 of this latest set of projects.

The Private Financing Advisory Network (PFAN) announced that it had passed the US$1 billion mark, raising a total of US$1.2 billion for building, installing, and operating 87 renewable energy projects, totaling 701 megawatts (MW), in Africa, Asia and Latin America. The PFAN, a multilateral public-private partnership (PPP), will soon be hosted by the UN Industrial Development Organization (UNIDO) and the Renewable Energy and Energy Efficiency Partnership (REEEP).

A US$3 million loan from EBRD and the EU will promote energy efficiency in Kyrgyzstan, with local bank KICB responsible for on-lending the funds to business and home owners for energy saving projects. The financing is being made available through Kyrgyz Sustainable Energy Financing Facility (KyrSEFF), which also assists with technical cooperation and grant funding.

Financing for Transmission Brings Wind Online, Refurbishments Increase Hydro Capacity

Sometimes increasing the share of renewables in our electricity mix does not require building new renewable energy projects. This month, significant financing was directed instead toward bringing already planned or existing projects online or increasing their generating capacity.

A partnership between Japan and EBRD is providing the US$750,000 necessary for a substation upgrade in Mongolia that will allow the planned Tsetsii wind farm to be connected to the grid. The 50 MW wind farm, which is to be developed in the Gobi desert, is expected to be online by the end of 2017 and is being co-financed by EBRD and the Japanese International Cooperation Agency (JICA) through a construction financing agreement signed with Clean Energy Asia LLC. The grant for the substation upgrade is being sourced from the Japan-EBRD Cooperation Fund.

The Humber Gateway offshore wind farm will have the transmission link it needs to connect to the UK’s electricity network thanks to a £82 million EIB loan. The 73-turbine farm has a capacity of 220 MW. The transmission project backed by EIB includes nearly 40 kilometers of undersea cables, an offshore substation and an onshore substation.

The third and final tranche of financing for rehabilitating the Toktogul hydropower plant in Kyrgystan has been approved by the Asian Development Bank (ADB). The Bank’s Special Funds are providing a US$60 million loan and a grant of up to US$50 million. Toktogul is a 2,100 MW capacity plant whose refurbishment, including replacing turbine-generator units and overhauling the dam’s monitoring systems, will help curb failures associated with the aging equipment of the 41-year-old plant.

Additional financing from the World Bank for the Tarbela Fourth Extension Hydropower Project in Pakistan will add 1,410 MW of “environment friendly, renewable, and low cost electricity generation during the high-demand summer season.” The additional capacity will come from the installation of a powerhouse at existing Tunnel Five, bringing total capacity to 6,298 MW. The new financing totals US$390 million.

Financing, Assistance Announced for New Projects

Renewable Energy

However, the month was also not short on financing for new projects, that once completed will reduce emissions and increase energy security for their host countries. A 548 kW, World Bank-funded solar project unveiled this month in Kiribati is anticipated to annually reduce diesel fuel use by 230,000 liters, greenhouse gas (GHG) emissions by 765 tons and government spending by US$290,000 annually. The World Bank is coordinating the Kiribati Grid Connected Solar PV Project through its completion in 2018 with US$1 million from the Global Environment Facility (GEF) and US$2.92 million from the Government of Australia.

Bosnia and Herzegovina is looking toward a more diversified energy mix, with plans to develop the Plocno and Podvelezje wind farms, each 48 MW of capacity. The World Bank’s International Finance Corporation (IFC) is assisting the developer, Energy 3, with an energy market risk assessment, advice on electricity selling options, price forecasts, and identification, assessment and mitigation of regulatory risks.

IFC announced a US$76 million financing package, including US$21 million from the IFC-Canada Climate Change Program, for a 50 MW solar photovoltaic (PV) plant in Jordan to be developed by the company Fotowatio. The project will supply electricity at 6.9 cents/kWh and is expected to reduce carbon dioxide (CO2) emissions by 80,000 metric tons per year.

Solaria Energía y Medio Ambiente S.A. of Uruguay is the recipient of two financing packages being provided by the Inter-American Investment Corporation (IIC) of the Inter-American Development Bank (IDB) for the Natelu and Yarnel solar PV plants. The financing package for Natelu includes an IIC senior loan of US$6.1 million and a co-loan of US$6.1 million from the Canadian Climate Fund for the Private Sector in the Americas (C2F). Yarnel’s loans include US$6.4 million from IIC’s capital and US$6.4 million from the C2F.

