investing in a climate for change: uneps energy finance programme: scaling up clean technology...

7/31/2019 Investing in a Climate for Change: UNEPs Energy Finance Programme: Scaling Up Clean Technology Investment

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InvestIngInaClImate

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UNEPs Energy Finance Programme:

Scaling Up Clean Technology

Investment


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Copyright United Nations Environment Programme, 2012

This publication may be reproduced in whole or in part and in any orm or

educational or non-prot purposes without special permission rom the copyright

holder, provided acknowledgement o the source is made. UNEP would appreciate

receiving a copy o any publication that uses this publication as a source.

No use o this publication may be made or resale or or any other commercial

purpose whatsoever without prior permission in writing rom the United Nations

Environment Programme.

Disclaimer

The designations employed and the presentation o the material in this publication

do not imply the expression o any opinion whatsoever on the part o the United

Nations Environment Programme concerning the legal status o any country,

territory, city or area or o its authorities, or concerning delimitation o its rontiers

or boundaries. Moreover, the views expressed do not necessarily represent the

decision or the stated policy o the United Nations Environment Programme, nor

does citing o trade names or commercial processes constitute endorsement.

Editorial content: Margie Rynn

Design: 100 Watt


Scaling Up Clean Technology Investment

032

InvestIng

InaClImateforChange

InvestIngInaClImate

for Change




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Foreword

UNEPs Green Economy Report shows how investing US$1.3 trillion each year in green

sectors would deliver long-term stabilit y in the global economy. However, achieving such

a low-carbon, resource-ecient economy will require the scaling-up o private-sector

investment in clean technology applications around the world.

Energy access and sustainable development are priorities or the United Nations, with

2012 being the International Year o Sustainable Energy or All in 2012, a year also made

notable by the Rio+20 conerence. The green economy and poverty eradication are key

issues in the discussions related to these initiatives, and clearly clean technologies are

essential or reaching these development goals. But deploying clean technologies requiresinvestment, and policy-makers urgently need to build lasting links with private investors in

order to attract the scale o nance required.

The climate change negotiations have yielded a joint commitment rom the worlds

governments to a green climate und aimed at mobilising US$100 billion a year by 2020.

This means increased public sector resources that can attract private-sector support or

clean technologies. However, to be eective, potential nanciers must be able to understand

and assess the level o risk and the potential returns associated with such green investments.

Over the past two decades, UNEP has worked to acilitate this need or interaction between

public and private-sector nanciers, aiming to build the capabilities and awareness o both

sides regarding clean technology investments. By demonstrating the commercially viable

operation o innovative clean technology applications, especially in developing countries,

UNEP is able to reduce the perceived risk o private nanciers and so help achieve the

scale-up o global investment that is required.

This brochure highlights some o our ongoing or recently completed energy nance

programmes that show how clean technologies can be made aordable to end-users

and attractive to investors. This process also builds long-term markets or suppliers andgenerates related economic and social benets rom job creation and improved energy

access.

Starting rom Rio+20 in UNEPs 40th year, we aim to promote our energy nance activities

more widely, providing valuable opportunities or you to learn more about the global need

or climate nance and the potential benet rom clean technology investment.

Sylvie Lemmet

Director - Division o Technology, Industry and Economics

United Nations Environment Programme

foreword

05



FOREWORD

foreword

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A Fresh Approach o Enery Finance

Mitigating climate change requires chang-ing the way we use energyand how we

invest in energy development. Renew-able energy and energy-eciency tech-

nologies hold enormous potential or re-

ducing greenhouse gas (GHG) emissionsand protecting the environment, provided

they are appropriately nanced. On a

global level, nancing or green energy isgrowing at a signicant rate. Investment in

renewable energy reached US$257 billionin 2011, a six-old increase since 2004.

But this represents just a starting point orclean technology applications. There are

still many hurdles to overcome, especiallyin developing countries.

In act, green energy is a particularly attrac-tive choice in developing countries, wheremillions o people have extremely limited ac-cess to grid electricity. In these countries,clean energy technology represents notonly a way o combating climate change,but also a means o achieving developmentgoals, including increased energy access,

improved health and education, and en-hanced economic development. In ruralo-grid areas and other isolated commu-nities, small-scale clean technologies canoten be the most cost-eective and practi-cal energy option, oering great investmentopportunities.

Green energy ventures can indeed be veryprotable, but the perception o risk otendeters those who are not amiliar with greennancial territory. Unconventional technolo-gies, unusual or non-existent regulatoryrameworks, and unamiliar economic set-tings can make sustainable energy projectsseem daunting to the uninitiated investor.

And yet, i green energy is going to take rootin the global economy, a dramatic increaseo private sector investment is crucial.

How can clean technology ventures attractthe necessary investment? This bookletattempts to address that question, oer-ing examples and strategies developedthrough UNEPs energy nance activities.

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Enablin he Public Secor o

Arac Priae Inesmen

Though public unds make up only asmall part o green energy investments,public sector involvement is oten crucialto attracting larger-scale private sectornance. By covering some o the start-up costs, and/or setting up demonstrationprojects, governments can help show thata new concept is commercially viable andthus attractive or private investment.

UNEPs Energy Finance programmehelps orge the link between the pubicand the private sectors, assistinggovernments in doing what it takes toattract investment. Uncertainties overlocal markets, governance, inrastructureand available resources all contributeto a perception o risk. This perceptioncan be reduced through government-backed demonstration projects that lay thegroundwork or innovative clean technology(clean tech) implementation, and showinvestors that a project is truly bankable.Coherent policy and regulatory rameworksare o particular concern to investors, whoseek a streamlined implementation process

and justied expectations o longer-termreturns. Appropriate public sector supportcan thereore leverage new clean techprojects to attract scaled-up nancing.

UNEPs energy nance strategies takemany dierent approachesoten simulta-neouslyaccording to the specic needs othe country and the project.

Sometimes lowering costs to consumerscan stimulate a new market and attractnancing, and a acility will be set up to helplocal banks provide low-cost loans to cleantech users. Sometimes countries wouldlike to attract nance to increase the viabilityo clean tech applications by participatingin the global carbon market, but needtechnical support and guidance on the linksto nationally-appropriate climate mitigationactions. Other UNEP interventions includeoering training or nancial institutions indeveloping countries geared at improvingthe prospects or clean tech projects, ornancial support to suppliers and developersto help get low-carbon projects up andrunning. The examples in this booklet detailUNEPs major energy nance activities andtheir various approaches and strategies.

