Tag Archives: private finance

Powering climate action – the 2016 Fire winners

November 28, 2016 |

 

The Paris Agreement marks the start of a new era in climate policy, with commitments to climate action made by governments, private sector entities, and NGOs around the world. However, for these commitments to be realized and a corresponding transition to a 2-degree pathway achieved, trillions of investment will need to be mobilized – and quickly, with a significant portion coming from private sector sources.

Climate Policy Initiative (CPI) is at the forefront of work to respond to the urgency of the climate challenge by targeting scarce public resources to mobilize significant private finance into low-carbon, climate-resilient development. As part of its climate finance program, CPI serves as Secretariat to The Global Innovation Lab for Climate Finance (The Lab), which convenes public and private stakeholders to design, pilot, and accelerate transformative financial instruments, with the aim to drive billions of dollars of private investment into climate change mitigation and adaptation in developing countries.

The Lab and its initiatives have been endorsed by the G7 and have raised nearly USD 600 million in seed funding for renewable energy, energy efficiency, and climate resilience projects. Currently, the Lab is seeking ideas for its next cycle that can drive finance in India and Brazil. The Lab also presents The Fire Awards, which identify and accelerate powerful, early-stage pilots and businesses that can unlock private finance for clean energy and green growth around the world.

Indeed, in the six months following the Bloomberg New Energy Finance (BNEF) Future of Energy Summit in New York, there have already been several successful outcomes for the 2016 Fire Winners, which kicked-off implementation of work plans to achieve growth goals, with support of Fire Working Groups in May:

  • In September, the team behind Affordable Green Homes, a project to catalyze a market for affordable green housing in Sub-Saharan Africa, was invited to participate in the formal launch of a UN and private sector platform to generate financing solutions for the Sustainable Development Goals. At the launch meeting, led by UN Secretary General Ban Ki Moon, International Housing Solutions (the global private equity firm leading Affordable Green Homes) was recognized for its innovative approach to drive investment in and deliver energy and water efficient housing. The team will continue to help shape the direction of the UNSG platform.
  • The Developing Harmonized Metrics for the PAYG Solar Industry initiative championed by Anna Lerner of the World Bank Group, also moves forward, achieving a major milestone with the recent publishing of a white paper titled, How can Pay-as-you-go Solar be Financed?. The paper, which was one of the main outputs of the Fire Working Group, explores a number of the risks and challenges associated with structured finance solutions for the PAYG sector. On 11th October, the paper was also presented and discussed in a dedicated session at the BNEF Future of Energy EMEA Summit in London. The session was led by Itamar Orlandi (Head of Applied Research, BNEF). Panelists included Fire Working Group Members, David Battley (Director of Structured Finance, SunFunder) and Peter Mockel (Senior Industry Specialist, Climate Business Department, IFC), as well as Giuseppe Artizzu (Head of Global Energy Strategy, Electro Power Systems Group), Mansoor Hamayun (Chief Executive Officer, BBOX), and Manoj Sinha (Co-Founder and CEO, Husk Power Systems). The white paper is available on the BNEF website.
  • An announcement was released on the planned scale-up of the Investor Confidence Project (ICP), an Environmental Defense Fund led initiative to standardize and increase investment in energy efficient buildings. The scale-up plan is founded on a new partnership with the Green Business Certification, Inc. (GBCI), which also administers the LEED, EDGE, PEER, WELL, SITES, GRESB, and Parksmart certification programs. The new partnership aims “to achieve a true, worldwide standard to unlock the potential of energy efficiency.” The Fire Secretariat will host a dedicated 2 hour roundtable in London on 7th December to discuss and build momentum for the new partnership. The roundtable will comprise Fire Working Group Members and key stakeholders in the investment and real estate sectors. If you would like to attend, please let us know at info@financeforresilience.com. More information on the new partnership is available on the ICP and decentralized energy
  • Finally, Grips, which provides reliable, clean energy beyond the world of fossil fuels and public grids, was supported by a Fire Working Group to make connections with over a dozen investors, which will help the initiative move forward. In recognition of its innovative approach to deliver competitive, clean energy to industrials in developing countries, Grips’ CEO, Alexander Voigt, was also invited to participate in the technical workshop to set up a UN-led platform to scale-up finance for the Sustainable Development Goals.

