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Preparing clean energy projects: insights from government and private investors


At COP21 in Paris, the LEDS Global Partnership hosted a side event to assess how public and private investors are gearing up their financing of LEDS, with a special focus on the energy sector. Mairi Dupar reports.

As the United Nations climate talks drew towards their conclusion this month, LEDS GP Co-Director Ron Benioff convened a side event in Paris with the Government of the Dominican Republic, the World Bank and Goldman Sachs to explore how Public-Private-Partnerships for low emission development can transform the way the world does business.

Low emission energy: at the heart of the climate challenge

The discussion focused particularly on clean energy investments. Emissions from energy currently make up at least two thirds of global greenhouse gas emissions according to the International Energy Agency (IEA). As the IEA’s Kamel Ben Naceur noted in parallel discussions, this is a new era when renewable energy has a ‘tail wind’ behind it, thanks to its rapidly falling costs.

Between the Copenhagen climate summit in 2009 and the Paris summit, the costs of producing offshore wind power have decreased by 40%, solar photovoltaic costs have dropped by 60-80% and low emission diode light costs have fallen by 90% (Dr Naceur, IEA, 11 December 2015). One hundred and thirty Gigawatts of renewable energy capacity came online, worldwide, in 2014, setting a record high. All of this means that low-carbon energy investments offer a major opportunity to underpin development and improve energy services for developing countries like the Dominican Republic.

Governments needs to coordinate finance flows

Energy, as well as transport and forestry, offer great opportunities for the Dominican Republic to reduce or avoid emissions, said Moises Alvarez of the Government’s Department of Climate Change. They could give the country “easy wins” for low-emission development.

There are many actual and possible sources of public and private finance, domestically and internationally, that could support low-emission development projects. However, Mr Alvarez said, there are two major hurdles to overcome. The first is navigating the complex of “economic, political and social interests” on Dominican Republic’s domestic scene – in order to galvanise stakeholders behind low-carbon options that serve local, national and global goals.

The second is the issue of coordinating finance, to avoid overlap among public donors. In a worst case scenario, lack of coordination could lead to funds being used ineffectively.

To deal with coordination, the Government hopes to set up a National Carbon Fund. The proposal is currently awaiting Presidential approval. “For our low emission development strategy, we need US$ 70,000 million from 2010-2030 and the fund is important to channel that money,” Mr Alvarez said. This will include coordinating any new monies that come to the Dominican Republic from the Green Climate Fund.

Having a central, national fund will also help the Dominican Republic to grapple with due diligence and reducing risks during project preparation and approval.

Private investors are ready to unlock trillions more for renewable energy

Kyung-ah Park of the Environmental Markets Group of Goldman Sachs said that private investors were ready to shift trillions of dollars into the renewable energy sector, with Goldman Sachs alone planning to invest US$ 150 billion in the sector by 2025.

She said several factors are making renewable energy an attractive investment proposition:

  • The bundling of small renewable projects into larger portfolios makes them investment-ready for large capital investors.
  • Renewable energy assets can provide investors with long term yields, which many are seeking.
  • More and more large companies see the potential to invest capital on their balance sheets into generating renewable energy for their own production needs (e.g. Google, IKEA, Apple).

Governments can provide reassurance for private investors

According to Ms Park, governments can take steps to attract massive private sector financing for clean energy. The first is to provide a stable, long-term policy environment. Often cited by private investors, this means offering assurances that government support policies for renewable energy will not flip-flop between one administration and another.

“For clean energy and sustainable infrastructure solutions in developing countries, it’s critical that you have long term policies that will be stable over administration changes for investors to have the confidence,” she said.

This doesn’t just relate to overall policy goals, but also to the reliability of public institutions and supporting infrastructure: “[energy] utilities are often backed by the state – the ability of those utilities to have good governance is absolutely critical.”

What’s more, she added, investors could lose confidence if there is an feed-in tariff or other renewable energy support policy but the government has not worked out the payment mechanisms: “for example, if it takes a very long time to get integration into the grid and it takes a long time for [power generating companies] to get paid … then the market doubts,” she said.

One of the most important measures governments can take to attract private capital is to develop credible, detailed plans for integrating renewable energy into the national energy system.

“It’s important for national governments to have a national infrastructure plan where it is not just a vague notion of what kind of investments you want but more concretely, if you want to do clean energy investments, what are the priority sites where the transmission availability may be, ease of permitting may be more facile, there is the right human capital to get project pipelines off the ground,” said Ms Park.

“The more ‘investment grade ready’ you can make a project, the easier it is to bring different kinds of capital in and make the economic equation right for clean energy compared to tradition energy sources.”

Ms Park praised the Dominican Republic for its foresight in planning a national carbon fund to set a strategic direction for diverse public and private investments. Ron Benioff concluded: “The good news is that there are investors who are interested in these markets. It’s a huge opportunity for public-private collaboration – and the only way to meet our collective climate goals and implement INDCs” [national climate plans submitted to the UNFCCC].

LEDS GP to provide support in preparing ‘bankable’ projects

As developing countries start delivering their INDCs, the LEDS Global Partnership will be giving hands-on support – across economic sectors. In Latin America and the Caribbean, Africa and Asia, the LEDS GP will provide governments with training on risk reduction instruments and LEDS in public budgeting. Its experts are available to review funding proposals and identify donor support.

In 2016, the Partnership will also begin pilot projects for LEDS investment in each of the above regions – these will include blending public and private finance and developing ‘bankable’ (investment-ready) projects.

If you are not already a member of the LEDS GP, please consider joining today to enjoy access to all these member services: visit www.ledsgp.org/join

 

 Image: Walmart installs photovoltaic thin film panels at its Mountain View, California store – credit Walmart, flickr.com

 

 

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