FINANCIAL NEW INVESTMENT IN RENEWABLE ENERGY:DEVELOPED V DEVELOPING COUNTRIES, 2004-2010 $BN

15

31

55

80 82

6770

412

21

32

5155

72

2004 2005 2006 2007 2008 2009 2010

Developed Developing

New investment volume adjusts for re-invested equity. Total values include estimates for

undisclosed deals

Source: Bloomberg New Energy Finance, UNEP

IntroduCtIon

IntroduCtIon

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End-User Finance

Helping the end-user to pay or clean techsnot only takes the nancial bite out o imple-menting systems with relatively high up-rontcosts, but also demonstrates that sustain-able energies are a viable option or localconsumers. UNEPs end-user nance proj-ects aim to build consumer condence, de-sign appropriate nancial mechanisms, andbuild local markets. Projects take multipleapproaches to achieve this goal. For exam-ple, the Mediterranean Investment Facility(MIF) (page 20) is helping Morocco phase-

out incandescent lighting and establish amarket or energy-ecient lamps throughpolicy incentives, quality standards, andconsumer awareness campaigns.

Carbon Finance

Public and private stakeholders in develop-ing countries oten need assistance in ac-cessing the carbon market and making themost o the Clean Development Mechanism(CDM) or voluntary schemes. UNEP and the

UNEP Risoe Centre are the leading provid-ers o carbon nance technical assistance,with activities in dozens o countries aroundthe world. Programmes like the ACAD acil-ity (page 22) and CASCADe (page 24) aredesigned to help governments and projectplanners reap the benets o the carbonnance opportunities related to clean techinvestment through training, technical sup-port, and targeted grants and loans.

Finance Neworks

Institutional alliances and networks allow or

an exchange o ideas and inormation thatcan be crucial to overcoming the perceivedrisk o investment in clean technologies.

These networks represent a pool o collec-tive experience that serves as a resource orpotential nanciers seeking inormation onclean energy policy, investment, and marketdevelopment strategies. UNEPs energy -nance networks include both public andprivate sector institutions, linking stakehold-ers across sectors and regions.

UNEP and Enery Finance

When it comes to sustainable energy -nance, UNEP is in a unique position. It isnot a bank, nor an investor, and thus has novested interests. This independence givesUNEP the ability to enable nancial partner-ships and attract investment, and to provideassistance and incentives that can changeattitudes and bring sustainable energy in-vestment into the mainstream. UNEP usesits international expertise to create an en-vironment where nance institutions can

connect with key green energy stakehold-ersincluding suppliers, developers, poli-cy-makers, regulators, entrepreneurs, andend-usersand essential partnerships canbe orged.

UNEPs energy nance services areprovided by its own technical experts,as well as those o its two CollaboratingCentres: the Frankurt School oFinance and Management (FSFM-UNEPCollaborating Centre or Climate andSustainable Energy Finance), and theUNEP Risoe Centre on Energy, Climateand Sustainable Development (URC) inCopenhagen. These organizations haveextensive climate nance skills and canoten play a lead role in related initiatives.

Together with its Collaborating Centres,UNEP has access to over 50 energy andclimate change specialists with widespreadinternational experience on the cleantechnology investment needs o developingcountries and emerging economies.

UNEPs Enery FinanceFocus Areas

Innoaie Financin

Feasibility studies, market analysis,business plans, training, initial capitalexpensesthe list o start up costs is

long and can be daunting or both projectplanners and nancers alike. UNEP ostersthe development o new nancial productsand oers services geared towardsreducing start-up costs and smoothing theroad or potential investors in clean energytechnologies. Technical support and seednancing are at the core o programmes likethe Seed Capital Assistance Facility (page14), which works in partnership with the

Arican Development Bank and the AsianDevelopment Bank.

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Geothermal0.1

Marine

0.1

Small hydro0.5

Solar2.2

Biofuels

0.7

Biomass & w-t-e

0.4

Wind1.5

Early-Stage Investment here refers to venture capital and private equity newinvestments, excluding private equity buy-outs. Total values includeestimates for undisclosed deals.

EARLYSTAGE INVESTMENT IN RENEWABLE ENERGY PUBLIC AND PRIVATESECTOR BY TECHNOLOGY, 2010, $BN

Source: Bloomberg New Energy Finance, UNEP

NEW PRIVATE SECTOR INVESTMENT IN RENEWABLE ENERGY COMPANIESBY TECHNOLOGY, 2010, $BN

Geothermal, 0.1Marine, 0.01

Small hydro

0.5

Biofuels

0.8

Solar5.3

Biomass & w-t-e0.4

Wind8.2

This refers to new investment in publicly-listed companies (via the publicequities markets). It does not include asset nance of utility-scale projects.

IntroduCtIon

Wha We Do

UNEPs energy nance activities can beconsidered in three main groups:

Bringingtherightplayerstogetherat

the right time. Our independent sta-tus makes it possible to enter into di-rect consultation with policy-makers,nanciers, suppliers, and end-users,acilitating eective links between allrelevant stakeholders.

Preparing local capability for cleantechnology investment. Our expertshelp local nancers become amiliarwith green energy territory, and oerstakeholders training and support sothey can better understand and ullybenet rom climate nance. Whenappropriate, we set up nancial incen-tives to stimulate project development.

Demonstrating innovative nancing

mechanisms. Adapting approachesthat worked elsewhere in the past ordesigning new models to meet localneeds, we aim to make clean tech-nologies aordable and commerciallyviable in developing countries.

IntroduCtIon

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Arican Rural Enery EnerpriseDeelopmen Phase II (AREED II)

AREED II consists o our components:

Enerprise Deelopmen, providingtechnical support and grant unding tosocial enterprises, enabling them to imple-ment nancially sound energy services;

End-User Finance, leveraging nancialservices and making them available to ru-ral micronance organizations, enablingsuch groups to engage in lending orenergy-related income-generating ven-tures at the local level;

Policy Suppor, providing governmentswith energy and nancing inormation tobe used in decision making processesaimed at improving livelihoods and energyaccess in rural areas; and

Communicaion, Disseminaion, and

Oureach, building awareness o theAREED approach and how it can be ap-plied in other Arican communities.

