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Poor countries face higher green financing costs – study
AFRICA
DEVELOPING countries are finding it more expensive to finance renewables energy projects, as risks in frontier economies are higher, thereby holding back the pro-green government policies promoted by many government and develop- ment finance institutes.
Mobilising finance remains a critical chal- lenge for poorer countries, and is still a criti- cal challenge for the global energy transition, according to a report from India’s Council on Energy, Environment and Water (CEEW).
“Financing costs account for the largest component, between 50% and 65%, of present day renewable energy tariffs in India, and even higher shares in other developing countries where the risk premium is higher,” said the CEEW.
The Council stressed that electricity demand was growing far faster in developing countries, even though they were relative latecomers in embracing renewables.
Demand in the developing world, with over
6bn energy consumers, is forecast by CCEW to grow by 30% over the next 15 years.
According to CEEW, renewable energy capacity addition in some developing countries has surpassed the addition of new fossil fuel- based generation plants.
Yet despite such progress, coal contributes 26 times more to the total primary energy supply in developing countries than renewable energy sources.
The CCE called in its report for changes in financing costs in order to drive future declines in both solar and wind tariffs.
The clean energy sector could enjoy lower financing costs if suitable policy and market-led interventions could de-risk investments and increase competition between various sources of capital. In India, while traditional sources of debt capital, namely banks and non-bank financial institutions, have driven investment flows into clean energy, these are not sufficient to bridge the gap between present and desired debt flows.
UN to support lending to SA power projects
SOUTH AFRICA
THE UN is to provide funding to South Afri- can solar PV developers in a bid to underwrite the bankability of solar projects at a time when there are concerns about Eskom’s ability to meet its commitment as an offtaker to independent power producers (IPPs).
The Green Climate Fund (GCF) said it would work with the Development Bank of Southern Africa (DBSA) to help insure South African renewable producers against offtaker risk.
Up to 330 MW in projects – 280 MW of them PV,theremainderwind–willbeprovidedcred- it-related support under the so-called Embed- ded Generation Investment Programme (EGIP).
The 20-year scheme, set to require overall funding of $537mn, aims to increase the bank- ability of IPPs that do not deal with state-owned offtaker Eskom.
Embedded projects are connected at a local level to the supply network, often with a restricted number of customers, rather than being connected to Eskom’s national grid.
“This programme will open new markets to [IPPs] by enabling them to directly sell energy to industries and cities without sovereign guaran- tees,” GCF executive director Yannick Glemarec said.:
The embedded generation programme will support local power buyers, such as community
trusts and small businesses, as they seek to own clean energy projects in their area.
Glemarec described the partnership with DBSA as “essential”, adding: “Local knowledge of business environments is key to removing bar- riers to low-carbon investment.”
The GCF, set under UN climate change body UNFCCC, said the new programme was meant to plug the funding gap left behind by South Africa’s renewable procurement scheme REIPPPP.
The GCF said that liquidity issues at Eskom had caused funding delays for REIPPPP appli- cants in recent years.
Embedded generation projects in particular have been known to lack a “demonstrable track record” and need help on this front to reach financial close, GCF project documents note.
The UN fund estimates EGIP could, by step- ping in with credit support, assist around 11.2 GW of clean energy projects that cannot turn to REIPPPP contracts despite being “fully viable” and permitted.The use of debt instruments such as subordinated loans could help create a more developed market for embedded generation in South Africa.
The South African government wants to have 5.6 GW of PV capacity by 2030, up from 2.5 GW at present, according to IRENA figures.
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w w w . N E W S B A S E . c o m Week 41 16•October•2019
