unlocking climate finance for decentralised energy access
TRANSCRIPT
Unlocking climate finance for decentralised energy accessIIED and HIVOS Working Paper, June 2016
Note: Climate finance figures are based analysis of the Climate Funds Update (CFU) database, which covers public finance for all major international climate funds
Climate finance allocation for energy
Decentralised energy access: finance needs vs allocation
The estimate of USD 23 billion is from World Energy Outlook, IEA 2011
INVESTMENT NEEDS (USD BILLION/YEAR)
Total needs 48
Current (in 2009) 9.1
Business-as-usual projections 14
Additional financing needed 34
Electricity
On-grid 11
Mini-grid 12.2
Off-grid 7.4
Cooking
LPG 0.9
Biogas systems 1.8
Advanced biomass cookstoves 0.8
Total additional financing needed for decentralised energy (electricity and cooking)
23
Additional financing needs for grid-based and decentralised energy
Source: IEA 2011
Who needs finance and for what?
• Energy userse.g. to pay for products, equipment, maintenance
• Energy providerse.g. R&D, feasibility analysis, piloting, buying inventory, business growth
• Financial institutionse.g. concessional finance to channel to providers, risk guarantees
• Governmentse.g. policy, regulatory and market development, capacity-building
Status of climate finance (CFU database): Of 35.3 bn USD bn pledged, 14.1 bn has been approved
Mitigation: focus on middle income countries via loans
Clean Technology Fund channels largest share of mitigation finance
Status of 5.6 bn climate finance allocated to energy…
40% of climate finance flowing toward energy projects
Distribution of energy finance: preference for loans to utility-scale projects in middle-income countries
Utility-scale solar, wind & geothermal receive largest share
Distribution of grid-based and decentralised energy supply projects in low-income countries
Key barriers to flow of international public climate finance to decentralised energy access
General barriers
• High risks (perceived, actual)
• Investor returns and short-termism
• Investment size and transaction costs
• Policy and regulatory environment
• Shortage of business models or quality plans
Climate finance barriers
Preference for loans versus grants
Approaches of financial intermediaries
Priorities of funds’ results frameworks
Innovation on the ground: lessons from Bangladesh and Nepal
• High-level policy enablers
• Special agencies to aggregate and channel funds to small-scale (eg IDCOL, AEPC)
• Holistic, market-building approach
• Mix of financing instruments for users, providers & financial intermediaries
• Regulatory push by central banks
Recommendations
1. Improve targeting of Climate Funds to decentralised energy access in low-income countries
• Map funding priorities versus needs
• Earmark funds for decentralised energy
• Adjust design features – investment criteria, risk appetite, results framework
• Get the right balance of loan and grant funding
• Channel finance through entities with capacity to fund small-scale eg special agencies
Recommendations
2. Strengthen national enabling environment
• Use climate finance to support policy and regulatory reforms
• Strengthen institutions for managing climate finance in low-income countries
3. Fill knowledge gaps
• Research and communication for stakeholders to understand finance gaps, needs and sources
• Lesson-sharing between countries on innovative mechanisms and enablers
Neha Rai, [email protected]
Sarah Best, IIED [email protected]
Eco Matser, Hivos [email protected]
Contacts
References
Rai, N, Best, S and Soanes, M (2016) Unlocking climate finance for decentralised energy access. IIED, London.http://pubs.iied.org/16621IIED.html?c=energy