Interlinked to these components, UNEPSEnergy Finance Unit disseminates inorma-tion and lessons learned to other parts o

Arica where similar needs and opportuni-ties exist.

AREED II is implemented by UNEP andunded by the Swedish International Devel-opment Cooperation Agency.

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InnovatIve fInanCIngUNEPs Energy Finance Programme:


INNOvAtIvE

FINANCINg

InnovatIvefInanCIng

The Arican Rural Energy EnterpriseDevelopment (AREED) programme wasounded on the idea that impoverishedpeople can transorm their lives and breakout o the vicious circle o poverty whenthey are empowered by clean energyservices delivered by small and mediumenterprises. In a nutshell, the programmeseeks to expand energy access byhelping people in rural Arica start income-generating ventures using modern, clean,and reliable energy technologies. Thesenew enterprises can meet the energyneeds o under-served populations whilereducing the environmental and healthconsequences o existing energy use,particularly low-quality biomass uels suchas wood and dung.

While AREEDs rst phase showed that thecombination o enterprise developmentsupport and seed nancing can be eectiveat expanding energy access, it alsodemonstrated that this is oten not enoughto get entrepreneurs ocused on ruralmarkets. Without end-user nancing, it

oten proved dicult or impossible to reachpotential users who could not pay up rontor products and services. AREED II, theprogrammes second phase, is addressingthis problem by leveraging additionalnancing rom local banks and micronanceinstitutions to rural end-users, and reachingdeeper into rural markets that morecommercially oriented enterprises tend toavoid. Selected local organizations seekingto set up social enterprises in rural areasreceive enterprise development servicesand targeted grant support.

Sodiaz: Liquid Peroleum gasor Cooksoes in Mali

Sodiaz is a company based inBamako that sells cylinders o liquidpetroleum gas (LPG) or domesticuse, primarily household cookingneeds. In Mali, cookstoves are tradi-tionally ueled with charcoal or wood,both o which emit CO2 and pollut-ants that are harmul to both the en-vironment and human health. More-over, the use o wood and charcoal

contributes to deorestation, a majorissue in Mali. LPG oers an energyecient alternative that not only curbsdeorestation, but also emits sub-stantially less toxins. The company isthe rst Malian operator in this sector,which was previously dominated bymultinational companies.

When Sodigaz contacted AREED,the company was experiencing twomajor impediments to growth: lacko storage capacity and inadequatestock. AREED provided Sodigazwith a loan that allowed the companyto increase its storage capacityand purchase more cylinders ordistribution. The company workedwith Maliolkcenter and E+Co todevelop a viable business plan,

which was nanced by AREEDthrough a loan o US$175,000 or thepurchase o gas tanks and bottlesor customers. Today Sodigaz hasexpanded its capacity and distributionand is experiencing growth at a rateo 20% per year.

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InnovatIve fInanCIngUNEPs Energy Finance Programme:


renewable energy, energy eciency, andsustainable orestry, CFIF supports a widerange o activities, including easibility andmarketing studies, tailor-made trainingcourses, and inormation tools to educatestakeholders about climate change tech-nologies.

The overall aim o CFIF is to mobilise andincrease the nancial fow into climatechange solutions. By encouraging early ac-tion within the nance community, the acil-ity helps cultivate on-the-ground leadershipamongst nancial players that can havereplication eects across markets and ge-ographies.

Since its inception, the acility hassupported interventions through a range onancial institutions in Nepal, China, India,Pakistan, Mongolia, Indonesia, Singapore,and the Philippines. Presently operatingin Asia, over time CFIF plans to expand to

Arica and Latin America.

CFIF is jointly implemented by UNEP andthe Frankurt SchoolUNEP CollaboratingCentre or Climate & Sustainable EnergyFinance with the support o UNEP regionaloces. It is unded by the German FederalMinistry or the Environment, NatureConservation and Nuclear Saety under its

International Climate Initiative.

For more inormation, please visit CFIFswebsite: www.climate-nance.org.

Bank o taizhou Enery Efciency

Lendin Proramme

Aiming to help micro and smallenterprises in the Taizhou region in Chinareduce their energy use and costs, theBank o Taizhou, with support rom thelocal government, successully designedand rolled out an energy eciency (EE)loan product in December 2011.

In collaboration with the Frankurt School,CFIF provided a detailed market study, aproduct design, and a business plan orthe new nancial product, as well as spe-cialized sta training or assessing EE in-vestments and developing EE loan prod-ucts. Within two months o the roll-out,Bank o Taizhou had disbursed 20 EEloans amounting to some $US 2 million.

Climae Finance Innoaion Faciliy(CFIF)

Getting a climate-riendly project or newproduct development through a banks -nancial approval process can be a ormida-ble undertaking. Uncertain policy environ-ments, limited amiliarity with low-carbontechnologies, lack o risk management ap-proachesthe pitalls are many in develop-

ing country nancial institutions, and thereis little expertise or support available to turnideas into action.

UNEPs Climate Finance Innovation Facil-ity (CFIF) works with nancial institutionsto guide low-carbon projects through thenancing process and demonstrate thatinvestments will produce returns commen-

surate with the risks. In the process, CFIF

encourages the development o new nan-

cial products and programmes that attract

investments in low-carbon inrastructure.Promoting nance industry engagement in

Credi Financin o Solar Home

Sysems in Rural Nepal

O-grid energy solutions are gain-ing momentum in Nepal, where over250,000 stand-alone solar photovoltaicsystems have already been installed inrural areas.

As this market could potentially growto over 2 million, CFIF is helping

Ace Development Bank in Nepal setup a credit programme with localmicronance institutions to nance solarhome systems (SHS).

The approach is to leverage existinggovernment subsidies and work withlocal nancing institutions (LFIs) likesavings credit cooperatives, agriculturecooperatives, and multipurpose coop-eratives, oering them training and sup-port so they can provide low-cost loansto end-users.

Ace dispenses the loans to the LFIs,and LFIs are responsible or repayment,ater-sales service, and SHS equipmentsourcing rom suppliers.

In the projects rst year, CFIFs sup-port leveraged our times as much localnancing or the installation o close to1,000 SHS systems.