These achievements mark major milestones for the 2016 Fire Winners, as they continue to blaze forward and grow their impact. For those interested in learning more about any of the 2016 Fire Winners or to be involved in upcoming consultations, please contact us at info@financeforresilience.com.

“Getting access to international experts and advice made it possible to accelerate the launch of the KPI framework, grow our partner network and identify new useful applications for the data platform.” –Anna Lerner, World Bank Group

“Winning FiRe has clearly accelerated the implementation of Grips. Through the increased exposure to an international audience of financial and energy experts we have received an increasing number of project leads, partnership requests, and financing offers. We are currently advancing discussions on all sides.”–Arvid Seeberg-Elverfeldt, Grips

The Global Innovation Lab for Climate Finance identifies, develops, and pilots transformative climate finance instruments, with the aim to drive billions of dollars of private investment into climate change mitigation and adaptation in developing countries. Made up of public and private sector members, the Global Lab and its initiatives have been endorsed by the G7 and have raised nearly USD 600 million in seed funding for renewable energy, energy efficiency, and climate resilience projects.

The Fire Awards accelerate powerful, early-stage pilots and businesses that can unlock finance for clean energy and green growth. Climate Policy Initiative serves as the secretariat for the Fire Awards alongside the Global Innovation Lab for Climate Finance (The Lab). The Fire Awards and The Lab are funded in part by Bloomberg Philanthropies, and Bloomberg New Energy Finance provides in-kind support.

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Driving geothermal development in developing countries

August 26, 2015 |

 

Geothermal has the potential to play a big role in a low-carbon energy transition but while deployment of wind and solar has taken off in recent years, deployment of geothermal has remained steady but unspectacular for decades. This despite the fact that it is broadly cost competitive with fossil fuel alternatives across the world and is the cheapest source of available power in some developing countries with rapidly growing energy demand.

Among developing countries, only Turkey and Kenya exceeded forecasts for geothermal deployment over the last five years. Elsewhere, over 3GW of power has been left in the ground, mainly in Indonesia and the Philippines but also in new markets such as Chile and Ethiopia.

We estimate that approximately USD 133 billion would be needed for investment in geothermal in developing countries if current plans to build 23 GW of capacity by 2030 are to be met. The scarcity of public finance available for geothermal in these countries is a barrier to achieving these targets but private investment could fill this gap. Many governments in countries with significant resources have liberalized energy and electricity markets and this could result in an investment opportunity of USD 60-77 billion, with average returns on equity of 14-16% if the main project related risks are addressed.

Our analysis, commissioned by the Climate Investment Funds to improve understanding of the role of public finance in different developing countries, suggests that governments and development finance institutions would need to provide the rest of the USD 133 billion in the form of financing and risk mitigation tools needed to attract private investment in these countries.

This requires a 7-10 fold increase in current allocations of public money to the sector for future development. In addition, while significant efforts at the global level to increase public finance commitments for the early stages of geothermal project development mean they now account for 11% of current commitments, in order to meet demand, finance allocated to this stage of projects should be up to 17% of public finance distributed and targeted particularly at the test drilling phase. Part of current public finance could also be refocused on the management of resource risk during the later stages of project operations.

In our most recent report, we draw lessons from a year of analysis of geothermal projects and markets in developing countries to identify how public finance from governments and development finance institutions can be used to best drive private investment. Key factors include:

  • Supportive regulatory frameworks for geothermal, the basic condition for growth together with well-designed feed-in-tariffs aligned with the project‘s lifetime or loan terms available in the local debt market
  • Differentiated public support during the exploration phase, supporting early public exploration and tendering of proven fields in markets with challenging investment environments, while incentivizing early stage exploration in more mature private markets
  • Favorable loan conditions and measures to unlock its provision

Following these recommendations could increase energy access and put those developing countries with geothermal resources on a path to green growth. Our case studies of geothermal projects suggest this can be done without increasing the levelized cost of electricity generated, and thus power tariffs for consumers. When national and international public measures lower financing costs and address specific political, currency and exploration risks relevant for the private sector, private development models can deliver power at similar or lower cost than public development models. This allows governments to increase energy supply and access while committing only 15-35% of what they would invest were they to develop the whole project through local public utilities, freeing resources for further investment. This is something that should be at the forefront of the minds of national energy policymakers and the development banks that support them.

