unlocking climate finance for decentralised energy access
TRANSCRIPT
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Unlocking climate finance for decentralised energy accessIIED and HIVOS Working Paper, June 2016
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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
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Decentralised energy access: finance needs vs allocation
The estimate of USD 23 billion is from World Energy Outlook, IEA 2011
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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
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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
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Status of climate finance (CFU database): Of 35.3 bn USD bn pledged, 14.1 bn has been approved
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Mitigation: focus on middle income countries via loans
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Clean Technology Fund channels largest share of mitigation finance
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Status of 5.6 bn climate finance allocated to energy…
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40% of climate finance flowing toward energy projects
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Distribution of energy finance: preference for loans to utility-scale projects in middle-income countries
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Utility-scale solar, wind & geothermal receive largest share
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Distribution of grid-based and decentralised energy supply projects in low-income countries
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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
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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
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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
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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
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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