InnovatIvefInanCIng

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Inspired Eoluion Inesmen Manae-

mens Eoluion One Fund, Aricasrst specialised clean tech investmentund with approximately US$90 millionin committed capital, o which US$5 mil-lion is ocused on seed scale investments.SCAF is co-nancing a programme oeringproject planner mentoring and guidance,as well as unding or various preparatorycosts.

Fronier Inesmen Manaemens DI

Fronier Marke Enery and Carbon

Fund, a und ocusing on renewableenergy and carbon credit projects in Kenya,Mozambique, Tanzania, South Arica,Uganda, and Zambia. Frontier held itsrst close o60 million in 2011, and withSCAF has created a 5 million early stageinvestment window or seed scale debt andequity investments.

To date, ve commercial investment undshave been engaged in Asia and Arica, em-ploying a range o early stage investmentstrategies. In addition our und managershave received cost-sharing support or thesetting up o new unds. In total, these undsaim to realise over US$2 billion o clean en-ergy inrastructure in the developing world,o which US$30 million will be invested atthe early seed stage. With the support othe Global Environment Facility and the UNFoundation, SCAF is investing US$10 millionto help entrepreneurs access the seed sup-port they need to prepare and realize theseindustry leading low carbon projects.

SCAF is unded by the German FederalMinistry or the Environment, Nature Con-servation and Nuclear Saety under its In-ternational Climate Initiative. For more in-ormation, please visit SCAFs website atwww.sca-energy.org

Entrepreneurs can transorm markets, butin many developing countries they acedaunting challenges, particularly in theclean energy sector. New business ven-tures and project developments ace di-culties securing the early stage nancingthey need to get through the planning and

permitting stages. High transaction costsand insucient risk-adjusted returns arethe two biggest actors that keep investorsrom engaging in these small and some-what risky ventures.

The Seed Capital Assistance Facility (SCAF)is designed to help investors surmountthese obstacles, oering cost-sharing sup-

port to clean energy und managers willingto include a seed investment window intheir overall investment strategy. Workingwith the Asian Development Bank and the

Arican Development Bank, SCAF is mobil-ising early investment or clean energy proj-ects and business ventures.

SCAF oers two types o support:

Enerprise Deelopmen Suppor.Through cost-sharing, cooperating undmanagers provide enterprise developmentservices to qualied local entrepreneurs.

This can take the orm o:Training pre-commercial clean energy

entrepreneurs and project developers; Targeted coaching or incubator services

or promising investment opportunities; orCo-nancingofpre-investmentfeasibility

studies.

Seed Capial Suppor. Funds used to cov-er some o the more costly elements o earlystage project development, including techni-cal assessments, uel supply agreements,

environmental impact analyses, and otheraspects o the permitting process.

A ew examples o SCAFs partnerships:

Berkeley Enerys Renewable Enery

Asia Fund, a 86 million privateequity und investing in pre-constructionrenewable energy inrastructure projects in

Asia, with a particular ocus on India andthe Philippines. In partnership with SCAF,Berkeley coaches early-stage projectdevelopers, and nances easibility studies,legal reviews, and other sot costs.

InnovatIve fInanCIng

InnovatIvefInanCIng

Seed Capial Assisance Faciliy(SCAF)

Koua Wind Farm, Souh Arica

SCAF and Inspired Evolution Invest-ment Management (IEIM) have signed anagreement to help Red Cap developmentcompany set up one o Aricas largestwind arms. At completion, the arm willgenerate 300MW with 121 turbines overthree contiguous sites in the Kouga re-

gion o the Eastern Cape.

Through its Evolution One Fund, IEIM hasleveraged SCAF support to provide earlystage nancing to Red Cap, which cov-ers the cost o grid connection and en-gineering studies, environmental assess-ments, nancing modelling and otherpreparatory measures. As these start-upcosts are more expensive in South Arica,where this project is one o the rst o itskind, SCAFs participation in cost-sharingconsiderably enhances the venturesprospects or success.

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End-User Finance or Access oClean Enery technoloies in Souhand Souheas Asia (FACEt)

rom the German government with 5 to 10million o bank co-nancing in order to -nance small-scale loans or a targeted low-carbon technology. Over time, the goal is tophase out the nancial support mechanism,with the intention that bank lending will con-tinue to grow, thus establishing a commer-cial market that is ully sustainable withoutany urther external intervention.

The nancial support mechanisms imple-mented by UNEP through this project in-volve local governments, public and privatenancial institutions, state utilities, and theprivate sector. With the aid o these mech-anisms, stakeholders will be ready to leadsuccessul clean energy and market trans-ormation programmes that:

Strengthen local nancial institutions

overall technical capacity and create anenabling environment or sustainablegrowth in the nancial sector;

Establish new market l inks and ll

inormation gaps, allowing banks to betterunderstand consumer demand or cleantechnologies, and in turn, encouragemarket-oriented policy reorms; and

Identifybarrierstorenewableenergyproj-ect nancing, suggest practical ways toovercome them, and demonstrate a se-lection o nancial mechanisms that sup-port renewable energy investment.

FACET is a UNEP initiative supported bythe German Federal Ministry or the Envi-ronment, Nature Conservation and NuclearSaety (BMU).

The project is an innovative public-privatepartnership between the German Ministry,UNEP, the Frankurt School o Finance &Management, and the Indonesian nancialsector.

To date, only a small percentage o Southand Southeast Asian end-users can aordto purchase clean energy technologies ona cash basis and pay up ront or the long-term, low-carbon, and low-maintenanceenergy supply these systems can provide.

With the exception o very small-scale de-vices such as compact fuorescent bulbs,most clean energy technologiesincludingbiogas digesters, hydropower systems, so-lar water heaters and wind generatorsaretoo capital intensive to be aordable to in-dividual end-users on a cash basis. Whilesome orm o nancing is generally neededto overcome the hurdle o up-ront costs, -nancial institutions are oten unaware o thenew credit market opportunities associatedwith these small-scale clean technologies.

FACETs main goal is to help overcomenancial barriers to implementing suchtechnologies. The programme aims to in-crease domestic bank lending to end-userso these technologies in South and South-east Asia through a combination o tech-nical assistance and temporary nancialsupport. Using nancial mechanisms suchas interest sotening or partial guarantees,the programme encourages banks to buildup initial loan portolios o around 5,000 to10,000 loans in each o the target countries.

