RE

1
RE poverty reduction - financing issues

• Bonn, 12 September 2006
• Kirsty Hamilton

2
Renewables financing

• Context developing countries energy oil
  prices exacerbating economic damage
• Financing some background relevant to role of
  public and private finance
• International situation public financing, new
  models of finance, carbon finance

3
Context energy oil price

• Wider energy debate driven by oil prices above
  60-70 for sustained period
• The adverse economic impact of higher oil prices
  on oil-importing developing countries is
  generally even more severe than for OECD
  countries. their economies are more dependent on
  imported oil and more energy-intensive, and
  because energy is used less efficiently. On
  average, oil-importing developing countries use
  more than twice as much oil to produce a unit of
  economic output as do OECD countries. IEA,
  2004

4
Wealth transfer

• Oil Price Shocks Mean Historic Wealth Transfer
• Tues 26 Oct 2004, from Press Association
• Jeffrey D. Lewis, manager of international
  finance research,World Bankwithout emergency
  funding, much of the World Banks 2.5 billion
  dollars aid to struggling nations this year
  2004 will have to be reallocated to fuel
  purchases by local governments, leaving health
  and education programs grossly underfunded or
  scrapped altogether.

5
Vulnerability to oil price

• ESMAP World Bank study contains survey of 131
  countries to assess impact of oil shocks
• Of the group of 47 countries whose per capita
  income is less than US2 a day, 9 were self
  sufficient in oil production .and 25 were
  entirely import dependent.
• The Impact of Higher Oil Prices on Low Income
  Countries and on the Poor.

6
IMF alternative energy

• Monetary and Financial Committee of the Board of
  Governors April 2005
• recognizes the impact of higher oil prices
  especially on poorer communities. In this
  context, the Committee calls for efforts to
  remove disincentives to investment in oil
  production and refining capacity, and to promote
  energy sustainability and efficiency, including
  through new technologies and removing barriers to
  the development of alternative fuels.

7
Scale of Financing Challenge - BAU

• Global - 17 trillion out to 2030 for energy
  supply and infrastructure (IEA)
• Emerging markets - 120 billion per year power
  sector (WB)
• This investment will be key to CO2 trajectory
• China RE goal - 49 billion needed
• 10 billion/yr for existing Bonn plan of action
  agreements big challenge.

8
RE Intl dimensions

• 2001 G8 Renewable Energy Task Force feasibility
  and actions to supply 1 billion people (800
  million in developing countries, ) with renewable
  energy in a decade
• 2002 WSSD Brasil analysis showing feasibility
  JREC and start of the EU Patient Capital
  Initiative
• 2004 Bonn RE conference Finance key theme
• 2005 UNFCCC topic - innovative financing for
  technology transfer

9
Financing private money

• Finance focused on risk and return reduce risk,
  increase return
• Energy related risks include those of a
  geological, technical, geopolitical, market,
  fiscal and regulatory nature, vary by fuel, by
  the stage of the fuel chain in question, and by
  region. WEIO, 2004.
• C Finance (at present) compounding risk
  combining risky sectors with risky markets with a
  risky commodity
• Energy policy, more broadly, has key role should
  be Long, Loud and Legal

10
Financing public money

• Key place for public money to play a role The
  challenge of supplying rural energy services is
  NOT a lack of technology, business models,
  capital or the ability to pay it is the MISMATCH
  between the needs of the enterprise and the types
  of financing available. ECo
• Alternatives to pure grant-based approach, is to
  use public money or guarantees (low cost) to
  attract in larger quantities of private money.
  Lower risk of money not being paid back. Local
  banks and local government have key role to play
  in delivery.

11
Approaches

• Small business enterprise development 60,0000
  small enterprises needed - ECo - focus on Rural
  Energy Enterprise Development. Financing need is
  for seed and patient capital - ie low cost debt
  at small scale. Also the focus of EU Patient
  Capital Initiative. (ECo www.energyhouse.com)
  
• End-user focus eg through local bank credit
  facilities. Public financing institutions can
  work with local banking networks to enable this.
  Eg UNEP two of Indias largest banking groups -
  interest rate subsidy to build solar financing
  loan scheme - 2,000 branches and seven regional
  Grameen banking networks.

12
What the financiers say

• Southern Africa RE Financiers Network how do
  they need to work together to increase deal
  flow in renewable energy - the need for a larger
  number of bankable projects. Work with
  entrepreneurs, project developers, financial
  institutions and need for right policy
  conditions.
• IFIs need to institutionalise approaches,
  explicity to address access and RE EBRD
  starting to do this on energy efficiency when it
  comes to infrastructure and industrial projects
  World Bank - clean energy investment framework -
  now has access as a theme but not well
  integrated at all.

13
Carbon finance

• Using the additional value created through
  mechanisms like CDM (CERs - tradeable carbon
  certificates) to increase returns on investments.
  Not as yet having much impact on RE - good
  additional revenue stream icing on cake, but
  not a significant driver.
• CDM Starting to shift towards programmatic
  form, but not rapid progress
• energy efficiency in CapeTown
• solar cookers in Indonesia
• biogas in Nepal
• small hydro in Sri Lanka.

14
Where next

• Public financing frameworks very important to
  lower risk requires demand from developing
  countries as well as donor support.
• Set access issue within broader energy context
  institutional rather than ghetto approach,
  maximise integration
• Tap into range of private financiers interested
  in this area - what they need more of, how to
  enable them to channel money at the right level
  of returns.
• South-south cooperation on policy and finance -
  is this a new area - China in Africa, more
  opportunities than oil?