ENHANCING THEPOLICY FRAMEWORK

FOR SUSTAINABLE ENERGY

INVESTMENTGuidance from the OECD to developing and emerging economies

Karim Dahou, Investment Division, OECD24 October 2012

• Investing in clean-energy infrastructure is an opportunity, particularly for developing countries– Lengthy operational lifetimes of

infrastructure– Leap-frogging to clean-energy

technologies

• The financing needs of this low carbon transition are substantial

• Public financing alone will not be enough to meet these investment needs

Context for clean energy in developing & emerging economies

• Investment Policy• Investment Promotion and Facilitation• Competition Policy• Financial Market Policy & Trade issues• Public Governance & Regional co-

operation• Making and implementing the choice

between public, private and mixed provision of clean energy

POLICY ISSUES TO CONSIDER

• Promoting non discriminatory treatment of cross-border investment in clean energy– Barriers to foreign investment– Investment constraints, such as local

content requirements– Evaluating alternative ways of achieving

these objectives• Intellectual property rights• Contract enforcement and land rights

Investment Policy

• Removing fossil fuel subsidies and pricing carbon

• Long-term goal setting• Licensing renewable energy projects &

One-Stop-Shop for investment promotion• Making clean-energy policies part of a

broader national infrastructure & climate strategy

Investment Promotion & Facilitation

OECD and Emerging economies are experimenting with carbon pricing mechanisms: • Korea: signed into law a carbon emission trading scheme in 2012. • China: setting up 7 pilot domestic carbon markets at provincial & city level as part of 12th FYP.• Chile, Brazil, Costa Rica, Columbia, Mexico and India are also exploring options of market mechanisms for carbon regulation.

• Incentives to promote investment in clean-energy power generation, including IPP

• Incentives to transmission operators for the extension and improvement of the electricity grid

• Ensuring that policy support is clear, credible and coherent & that policies and regulations are enforced

Investment Promotion: Incentives

In Brazil the use of reverse auctions for wind energy (with 20-year PPAs) resulted in winning bids for which tariff rates were 42% lower than previously established FITs

India’s National Solar Mission: poor enforcement of Renewable Purchase Obligations at state level

• Achieving the structural separation of the power sector– Unbundling– Enhancing IPPs– Access to the grid & grid flexibility

• Levelling the playing field for investment in clean energy infrastructure

• Competition authority

Competition Policy

South Africa has adapted bidding criteria to focus on technologies that have already been proven, and by requiring previous experience in undertaking similar projects:

Energy procurement criteria: the example of South Africa

• Facilitating access to finance• Strengthening domestic financial

markets

• Clean energy and the WTO

Financial Market Policy & Trade issues

In Brazil and China, state-owned and/or national development banks are the main sources of long-term financing. In Chile & Korea, capital markets are the main sources of finance:

• Korea’s KEPCO - 87% of national generating capacity - has made use of equity markets to diversify its capital structure• Chile’s private owned electrical companies have financed debt with both local and foreign currency bonds , as well as pension fund investment

• Governance & regulation of the electricity market

• Land planning and deployment of the electricity grid

• Co-ordination between different levels of governance

• Regional co-operation

Public Governance

Mexico’s Energy Regulatory Commission has no independent budget & appointment is done by the President with Ministry of Energy advice. Brazil’s National Electric Energy Agency ensures its financial autonomy via supervision fees; appointment by the President is subject to validation by Senate.

• Experience of the SOE in promoting clean-energy

• Ensuring VFM & long-term affordability when engaging in PPPs

• Risk-sharing and analysis for PPP contracts

• Need for clearly defined legal framework & body of regulations for both public procurement and PPPs

The choice between public, private and mixed provision of clean energy

Using PPPs to increase the share of renewable sources of energy in the energy mix: Cape Verde’s Cabeolica project will generate 28MW of wind power.

THANK YOUYour questions are welcome!

For more information on :

The OECD Policy Guidance for Investment in Clean Energy Infrastructure &

The OECD Principles for Private Sector Participation in Infrastructure (direct link)

See: http://www.oecd.org/industry/internationalinvestment/investmentpolicy/

Or contact the OECD Investment Division:Karim Dahou (karim.dahou@oecd.org; Tel. +33 1 45 24 19 38) & Carole Biau (carole.biau@oecd.org; Tel. +33 1 45 24 94 95 )