These nancing schemes are open to anytechnology supplier that can pass a quali-cation process. This multi-supplier quali-cation strategy ensures not only minimumquality standards, but also competitive pric-ing and ater-sales service. Each schemeaims to combine approximately 1 million

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end-user fInanCeUNEPs Energy Finance Programme:


END-USER

FINANCE

end-userfInanCe

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end-user fInanCe

Over 80 million Indonesians currently livewithout access to the electricity grid. Mean-while, the countrys energy consumption isincreasing by 7 percent per year.

Clean, renewable technologies like solar en-ergy will be crucial to tackling rising energydemands, and at the same time diversiyinguel portolios beyond oil and gas.

Compared to ossil uels, solar technol-ogy brings several advantages: relie romuel price volatility and supply bottlenecks,technical reliability, and an absence ogreenhouse gas emissions. Solar is par-ticularly attractive outside the nationalgrid, especially in rural areas such as Nusa

Tenggara, Sumatra, and Sulawesi where

populations have little or no access toelectricity and grid extension is prohibi-tively expensive.

Indonesia Solar Lendin Proramme

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end-userfInanCe

Brinin Lih o villaes in Cenral

Kalimanan

In the rural areas o Indonesias Central

Kalimantan province, grid connectionsare rare, and many villages are withoutelectricity.

A pilot project supported by UNEPsIndonesia Solar Lending Programme(ISL) has helped village residents acquiresmall solar LED systems or householdlighting, partnering with local SME entre-preneurs to increase distribution o solartechnology o-grid.

These solar lighting systems consist oa small rootop solar PV panel, a LEDlight with a dimmer switch and basicelectronics. During the rst phase o thepilot project, 38 systems were installedin rural households, allowing residentsto light up their homes and more easily

study, work, and take care o their ami-lies at night.

For the pilot project, ISL conducted mar-

ket analysis, stakeholder consultations,

and easibility studies. ISL also conducted

a three-day workshop or Lembaga Pen-

gelolaan Dana Bergulir, a local fnancial in-

stitution that seeks to scale up lending or

renewable energy projects, and provided

business development and fnancial mod-

el design services or local solar vendors,

notably PT Azet Surya Lestari.

The Indonesia Solar Lending Programme(ISL) has established a solar lending -nance mechanism as a pilot project thatIndonesian business and nance sectorscan replicate. Past attempts to build upthe solar market have been largely un-successul because they oten relied onup-ront capital subsidies and give-awaysthat did little to support market orces orcontribute to commercial market growth,or else they were hindered by global eco-nomic downturns. ISL marks a shit romthis subsidy mindset, providing support ora commercially oriented, sel-sustainingmarket.

ISL uses our complementary approaches:

Forging partnerships between end-

users, vendors, and local nancialinstitutions;

Creatinga solarlendingproductanda

support system or lending institutions(including improved credit access oreco-entrepreneurs), and banker training;

Settingminimumqualitystandardsand

monitoring vendor perormance; and

Improving both market and public

awareness regarding solar technology.

The project is an innovative public-privatepartnership between the Germany Ministryo Environment (unded under its Interna-tional Climate Initiative), UNEP, the Frank-urt School o Finance & Management, andthe Indonesian nancial sector.

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end-user fInanCeUNEPs Energy Finance Programme:


end-userfInanCe

Medierranean Inesmen Faciliy(MIF)

The Mediterranean and Balkan regionshave a hot and sunny climate, and manywith sucient income install Solar WaterHeating (SWH) systems or their hot waterneeds. However, SWH can cost up to ourtimes the totally monthly earnings o lowerand middle class amilies. This high uprontcost presents an unscaleable nancial bar-

rier or many amilies, even though the SWHinvestment can pay itsel back in as little asour years. Despite this payback, loans arehard to come by because banks are reluc-tant to nance this little-known clean energytechnology.

The Mediterranean Investment Facility (MIF)develops and tests dierent options to in-crease available nancing or renewableenergy and energy eciency systems suchas SWH in Tunisia, Morocco, Egypt, FYRMacedonia, and Montenegro. With the co-operation o local governments and publicand private nancial institutions, the project

implements a range o nancial supportmechanisms including:

nancingincentives,suchasan interest

rate buy-down or solar home system -nancing;

aguaranteefacilitytosecurecommercial

loans and lower interest rates;investment advisory services that help

banks or other nancial institutions evalu-ate small- and medium-scale invest-ments;

guidance on creatingspecialized credit

acilities, clean energy unds, and invest-ment vehicles; and

bank loanofcertraining andend-user

awareness-raising campaigns.

A ew examples o MIFs activities:

InMorocco,MIFis helpingtotransform

the market or energy ecient lighting,paving the way or phasing out incandes-cent lighting and creating huge energysavings. The project is working to boostpolicy incentives, establish standards orcompact fuorescents and other energy

ecient lighting, stimulate end-user -nancing, and raise consumer awareness.

In Egypt, MIF is encouraging thehotel

industry to install SWH systems througha combination o subsidies, awarenessraising, and training workshops, and byestablishing quality standards or SWHsuppliers. So ar, eight solar thermal in-stallations were completed, totaling over1,000 m2 o solar modules.

In Montenegro, MIF is allowing local

banks to nance SWH end-users throughpreerential terms such as interest-reeloans, and thus activate the SWH market.

These incentives will permit end-users tospread the cost over up to seven years.

InTunisia,MIFhasshownsignicantre -sults since it was established in 2004. ItsPROSOL programme (see box) has cre-ated a sustainable market or SWH anda large number o jobs and new micro-enterprises.

MIF is a joint initiative under UNEP and theItalian Ministry or Environment Land andSea (IMELS).

PROSOL: Makin Solar Waer

Heain Accessible in tunisia

UNEPs PROSOL programme hashelped some 135,250 Tunisian house-holds obtain solar water heaters (SWH)or their domestic water needs. Through

a temporary interest rate subsidy, PRO-SOL signicantly lowered installationcosts or end-users. Contracted thoughlocal nancial institutions, the loanscould be repaid through utility bills, pro-viding banks with enough o a guaran-tee to oer ve-year loans instead o theusual three-year term.