With only 10% of a 1,500 MW estimated geothermal potential developed, Nicaragua is ripe for clean energy investment. Last year over half of the country’s electricity generation came from renewables, with geothermal claiming almost a third of that total. With this in mind, IDB, the IDB-managed Korea Infrastructure Development Co-Financing Facility in Latin America and the Caribbean, the Climate Investment Funds (CIF) Clean Technology Fund (CTF) and Scaling Up Renewable Energy in Low Income Countries Program (SREP), and local counterparts put together a US$103.4 million financing package to cover the cost of a site investigation for a potential geothermal project in Cosiguïna.

Energy Efficiency

Three companies are planning to make resource efficiency upgrades thanks to new initiatives announced this month. Levi Strauss is partnering with IFC’s Bangladesh Partnership for Cleaner Textile (PaCT) programme to reduce energy usage in its textile production, as well as undertake other sustainability measures. A €30 million loan to the Polish company Arctic Paper from EBRD will finance energy efficiency measures, among other things. In Ukraine, packaging materials producer Khask Group will also improve energy efficiency with financing of up to €1.4 million from EBRD.

The Ukrainian cities of Dobropillya, Slovyansk, Vugledar, Kurakhove, Kreminna and Myrnograd will soon implement energy- and money-saving efficiency measures thanks to six agreements signed by NEFCO and funded by the Nordic countries and the Eastern Europe Energy Efficiency and Environment Partnership (E5P). The signing took place on the occasion of a NEFCO-hosted seminar on municipal energy efficiency measures taken in Ukraine, highlighting successes and lessons learned.

Renewable Energy and Energy Efficiency

In a project that combines energy efficiency, demand management and solar PV, IDB is assisting the Archipelago of San Andrés, Providencia and Santa Catalina in Colombia’s Caribbean coast to reduce energy consumption involving fossil fuels. The US$10 million loan from IDB will help these communities, isolated from the country’s central grid, to both reduce GHG emissions and generate savings.

Electrification

In Bolivia, IDB is promoting electrification and fostering energy consumption, still with a view toward reducing GHG emissions. IDB approved a US$100 million programme for rural electrification, with the aim of decreasing use of isolated power systems run on fossil fuels, increasing transmission availability and alleviating poverty through integration with social and public services.

Businesses in Nigeria are also set to benefit from better access to electricity, as IFC’s Off-Grid and Embedded Solar Market Development and Finance Program, and the UK’s Department for International Development (DFID) Solar Nigeria Programme are partnering to enhance solar market development and finance in the country. IFC and DFID intend to offer technical support and possibly financial instruments to help deploy off-grid and embedded solar systems that commercial and industrial corporations and small- and medium-sized enterprises (SMEs) can access, in order to spur economic growth while also displacing GHG emissions.

Go-To Resources

  • How to Scale Solar Power Generation in Emerging Markets: This brief summarizes the World Bank’s Scaling Solar initiative, which provides an “easy-to-follow process to plan, procure, and launch grid connected solar projects using private sector financing within two years of engagement.”
  • Seven Sisters: Accelerating Solar Power Investments: This brief tells the story of how Jordan was able to attract the necessary financing to realize its pivot toward renewable energy by aggregating seven small, individual solar projects.
  • Regional Centre for Renewable Energy and Energy Efficiency (RCREEE) – EBRD Partnership: These two institutions, both home to significant technical expertise, signed an MOU that will increase cooperation to reduce energy intensity and expand renewable energy use in the southern and eastern Mediterranean region. To address the challenges and opportunities associated with sustainable energy in the region, EBRD will combine its climate finance expertise with RCREEE’s local knowledge to assist in investment project preparation, financing, implementation and knowledge sharing.
  • Asian Development Outlook (ADO) 2016 Update: Meeting the Low-Carbon Growth Challenge: This special chapter in the ADO 2016 update finds that Asia will need to spend an additional net US$300 billion on clean energy in order for the world to stay within the 2°C limit as laid out in the Paris Agreement, but that the region could gain more than US$2 for every US$1 invested.
  • Energy Efficiency Success Stories in Kazakhstan: This illustrated brochure allows readers to review successful energy saving measures implemented by the GEF and UNDP in the multifamily housing sector in Kazakhstan.
  • Removing Barriers to Energy Efficiency in Municipal Heat and Hot Water Supply: Accomplishments and Lessons Learned from the UNDP/GEF Project in Kazakhstan: This report relays the most important takeaways from a project implemented in Kazakhstan to remove legal, institutional, financial, capacity and information related barriers to improving energy efficiency in district heating and hot water supply.

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