Clean energy - stop the talking, start investing

By Ian Youngman - 18 Nov 2010 16:28:44 GMT
Clean energy - stop the talking, start investing

The European Renewable Energy Council (EREC) has criticised the European Commission for preferring low-carbon rhetoric to action. It wants a clear focus on renewable energy to extend Europe's technological leadership in the sector. EREC president, Professor Arthouros Zervos comments, "We support the EC's proposed actions relevant to renewable energy, such as grid infrastructure, energy markets and smart cities.

But instead of an undefined low-carbon rhetoric the EU needs a stable framework for renewable energy leading up to 2030 and a clear vision for achieving 100% renewable energy by 2050. The successful development of renewable energy in the current energy system relies on the ability of EU member states to design stable, adequate support mechanisms to compensate for market distortions in order to reach their binding 2020 targets."

EREC is the umbrella organisation of the European renewable energy industry, trade and research associations active in the sectors of photovoltaics, small hydropower, solar thermal, bioenergy, geothermal, ocean, concentrated solar power and wind energy, The European renewable energy sector has an annual turnover of EUR 70 billion and employs 550.000 people. Professor Zervos explains the international importance of European companies, " European companies are world leaders in renewable energy, generating hundreds of thousands of new jobs, and EU energy policies need to ensure the continued growth of this important sector in order for us to maintain our leadership."

The Global Climate Network (GCN), an alliance of think tanks, says that spending on clean energy projects in developing countries needs to double, which will only happen if richer countries give financial help to encourage private companies to invest.

Their new study, 'Investing in Clean Energy', examines in detail the costs of large increases in clean energy projects in four developing countries. It argues that investment in clean energy must grow from $34 billion in 2009 to an average of $63.6 billion a year between 2010 and 2020 if existing ambitions to meet climate change and energy supply targets are to be met. The report says that investment in clean energy, particularly wind and solar, is critical if developing countries are to maintain economic growth and bring power to poor communities.

The report looked at hydro, solar and wind power in China, solar in India, gas and small-scale hydro in Nigeria and solar and wind in South Africa. It finds that while China is investing heavily in wind, India, South Africa and Nigeria are only investing $0.2 billion, a tiny fraction of what would is required to fulfil existing government ambitions.

Professor Pan Jiahua of the Research Centre for Sustainable Development in Beijing, comments, "The massive up front costs of shifting to clean energy require that private investors in the world's major capital markets take the opportunities seriously. For that to happen, financial incentives are needed for pump-priming to reduce what the private sector still sees as a risky market without enough promise of reward."

The report examines in detail the costs of installing clean energy capacity in the four countries. It proposes a range of financial leveraging mechanisms to help ensure the required levels of investment are available. And it includes findings from a series of national dialogues in GCN member countries with policymakers, affected firms, banks and finance professionals and other experts.

GCN accepts that in the current economic climate, EU countries cannot be expected to just give large handouts. The key is guarantees so that private investors feel it is safe and profitable to invest. The report argues that if done in a structured way, every euro of public finance could leverage up to 10 euro from the private sector. GCN argues that governments at last year's Copenhagen climate summit pledged finance to help attract private investment in this way.

Kate Gordon, at the Center for American Progress, GCN's US member says, "If developed countries hope to fulfill their promises in Copenhagen, they must adopt strategies to use public money as a way to leverage private investment into clean energy markets in developing countries. Not only is this the right thing to do, it will also ensure massive growth in these countries' clean energy use, which will bring down the cost of low-carbon technologies the world over."

The Copenhagen Accord, supported by more than 120 countries, sets developed countries a goal of raising a combined $US100 billion a year by 2020 to address the needs of developing countries.

The structured investment suggested by GCN offers five alternative debt and equity finance mechanisms that could be used either by developed country governments acting alone or in a new international climate fund. Each would mean governments either providing up front incentives or sovereign guarantees to private investors. The five mechanisms are:

* Loan guarantees-governments underwrite loans to clean energy projects to safeguard the private sector against defaults.

* Policy insurance - governments insure investors against the risk of policy uncertainty.

* Foreign exchange liquidity - governments offer credit to help guard against risks of currency fluctuation.

* Pledge fund- a developed government backed fund that identifies and analyses small low-risk energy projects and offer these to investors that pledge to invest a set amount of equity capital.

* Subordinated equity fund - a government backed fund for higher risk projects where the fund invests but gets returns only after all other investors have been paid.

Nick Pearce, of the Institute for Public Policy Research, explains, "In the longer term, we must hope that richer countries recognise it is in their interest to put forward much larger sums to help the developing world to convert to cleaner energy. But the cash already pledged could be made to work harder to attract private money in. It may seem difficult to argue for more investment by governments at a time of spending cuts, but it will reduce the amount of government money required in future." Developing countries need help gaining access to capital as they are seen as riskier places to invest in, while clean energy is still regarded by many investors as a high-risk investment with uncertain returns.

Investing in Clean Energy: How can developed countries best help developing countries finance climate-friendly energy investments? - is available online.

Follow: Twitter / Facebook / Google+ / Pinterest / More Energy News

Topics: Wind Energy / Solar Energy / Renewable Energy