Tunisian policy has changed as a result othe programme: SWHs are now eligibleor the energy subsidy that was previous-ly only applied to liquid petroleum gas.

Similar approaches are being applied in11 other countries and new market sup-port mechanisms have been createdunder the PROSOL umbrella: PROSOL

Tertiary or the tourism and services

sector, PROSOL Industrial or the indus-trial sector, and most recently, PROSOLElec, which promotes photovoltaic tech-nology or the residential sector.

global Solar Waer Heain Marke transormaion and Srenhenin

Iniiaie (gSWH)

While MIF addresses SWH market development in the Mediterranean region, GSWH

works to accelerate the commercialization and sustainable market transormationo SWH on a global scale. Working with local nance institutions, vendors, powerutilities, and other stakeholders, GSWH seeks to develop new nancing models orapply existing ones to help make SWH an aordable option or end-users. UNEPsprimary contribution has been a global knowledge management platorm that actsas a worldwide orum or SWH experts and others interested in the development othis market. The platorm can be accessed at www.solarthermalworld.org.

GSWH is also implementing activities through national programmes in ve coun-tries: Albania, Chile, India, Lebanon, and Mexico. Part o the mission o these coun-try programmes is to enhance the demand or SWH by oering attractive end-usernance. In Mexico and Chile, UNEP is oering technical assistance in designingnancial mechanisms geared towards end-users.

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Arican Carbon Asse DeelopmenFaciliy (ACAD)

ACAD oers three complementary supportlines:

transacion Cos Sharin - Targetedgrants are directed through nancial institu-tions to cover upstream development costsand enable projects to reach nancial clo-sure. These costs can include critical stepsin the CDM process such as PDD naliza-tion, project validation, and business plandevelopment.

technical Assisance o Financial In-

siuions - Project clinics and one-on-onetechnical assistance helps Arican nancersand project developers tackle key issuesthroughout the advanced stages o the car-bon project development cycle.

Sakeholder Oureach and Mobilizaion

and Mehodoloy Deelopmen - Hostedby local partner nancial institutions, ACADexperts train sta and develop a tailoredtraining curriculum. ACAD also works withinstitutional stakeholders to develop toolsto stimulate market development, suchas standardized baselines and a directoryto help carbon investors nd skilled localpartners in Arica.

In its second phase, the Facility isexpanding into new countries and oering

grant unding or 20 new projects, placingemphasis on programmatic CDM activities(PoAs), and nancing projects in LeastDeveloped Countries.

ACAD is unded by the German Ministry orthe Environment through the InternationalClimate Initiative (BMU ICI). For more inor-mation, please visit the projects website atwww.acadacility.com.

23

Carbon fInanCeUNEPs Energy Finance Programme:


CARBON

FINANCE

CarbonfInan

Ce

In recent years, carbon nance has yieldedbillions o US$ in transactions, demonstratingits value as a revenue-generating resource.

The clean technology projects supported bycarbon nance help buyers meet emissionreduction targets, and help communities indeveloping countries attract new investment,create jobs, and lower energy costs. Butwhile the Clean Development Mechanism(CDM), the primary carbon nance marketmechanism, includes some 4,000 registeredprojects, only about two percent o those arein Arica, whose rich carbon nance potentialhas yet to be realized.

The primary actor contributing to Aricaslimited perormance in the carbon markets isthe lack o project nance and local carbonexpertise. This has established a patternwhere innovative projects go unrealized dueto lack o nance, and nanciers hesitate toventure into new sectors or lack o success-ul projects to emulate. The ACAD Facilitywas designed to break this pattern and un-lock Aricas carbon nance potential.

ACAD supports local project developersand local nancial institutions. Throughtargeted nancial and technical support,

ACAD puts in place the tools needed ortapping into carbon nance opportunitiesand market growth. By providing success-ul project models, the Facility stimulatessimilar projects elsewhere in Arica that canbe produced with lower transaction costs,and are thus more attractive to investors.During its rst phase (20092011) the a-cility supported 14 projects in nine Aricancountries, at an average o US$ 60,000.

Coeneraion: Producin Enery and

Reducin Carbon Emissions in Souh

Arica

In the usual manuacturing process, theproduction o errochromean essen-tial ingredient o stainless steelreleas-es signicant amounts o CO2 into theatmosphere. But with the support o

ACAD, International Ferro-Metals (IFM)has harnessed its carbon-laden wastegas to generate energy.

IFM installed a cogeneration acilityat its errochrome smelting plant thatcollects and cleans the plants wastegas and uses it to produce 17MW ocarbon-neutral electricity, with a targeto 140,000 MWh per year. The cogen-eration acility supplies around 12 per-cent o the smelting actorys electricityneeds, helping to ensure continuous op-eration in a region where energy short-ages are requent.

This project was the rst o its kind in theerrochrome industry, creating a replica-ble model or similar ventures elsewherein Arica and the world. ACAD grantshelped with CDM-related costs such asPDD development, validation, and regis-tration. IFM partners with AAP Carbon, a

carbon asset rm, to coordinate the CDMprocess.

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CarbonfInan

Ce

Carbon Finance or Ariculure,Siliculure, Conseraionand Acion aains Deoresaion(CASCADe)

Operating in seven sub-Saharan Aricancountries, CASCADe helps project de-velopers make climate change mitigation

projects a reality in rural Arica. The pro-

grammes primary goal is to enhance ex-pertise in generating carbon credits throughLand Use, Land Use Change and Forestry(LULUCF) and bioenergy projects. Since2007, CASCADe has been providing cus-tomized technical assistance, support, and

capacity building or project developers,national climate change institutions, andcarbon project stakeholders in Benin, Cam-

eroon, the Democratic Republic o the Con-go, Gabon, Madagascar, Mali and Senegal.Despite the increase in global carbon -nance transactions, carbon nance proj-ects in sub-Saharan Arica are still beingbypassed by commercial investors andproject developers. Among other obsta-cles is the misconception that the poten-tial or carbon nance in Arica is limited,when in act the demand or orest carbonis growing rapidly. Other barriers includeprohibitive transaction costs, high risks,and a lack o regulatory and institutionalrameworks.

CASCADe is addressing these issues byproviding echnical assisance or proj-ects such as community reorestation,commercial orestry, and energy ventures;holding rainin workshops or nationalClean Development Mechanism (CDM)stakeholders; and oering areed sup-por to national CDM institutions.

