SCALING UP CLEAN ENERGY INVESTMENT

THE PROBLEM

Significant additional investment is required to support clean energy technologies in developing countries and thereby constrain climate change and provide a basis for sustainable development. If current financing levels are to be scaled-up, the private sector will have to be a key partner as it is responsible for the allocation of the majority of global financial resources. But there is currently a gap between the investment requirement and the availability of appropriate funds.
Not all private sector financiers are aware of investment opportunities related to clean technologies in developing countries. This is where public sector programmes can play a role to reduce private investors perceived risks such as uncertainties over local markets, governance, infrastructure and available resources. Public sector involvement is often crucial to attracting large-scale private sector finance. Despite acknowledgement of the likely benefits, the gap between potential public and private sector financiers of clean technologies remains very wide.

THE SOLUTION

Governments can show the commercial viability of clean energy and reduce perceived risks by covering some of the start-up costs and/or setting up demonstration projects to show investors that projects are truly “bankable.”
UNEP’s Energy Finance programme activities take many different approaches – often simultaneously – according to the specific needs of the country and the project. For example, sometimes lowering costs for consumers can stimulate a new market and attract financing, and a facility can be set up to help local banks provide low-cost loans to clean tech users.
At other times, countries would like to attract finance to increase the viability of clean technology applications by participating in the global carbon market, but need technical support and guidance on the appropriate carbon finance mechanisms.
Other UNEP interventions offer training for financial institutions in developing countries geared at improving the prospects for clean technology projects, or financial support to suppliers and developers to help get lowcarbon projects up and running.

IMPACTS

Despite the difficult global economic conditions during 2012, many UNEP initiatives have made great positive impacts by scaling-up the level of investment in clean technologies.
For example:

• UNEP’s Climate Finance Innovation Facility provided technical assistance of US$150,000 to the Bank of Taizhou in China to help develop an energy efficiency loan product. The actual investment made by the bank was US$3,269,500.
• UNEP’s Seed Capital Assistance Facility supported an 80MW wind farm in South Africa and a 10MW hydropower project in Tanzania. UNEP funding of US$315,000 for these projects has mobilised private investment of US$1.5m and potential follow-on investment of around US$14m.

SUPPORT

UNEP’s Energy Finance Unit works closely with Frankfurt School – UNEP Collaborating Centre for Climate and Sustainable Energy Finance, to offer extensive climate finance skills and services. The initiative is supported by a range of donors including the governments of France, Germany, Italy, and Sweden.

WEBSITE

• www.unep.org/energy/activities/financialinnovation.aspx

SUCCESS STORY
Seed Capital Assistance Facility (SCAF)
In many developing countries entrepreneurs can transform markets, but entrepreneurs face a number of challenges doing so in the clean energy sector. A lack of early stage financing, high transaction costs and insufficient risk-adjusted returns are just some of them.
SCAF was designed to help overcome these obstacles, offering cost-sharing support to clean energy fund managers to co-invest seed financing in early stage project developments. An example is the South African Evolution One Fund, Africa’s first specialised “clean tech” investment fund with approximately US$90 million in committed capital. US$1 million of funding from SCAF is being matched by US$5 million from Evolution One Fund to develop and invest seed capital in a growing portfolio of renewable energy projects in Southern Africa.

Source: Re-blogged from http://www.unep.org

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