Investing in Renewable Energy

1. Investing in Renewable Energy • Frank Pool • Working as: Sustainable Energy Development Specialist • Promotion of Renewable Energy, Energy Efficiency and Greenhouse Gas Abatement (PREGA) at Asian Development Bank • http://www.adb.org/reach/netherlands.asp • Presentation at • APEC Village Power Workshop • Canterbury, New Zealand, 9 November 2004

2. Why Renewable Energy? • Kyoto only 1st tiny step in global GHG reductions of 60–80% needed in next 50 - 100 years • Most developing Countries struggling to maintain existing energy infrastructure – let alone keep up with demand – let alone increase electrification • Many mature renewable energy solutions available • Complex barriers & slow stock turnover = slow & steady major impact of energy efficiency possible • Profound implications of peak oil for transport, industry & grid/self/remote generation

3. Renewable Energy is Different from Energy Efficiency • Renewable energy projects generally from larger “packages” = easier to identify, design & finance • Energy efficiency projects often smaller & more complex to quantify, design, implement & M&V • Range of different energy efficiency measures often need to be “bundled” for fundable projects • But - energy efficiency projects can be more cost effective than renewable energy projects • Below grid level - cost reflective pricing & energy efficiency could make large renewable energy projects oversized/uneconomic

4. Critical Role of Energy Pricing • Energy prices rarely reflect full costs of resource proving, extraction, transformation, T&D, retailing • Environmental & social costs rarely included = externalities not internalised = energy still further under-priced - including in developed countries • Economics 101 - under-priced goods/services = under supplied on supply side + wasted on demand side • But - complex mix of other barriers can prevent cost-reflective pricing being effective on its own • So cost-reflective energy pricing is a necessary (but not sufficient in itself) pre-requisite for RE & EE

5. Generic Renewable Energy Barriers • Fossil fuel based technologies mature, well known, with common O&M skills even in remote areas • Fossil fuel subsidies common, very low first cost equip, still runs when worn out & decades old • Experimental renewable technologies often deployed in remote locations without ongoing local skills • Energy services expectations exceed ability to pay • Assumed ongoing “free fuel” inputs -esp biomass • No local ownership - “parachuted in” solutions • More general marketing, awareness campaigns, TA for RE capacity building expected to solve problems

6. Specific Barriers • Unrealistically low tariffs undermine economics • Necessary resource assessments poor/unavailable • Over-reliance on new renewable energy policies • Early work not started on policy implementation • Common mindset that new subsidies needed • Multiple new/weak/overlapping govt agencies • Capture by single technology focused advocates • Unrealistic/incomplete pre-feasibility studies • Lack of land collateral & real world track record • More innovative financing instead of fundamentals

7. The Good News • Ongoing tariff reform & utility unbundling • Fossil fuel subsidies becoming unaffordable • Growing donor/development funding interest • Strong higher technical skills in most countries • CDM already $4/tonne CO2 - can double FIRR • Likely growing CDM price/market/simplicity • Successful commercial examples - eg PV SHS • Grid connected windpower now mainstream • Still hydro (without major resettlement) potential • Efficient cook stoves & village biogas examples

8. Unlocking Existing Funding • Large under-utilised env/dev/SME funds common – available to provide necessary project co-funding • Local banking sector often keen/able to invest • Domestic banking TA, loan guarantees etc can be effective in mobilising existing funding sources • Sustainable energy services provision model - wider than traditional narrow R/ESCO business models • Utilise/develop local expertise/networks/buy in • Use commercially available/well proven technologies • Ensure key stakeholders have strong commercial drivers or are funded for active participation

9. Role of ADB as Development Bank • ADB key Asia Pacific regional development bank • Largest bank activity large loans – esp infrastructure • Loans only made to governments = sovereign debt • Loans often on-lent to local govt & private sector • Major loans involve long preparation & strict formats • Bank also administers, assists many donor grants • Major re-focus underway towards REGA technologies • Regional departments work with developing countries • Central Dept (RSFI) co-ordinates 3 donor funds under REACH (Renewable energy, Energy efficiency And Climate Change) & developing CDM facility

10. ADB Support Available • Major formal loans • Energy policy studies & development support • Support for energy restructuring/unbundling etc • Energy infrastructure & rehabilitation loans • Capacity building • Innovative financing scheme development • Resource assessment studies • Engagement by resident missions @ local level • Support from ADB staff, staff/special consultants • GEF project funding • Operating Canadian, Danish, Dutch REACH funds

11. PREGA • Netherlands funded project – Phase 2 to 31 Dec 06 • Works through National Counterpart Agencies • Work done by National Technical Experts • International Technical Expert assistance possible • National contacts through ADB Regional Depts – mainstreaming enduring change in focus within ADB • Co-ordination through RSFI – ADB Central Dept • Strong links to RSFI’s new CDM Facility • Country reports and policy studies mostly completed • Further pre-feasibility studies, feasibility studies. workshops, few targeted demonstrations in Phase 2

12. GEF Support Availability • Works through executing agencies incl ADB • Grants for project design & implementation • Local & international consultants for project design • Strong focus on barrier identification, removal, M&V • National implementation • Requirement of 5:1 national co-funding: GEF grant • Huge database of completed & current projects • Strong project support from executing agencies • Well defined & transparent project processes • 6 –18 month project design processes possible

13. Specific Project Attributes Needed • Realistic & rich country, energy & project contexts • Make explicit current subsidies & non-tech losses • Realistic hours of use & consumer energy demands • Realistic tariffs/energy prices/special attributes/explicit ongoing subsidies/O&M & training support • Realistic O&M costs, renovation timescales & costs • Realistic, complete & explicit FIRR & EIRR • Commercially proven technology configurations • Accounting for local social & cultural dimensions • Realistically real world field O&M post commissioning, project hand over & warranty periods

14. PREGA Renewable Energy Pre-Feasibility Project Examples • BAN – coastal site wind-PV-diesel hybrid mini-grid • IND - hydro added to existing irrigation schemes • NEP – trolley buses using abundant hydropower • PAK – windpower, mini hydro, cattle colony biogas • PHI – coconut, bagasse, rice husks, tyres, waste oil for cement clinker, bagasse cogen for elect export • PRC – wind farm • SAM – new hydro project’s social acceptability • SRI – coppice biomass power generation • VIE – geothermal, wind, rice husk, small hydro

15. http://www.adb.org/reach/netherlands.asp Thank you