BARCELONA, Feb 22 (Thomson Reuters Foundation) - India, like
many developing countries, is grappling with how to fund a
massive increase in its clean energy supplies as part of a
government push to bring electricity to every household.
It plans to boost its renewable power capacity to 175
gigawatts by 2022 - four to five times more than it has now -
which experts say will need an estimated $200 billion in
There is likely be a 30 percent shortfall in investment
towards that goal based on current capital flows, said Gireesh
Shrimali, director of the Climate Policy Initiative (CPI) India,
a think tank that advises decision makers on green strategies.
"We need to attract institutional investment," he said,
referring to pension funds, insurance companies and sovereign
wealth funds. "They are capable of meeting this gap, and the
truth is they are not investing enough."
But the falling cost of renewable power should encourage
more private-sector money to flow in, he said, pointing to a
recent auction in India's state of Madhya Pradesh, where solar
power was priced at around 5 cents per kilowatt hour - making it
competitive with power produced using coal for the first time.
"Investors are starting to take renewable energy as a very
serious asset class," he said.
Shrimali and other experts at a discussion on financing the
world's low-carbon energy transition in Barcelona late last week
grappled with how to lower the risks of investing in clean
energy projects in developing countries - which are consistently
higher than similar investments in wealthier countries.
In India, investors remain wary of potential problems like
offtake risk - when agreements to purchase power do not deliver
expected revenues on time - and currency risk, in which
depreciation could leave them worse off, Shrimali said.
Payment guarantees and other instruments can be put in place
to reduce those risks - and if this is done using public money,
it can act as a lever for private capital to enter the market,
the experts said.
A major barrier for low-income countries is that they often
lack clean energy projects that are seen as "bankable" - where
financial returns are clearly defined - or big enough to warrant
international interest, said Tancrède Voituriez, governance
programme director at France's Institute for Sustainable
Development and International Relations.
But smaller projects, such as solar power in rural areas,
should be funded by development banks and donors, he said.
"We really need to have a serious conversation with Senegal
or Mali or wherever to say what are the genuine local needs that
these banks could finance," he added.
Efforts are underway at both national and international
level to shift the dial.
On Tuesday, the World Bank said Zambia had signed agreements
for a second mandate to develop utility-scale clean energy with
Scaling Solar, a World Bank programme helping developing
countries to procure low-cost, privately financed solar power.
Scaling Solar projects in progress in Zambia, Senegal,
Madagascar and Ethiopia will develop and tender over 1.2
gigawatts of solar power combined, and the programme is planning
to expand to Asia and the Middle East, the World Bank said.
Morocco is one country that has put in place its own
financing arrangements for renewable energy projects, via the
Moroccan Agency for Sustainable Energy (Masen). It has
successfully arranged funding for one of the world's biggest
solar power plants on the edge of the Sahara desert.
The European Union, including the European Investment Bank,
has paid for around 60 percent of the Noor plant, while Masen
issued Morocco's first green bond of 106 million euros ($111.7
million), last November, to help finance it.
With Morocco aiming to get 52 percent of its electricity
from clean energy by 2030, up from around 28 percent now, Masen
is developing a wind energy portfolio alongside solar, said
Nisrine Elkortbi, the agency's director of finance.
CLIMATE FINANCE 'GAP'
Yet while more money is flowing into renewable projects
around the world, experts say it is not happening fast enough.
Estimates for total investment in global infrastructure
expected by 2035 range from $53 trillion to $90 trillion, said
Luigi Carafa, a climate fellow with the Barcelona Centre for
International Affairs (CIDOB), while climate finance in 2014 was
If that infrastructure - which includes transport, building
and energy projects - is to be green and sustainable, then the
"climate finance gap" is at least $3 trillion per year, he said,
adding that public finance alone cannot close that gap.
Although the cost of renewable energy is falling, "we don't
see the mobilisation of capital which is required", said Irene
Monasterolo, post-doctoral associate with the Frederick S.
Pardee Center for the Study of the Longer-Range Future at Boston
Issuance of green bonds and climate bonds is growing fast,
but at less than $1 trillion, it is still a tiny fraction of the
$90 trillion global bond market, she added.
Better policy frameworks are needed to develop the market,
alongside more sophisticated classification of bonds, she noted.
Experts said work needs to crank up fast to turn countries'
climate action plans - including their emissions reduction
targets - submitted for the Paris climate agreement into
concrete projects that can be funded, and urged governments and
big multilateral development banks to kick-start this process.
CPI's Shrimali predicted that the required shift towards
greener investment will start happening faster, now that
renewable energy has become competitive with fossil fuels in
many places, and cash flows are being generated over time.
"The transformation is just starting - it is going to take
place over the next 10 to 15 years," he said.
($1 = 0.9490 euros)
(Reporting by Megan Rowling @meganrowling; editing by Alex
Whiting. Please credit the Thomson Reuters Foundation, the
charitable arm of Thomson Reuters, that covers humanitarian
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and property rights. Visit news.trust.org/climate)