Development bank investments could halt emissions rises in developing nations, report finds

The report examines how investors can help to decarbonise energy systems in nations like Chile

That is key conclusion of a new report from Bloomberg New Energy Finance (BNEF), which charts how concessional finance can be used to lower the cost of clean energy in developing nations across Asia, Africa, Latin America and the Middle East.

Concessional finance is typically provided under timescales and terms that are notably more generous that market loans. This is achieved either through interest rates below those available on the market or by grace periods, or a combination of these.

Commissioned by the Clean Technology Fund (CTF), the ‘concessional finance: lessons learned and strategies moving forward’ report examines how investment from development banks and other financial institutions could help developing countries accelerate their respective shifts away from coal and other high-carbon methods of energy generation.

Specifically, it examines the level of finance that would be needed to help Chile, Kazakhstan, Mexico, Morocco and Thailand decarbonise their respective energy sectors in line with the aims of the Paris Agreement, based on each nation’s existing and planned infrastructure.

It additionally accounts for differences in green policy frameworks between these nations, suggesting how investors could best take advantage of them – for either their own gain or to spur the growth of emerging clean energy industries.

The report reveals that CTF has invested a total of $749m in utility-scale renewable energy projects across the five nations examined, as of December 2017. This investment was complemented by $1.3bn worth of co-financing from multilateral development banks (MDBs) – support which has resulted in the creation of $6.2bn in total leveraged investment.

According to BNEF, this financial support was instrumental in spurring the development of several key policy advancements. Chile, for example, has introduced reverse auctions for clean power-delivery contracts and a carbon tax framework since Climate Investment Funds (CIF) – the body which operates CTF – first invested in one of its projects.

“Concessional finance has a proven ability to push the boundaries of clean innovation, ” CIF’s director Mafalda Duarte said.

“Over the next ten years and beyond, this capital will be essential to fighting climate change and building a more prosperous future for all.”

Tipping points and battery boons

A further key segment of the report sets out two “critical tipping points” which “inevitably” spur the clean energy transition in any nation: when clean energy facilities become cheaper to build than a new gas or coal plant, and when building new clean energy facilities becomes cheaper than running existing gas or coal plants. 

It notes that achieving the first “tipping point” in developing markets typically takes between five and ten years – a timescale which could be reduced by up to two years with the support of concessional finance. In Thailand, for example, concessional investment could reduce renewable energy costs by as much as 7%.

As for the second tipping point, BNEF claims that concessional finance could accelerate progress in coal-reliant nations by as much as four years, citing the success of wind power in penetrating India’s predominantly coal-based energy market.

The report additionally examines the impact concessional finance can have on energy storage projects – particularly industrial and pre-industrial scale battery projects.

It concludes that the higher the cost of a technology, the greater potential impact concessional finance can make to reducing prices and speeding up roll-outs, making it even more effective for batteries than for onshore wind and conventional solar projects. Specifically, it found that reducing the capital costs of a lithium-ion battery project by 1% could reduce renewable energy generation costs by $10/MWh.

This finding comes shortly after BNEF unveiled its latest energy storage outlook, which predicts that global investment into energy storage technologies will reach $1.2trn by 2040, largely due to technology costs falling. BNEF claims that battery costs will be 52% less in 2030 than they were in 2018.

Sarah George

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