By supporting replicable projects in theorestry, agriculture and bioenergy sectors,CASCADe is opening up opportunities or

Arican participation in both the CDM andthe voluntary carbon markets. Through ahands-on, learn-by-doing approach, localdevelopers are given the opportunity todevelop and prepare PINs and PDDs (keycarbon reerence documents), and prepareor the later stages o project development.

The programme also links buyers andsellers, and acilitates regional cooperationand exchange.

A ew examples o CASCADe-supportedprojects:

An agro-forestryproject on theBateke

plateau in the Kinshasa region o theDemocratic Republic o the Congo thatwill both enhance carbon sinks and pro-vide a renewable charcoal supply or thecapital city;

A project that protects estuary man-groves in Cameroon by promoting im-proved sh smokehouses that use lessmangrove wood (see box); and

A cogenerationplantin theLastourville

region o Gabon that will produce heatand electricity using wood waste rom aneighbouring sawmillreplacing dieseluel.

The programme has also developed reer-ence documentation and an expert net-

work, both o which are available at thewww.cascade-arica.org website.

The programme is jointly implemented byUNEP and UNEP Risoe Centre and undedby the Fonds Franais pour lEnvironnementMondial.

Proecin Manroes and

Lielihoods in Cameroon

The mangrove estuaries o Cameroonare a precious natural resource that is vitalto both wildlie and local communities.

Among other things, they provide areuge to many species o sh, which inturn serve as ood and income or localresidents. Unortunately, deorestationand inadequate management isthreatening these essential ecosystems.CASCADe supported the CameroonWildlie Conservation Societys eorts toincrease protection o mangrove orestsin the Douala-Edea nature reserve,oering technical support and CDM-related training or an innovative energy-eciency project that will reduce the useo mangrove or rewood.

The project aims to improve traditional

sh smokehouses so that they use signi-cantly less uel. As these smokehousesare primarily ueled with mangrove wood,the improved technology helps reducedeorestation and degradation o themangrove estuary. Thanks to CASCADe,the project has been able to completeand validate a Project Design Document(PDD), and has been submitted or vali-dation by the UNFCCC. One o the ewCDM projects based in Cameroon, it isnow in a good position to attract carbonnanciers.

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CarbonfInan

Ce

CDM Loan Scheme

Launched in April 2012 during the AricaCarbon Forum in Addis Ababa, the CDMLoan Scheme is designed to support CleanDevelopment Mechanism (CDM) projects incountries that have not yet ully participatedin the carbon market, especially Least De-veloped Countries (LDCs). CDM projectshelp reduce greenhouse gas emissions

and contribute to sustainable development,a boon to both the environment and theeconomies o developing countries.

Under the scheme, project developers incountries with less than 10 registered CDMactivities, including most LDCs, can obtaininterest-ree loans or CDM-related costssuch as PDD development, validation, reg-

istration, monitoring, and verication. Loansare to be repaid as soon as Certied Emis-sions Reductions (CERs) are issued. Whilethere are no dened limits on loan amounts,on average loans are expected to be aroundUS$ 100,000. Some 100 loans will be pro-vided over a ve-year period.

Implemented by the United Nations Oceor Project Services (UNOPS), the schemewill receive technical support and evaluationservices rom the UNEP Risoe Centre. Ex-ecutive decisions on loan applications aremade by an independent board. In addi-tion to the project developers and UNOPS,a CDM consultant acts as a third party tothe loan agreement.

An electronic loan application platormwent online at the programmes launch:www.cdmloanscheme.org. This web-site, which is linked to the CDM Bazaar(www.cdmbazaar.net), includes an elec-tronic loan application orm, as well as aroster o experienced CDM consultantswho can help develop documentation orthe CDM process and move projects or-ward.

The scheme is particularly timely or LDCs,since, rom 2013 onwards, the EuropeanUnions Emissions Trading System (EUETS) will only accept CERs related to newprojects registered in these countries. Andsince many o the LDCs are in Arica, theCDM Loan Scheme oers an opportunityto expand the Arican access to the carbonmarket.

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mechanisms. This component also a-cilitates peer-to-peer exchanges throughpractical training and learning opportunities,and develops new mechanisms or nanc-ing adaptation and mitigation projects.

Climae Finance Policy Dialoue

NCFISP brings lessons rom practitionerson the ground in developing countries tointernational climate nance negotiations,particularly regarding the design and opera-tion o the Green Climate Fund. Businessmodels are explained and demonstrated, in-cluding those that use public unds to scaleup nance by mobilizing private capital.NCFISP identies institutions needs inregards to accountability, such as peror-mance indicators and scal, environmental,and social saeguards.

The project is jointly implemented by UNEPand the Frankurt School - UNEP Collabo-rating Centre or Climate & Sustainable En-ergy Finance. It is unded by the GermanFederal Ministry or the Environment, Na-ture Conservation and Nuclear Saety underits International Climate Initiative.

For more inormation, please visit theNCFISP website athttp://ncsp.s-unep-centre.orgor www.unep-n.org

29

fInanCe networksUNEPs Energy Finance Programme:


fInanCenetworks

As climate change mitigation and adapta-tion nancing becomes increasingly avail-able to developing countries, these coun-tries are looking or ways to manage unds.With the country-driven, direct access ap-proach in mind, some countries are estab-

lishing national unding entities. Creatingthese new entities entails acquiring newskills and overcoming capacity constraints.NCFISP, also known as Fit or the Funds,brings these institutions together in a o-rum where they learn about climate nanceand share experiences regarding publiclynanced mitigation and adaptation mea-sures. National climate nance institutionsin an early stage o development, especiallythose in Least Developed Countries (LDCs),receive a range o practical services to de-velop technical know-how, innovative -nancing approaches and joint pilot projects.