A version of this blog first appeared as an opinion piece on Environmental Finance.

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Eight steps to improve understanding of climate finance flows in your city or country

May 21, 2015 | and

 

Understanding how much climate finance is flowing, where it comes from and how it flows to which activities and projects on the ground is not only useful at the global level to help understand progress towards climate finance goals. It can also help countries, regions, cities, and organizations to understand their progress toward meeting their own development, economic, and environmental goals by:

– Establishing a baseline against which to measure progress, reveals current patterns of investment and any blockages in the system.
– Revealing interactions between public finance and private investment which can inform decisions about how to redirect flows from business-as-usual to low-carbon and climate-resilient investments.
– Helping international partners see how they can support domestic efforts.
– Identifying opportunities to increase climate finance and providing an important basis for policymakers to develop more effective policies, particularly when combined with analysis of what is working or not in different interventions.

Climate Policy Initiative produces the most comprehensive overview of global climate finance flows available. We have also carried out in-depth mapping of climate finance flows for Germany and Indonesia. The following eight steps summarise the approach we take to map climate finance flows in different contexts. Although the process is complicated because of significant data gaps and inconsistencies, the principles behind such mapping are relatively simple. Applying them can improve understanding of climate flows. They are:

1. Decide what finance you want to measure.The first step is to decide which activities you want to focus on. For some you’ll also need to decide what makes a particular activity low-carbon or climate-resilient. This is relatively easy to do for something like renewable energy generation. However if you want to understand how much finance is flowing towards more climate-resilient, productive and sustainable land use, you will have important decisions to make on what you want to include and what you should leave out.

2. Set the geographical scale.Are you going to track finance flowing to these activities at the international, national, regional, city or organizational level?

3. Decide whether to track public finance, private investment, or both. Information on some climate finance flows (e.g. official development assistance) is easier to track than for others and there are some – like private investment in energy efficiency – where very little reliable data is available at all. But ideally a mapping exercise for a country, region, or city would include both public and private flows to the extent possible because understanding how these different sources of finance interact is essential to making best use of your financial resources.

4. Consider total investments, not just additional investment costs.Research into the additional costs of low-carbon interventions above higher-carbon alternatives is useful and has even shown that some low-carbon transitions may be cheaper than business-as-usual. But, when dealing with the practicalities of tracking and managing climate mitigation and adaptation investment for planning purposes, it is simpler to consistently track current total investment rather than additional investment costs.

5. Focus on project-level primary financing.Project-level primary financing is finance going to activities and projects on the ground and the best indicator of progress on climate action. Aggregate data does not allow the same insights as project-level data while data on secondary market transactions (e.g. refinancing, selling stocks) represents money changing hands. Such transactions can play an important role in providing project developers with capital to reinvest in further projects but they do not necessarily represent additional efforts to reduce emissions or increase climate resilience.

6. Track public framework expenditures.Many projects would be impossible without the development of national climate strategies, specific regulations and enabling environments for investment but these costs are not seen at the project level. Tracking them is important to have a real understanding of how much public finance is flowing to and needed for climate action.

7. Exclude public revenue support for projects such as feed-in tariffs and carbon credit revenues.While these revenue support mechanisms are often essential for climate action they pay back the investments made in climate-relevant projects and activities that you are already counting. Including investment costs and policy-induced revenues would therefore mean you were counting the same flows twice.

8. Exclude private investments in research and development.These are investments that private actors try to recover when selling their goods and services so counting them in addition to investment costs would, once again, mean you were counting the same flows twice.

The quality of your mapping exercise will depend on the quality of the data you have. Fragmented data in the land use sector is the reason we are working with the European Forestry Institute and Climate Focus, in an upcoming publication, to provide policymakers with a series of mapping tools to understand potential entry points for climate finance flows in their land use sectors. Often these countries are aware of the opportunities to shift from unsustainable to sustainable land use but lack financing strategies to deliver their goals. This project will help them identify which fiscal and financial mechanisms are available to unlock new investors and more efficient investments.

We are happy to assist countries, cities, or organizations looking to better understand their climate finance flows by undertaking mapping exercises, just get in touch.
 

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Why risk coverage matters and what can be done to scale up green investment

December 6, 2013 |

 

Risk, whether real or perceived, matters. It is the biggest barrier preventing private capital from flowing into investments and, given the enhanced risk profile of low-carbon technologies, it is even more crucial for climate finance investments. Higher risks demand higher returns and higher financing costs, making low-carbon technologies even less competitive.

While not all risks need to be reallocated, whenever risk falls onto a party not suited or not willing to bear it, risk coverage instruments (such as guarantees) can be key to unlocking private resources without depleting public budgets.

CPI has observed this phenomenon time and time again in our case studies.

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Engaging the private sector in climate change adaptation: Early evidence from the Pilot Program on Climate Resilience

November 5, 2013 |

 

Investment in projects that help countries adapt to climate change attracted around USD 20-24 billion in 2012, according to CPI’s recently published Global Landscape of Climate Finance 2013.  However, due to data gaps and limited understanding of private sector adaptation efforts, the Landscape 2013 only tracks public adaptation finance.

While difficult to track, private sector investments in adaptation are critical to scale up climate finance efforts to the levels required by projected needs. Private actors, however, are not fully aware about climate-related risks and opportunities, even if climate change can directly affect their assets and revenues. Knowledge, technical, financial, and risk barriers can hinder their engagement.

The public sector can play a role in helping to overcome these obstacles. To better understand how public resources can be deployed to engage private actors in building countries’ climate resilience, a forthcoming San Giorgio Group case study explores approaches taken on-the-ground by the Pilot Program for Climate Resilience (PPCR) in the Nepalese agricultural sector.

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In Germany, one billion euros of government money go a long way

December 13, 2012 |

 

One of the major themes coming out of Doha at the UNFCCC Conference of Parties last week was the role of climate finance. Basically, if we want to reduce emissions and scale up renewable energy and energy saving measures, we need to figure out where the money to do these things will come from.

With public budgets strapped, this challenge increasingly becomes about how we can direct limited public funds to unlock private investment in a targeted, effective way.

In Germany, a recent CPI study showed that 1.5% of GDP, or 37 billion Euros, is invested in climate-related activities like renewable energy and energy efficiency. More than 95% of that investment comes from businesses and households. This small share of government spending is striking. However, it would be wrong to conclude that the government plays no role.

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Expanding green finance: What’s already working and what’s next?

December 5, 2012 |

 

Despite reaching $364 billion in 2010/2011, global investment to combat climate change still falls far short of the level required to stabilize global temperature rise to 2°C. According to the IEA, we need to reach $1 trillion each year of incremental investment in energy supply and demand technologies, and more will be needed to achieve climate resilient development globally.

Policymakers and others will need to scale up what’s working, and explore new approaches to pool more capital from the private sector. However, investors’ real and perceived risks are increasing as a result of stalled international negotiations and national policy frameworks reforms.

On the 20th and the 21st September, Climate Policy Initiative hosted the Second Meeting of the San Giorgio Group (SGG) on the island of San Giorgio Maggiore in Venice to discuss what’s already working in green finance, what’s not working, and to identify new options to bridge the gap between supply of climate investment and the demand for mitigation and adaptation finance. Here is a summary of some of the highlights.

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International climate finance: A quick video overview

October 29, 2012 |

 

In this short video, Barbara Buchner, Director, Climate Policy Initiative Europe, discusses international climate finance and CPI’s case studies on how public policy can unlock private investment.

Learn more and read detailed case studies at http://climatepolicyinitiative.org/publication/san-giorgio-group-case-studies/

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