The programme consists o three compo-nents:

ForumThe orum provides a venue or exchanging

inormation, experiences, and best prac-tices, allowing participants to develop jointresearch projects according to mutual inter-ests and needs. Training on key aspects onancial management is oered, and mod-ern electronic communication tools andace-to-ace meetings are used to acilitateocused dialogue between participants.

technical Assisance

NCFISP oers customized technical sup-port or national nance entities in LDCs,building their capacity to access and e-ectively utilize international climate nance

FINANCE

EtWORKS

Naional Climae FinanceInsiuions Suppor Proramme(NCFISP)

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31



fInanCenetworks

The only international convening body orpublic nance agencies in the clean energysector, the UNEP SEF Alliance is a net-work that promotes eective public nancemechanisms or clean energy. Through thenetwork, members receive vital support ortheir energy nance ideas by sharing knowl-edge and pooling resources with organisa-tions in other countries that are tackling thesame challenges.

Current members include SustainableTechnology Development Canada (STDC),Corporacin de Fomento de la Produccinde Chile (CORFO), Finnish Innovation Fund(SITRA), Sustainable Energy Authority o Ireland(SEAI), Fideicomisos Instituidos en Relacincon la Agricultura Mexico (FIRA), and the UKCarbon Trust. Each member nances thedevelopment o sustainable energy marketsin its respective region and und managersuse the Alliance platorm to exchange bestpractices and launch collaborative projects.

UNEP SEF Alliances activities include:

Bi-monthly webinars Led byexperts

and members, webinars are oered ona specialized topic and participants areinvited to share best practices in an inor-mal discussion.

Mapping public nance mechanisms

(PFMs) The Secretariat is building adatabase o current and emerging PFMsimplemented around the globe. Mem-bers have access to the database.

Specialisedresearch UNEP SEFAlli-ance members jointly produce a varietyo assessments to collect, advance, andshare their expertise.

For more inormation, or to download theabove-mentioned publications, please visitthe Alliances website:www.unepsealliance.org,or www.unep-n.org.

UNEP Susainable Enery FinanceAlliance (UNEP SEF Alliance)

Formed in 2009, the UNEP BFI ClimateChange Working Group is comprised o vepublic nance institutions (PFls) that havecome together to advance eorts to channelnancial resources towards climate changemitigation and adaptation. Other relevantPFls are welcome to join. Together, they rep-resent many years o hands-on experiencein development cooperation and climatechange nance projects around the world.

The Working Group is comprised o nan-cial institutions that are set up to nancedevelopment projects in developing coun-tries and emerging markets. The currentmembers are: Agence Franaise de Dvel-

oppement (AFD), KW Entwicklungsbank(Development Bank, Germany), JapanInternational Cooperation Agency (JICA),Nordic Environment Finance Corporation(NEFCO), and European Investment Bank(EIB). These ve institutions make up over40% o public climate nance fowing to de-veloping countries worldwide.

The UNEP BFI CCWG serves as a platormor:

sharingexperiencesandbestpractices;

catalyzingjointactivities;

providingincreasedvisibilityandimpact;

and

developingnewpartnerships,co-nanc-ing, and tools.

The Working Group publishes an annualmapping report outlining members cli-mate change nancial fows to developingcountries. In 2011, the Working Group alsopublished a study called Innovative ClimateFinance, which details the innovative nan-cial instruments implemented by members.

These reports are available rom the UNEPenergy branch website:www.unep.org/energy,or www.unep-n.org.

For more inormation, please visitwww.unep-n.org.

UNEP Bilaeral Finance InsiuionsClimae Chane Workin group(UNEP BFI CCWg)

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fInanCenetworks

The UNEP FI concept was launched in1991 with the mission o bringing togethera broad range o nancial institutionsin-cluding commercial, development andinvestment banks, asset managers, andinsurance companiesor constructive

dialogue on the nexus between nancialperormance, environmental protection,and sustainable development. A second-ary objective was to oster private sectorinvestment in environmentally sound tech-nologies and services.

A unique global partnership between UNEPand the global nancial sector, UNEP FIworks closely with over 200 nancial institu-tions. Its mandate is to identiy, promote,and mainstream the adoption o best envi-ronmental and sustainable practices by -nancial institutions and policy-makers. Thebackbone o the partnership is the UNEPStatement o Commitment by FinancialInstitutions on Sustainable Development,through which members openly recognizethe role o the nancial services sector in

making the global economy sustainable,and commit to integrating environmentaland social considerations into all aspects otheir operations.

UNEP FIs activities include research, train-ing, and advocacy. The initiative works col-laboratively to nd innovative approachesto issues around nance and sustainability.Core themes include banking, insurance,investment, property, sustainable nance,and climate change. UNEP FI channels itswork on this last topic through its ClimateChange Work Stream.

Its mission is to:

Help dene the role of the nancial

services sector and capital markets inthe transition towards low-carbon andclimate-resilient economies.

Raiseawarenessofthechallenges,risks

and opportunities related to climatechange or nancial institutions, as wellas their clients and investee companies.

Developpolicyrecommendations,partic-ularly at the international level, that helpchannel private sector skills, unds andexpertise into mitigation and adaptationactivities; and provide private sector inputto the UNFCCC process.

Equip nancial institutionswith theca-pacity, tools and guidelines they need tointegrate climate change issues decision-making practices.

For more inormation, please visit the UNEP

FI website: www.unep.org, orwww.unep-n.org.

Unied Naions EnironmenProramme Finance Iniiaie(UNEP FI)

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For more information, contact:

United Nations Environment

Programme

Division of Technology,Industry and Economics

Energy Branch

15 rue de Milan75441 Paris Cedex 09FranceTel: +33 (0)1 44 37 14 50Fax: +33 (0)1 44 37 14 74E-mail: [email protected]/energy

Laying the groundwork or

clean technology investment,

UNEPs energy fnance

activities aim at building

skills, raising awareness andreducing investor risks, so that

when the right stakeholders

are brought together, fnancing

happens.

This brochure details UNEPs

energy fnance strategy:

building sustainable markets

by using public sector unds

to attract private investment.

Fourteen dierent UNEPenergy fnance projects,

initiatives, and alliances are

summarized in this booklet,

covering end-user and carbon

fnance, innovative fnancial

mechanisms, and fnance

networks or pooling resources

and sharing knowledge.

DTI/1511/PA

www.unep.orUnied Naions Enironmen ProrammeUnited Nations Avenue, Gigiri

PO Box 30552, Nairobi, 00100 Kenya

Tel: +254 (0)20 762-1234

Fax: +254 (0)20 762-3927

E-mail: [email protected]

investing in a climate for change: uneps energy finance programme: scaling up clean technology...

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