Energy transition accelerates with GCF support
The transition to low-emission, renewable energy is crucial if we are to meet the Paris Agreement’s stated goal of pursuing efforts to limit the global temperature increase to 1.5 degrees Celsius.
Many developing countries have included a rapid expansion of renewable power within their Nationally Determined Contribution (NDC) under the Paris Agreement, but translating these ambitions into action is not straightforward.
A supportive policy framework is needed that provides a stable mechanism to feed in renewable power to main electricity grids. And while operational costs for renewable energy are falling, building power generating facilities requires access to long-term, concessional finance that is not readily available in many developing countries.
GCF has a growing portfolio of projects that are driving this clean energy transition. They provide concessional climate finance to mobilise private sector investment, while supporting developing countries in establishing the policy frameworks to enable renewables to enter the energy mix at scale.
In Egypt, GCF’s investment with the European Bank for Reconstruction and Development (EBRD) is already financing a group of solar power projects in the Benban solar park – which will host the world’s largest array of solar power.
GCF’s USD 154.7 million contribution to this Egyptian project, now being implemented, is helping to unlock private investment by renewable energy providers.
Now in Kazakhstan, GCF has just completed its largest disbursement to date of USD 86.7 million. The project follows a similar model to Egypt, again partnering with EBRD, to help Kazakhstan transition from its current reliance on Soviet-era coal plants.
The investment will encourage Kazakhstan’s private sector to invest in renewables by offering concessional, long-tenor loans over a period of five years. The project, comprising a total of USD 110 million in GCF financing, establishes a programme of loans to Kazakhstan’s private sector to invest in renewable energy projects – mostly solar photovoltaic, but also including wind, small hydropower and biogas.
The investment will also support transmission and distribution projects that will ensure consumers have access to power generated by renewable energy projects.
The 25-year project in Kazakhstan will support the construction of an estimated 330 MW of new renewable energy capacity and an auction system to ensure renewable energy suppliers are selected at the most efficient cost.
Kazakhstan is currently one of Central Asia’s largest emitters of greenhouse gas. Its government has vowed to move away from its current reliance on fossil fuels, with coal accounting for 72 percent of its energy needs. In its NDC, the government has set a target of reducing its emissions by 15 percent by 2030 compared to 1990. At the same time, the pressing need for modernisation provides an opportunity for Kazakhstan to pursue a paradigm shift to a less carbon-intensive economy.
Kazakhstan’s ambitious plans for a lower carbon future is based on an estimation by its government that when accounting for projections of increasing energy demand, 73 percent of its power generating facilities – many built during the Soviet era – require modernising as they are obsolete.
GCF is capitalising on synergies of financing and shared learning between investment models to help the private sector carve out profitable renewable markets in a variety of developing countries.
Another project was approved by the GCF Board earlier this year to establish a framework for renewable energy in Zambia, this time with the African Development Bank. There, a loan of USD 50 million from GCF will support the Government of Zambia’s Renewable Energy Feed-in Tariff to develop 100 MW of mostly solar power.
The investment in Zambia represents a replication of GCF’s journey on financing renewable energy frameworks that started with Egypt and subsequently, Kazakhstan.
Rajeev Mahajan, who specialises in project finance at GCF, said private sector investment is key to developing low-carbon energy in developing countries.
“The rapid growth of populations and economies in many developing countries means we must act now to ensure that the establishment of new energy infrastructure is low-carbon,” he said.
“GCF’s ability to take on higher levels of risk and offer long-term, concessional finance is key to unlocking new markets for renewables. Our projects in Egypt, Kazakhstan and Zambia are showing the private sector can be encouraged to invest, provided the conditions are right.”
While a recent report by the International Renewable Energy Agency finds the private sector has provided over 90 percent of recent renewable energy investments, it also highlights the key part public spending can play at the early stage of projects and in bringing new markets to maturity.
The major role of international climate finance, such as that provided by GCF, is to help develop new markets for renewable power by intervening to crowd-in private finance. It is widely acknowledged that private finance will be necessary to substantially increase the place of renewables in the energy mix.
Ultimately, the decisions of companies to invest in renewable energy will be driven by profits. And the prospects for making money in renewable energy are looking increasingly bright. The International Energy Agency predicts renewables will capture two-thirds of global investment in power plants to 2040 as they become, for many countries, the least-cost source of new generation.
The challenges will be considerable, however, as global energy demand is anticipated to be 30 percent higher in 2040 than today.
So GCF will continue to work with developing countries to see how its early and strategic injection of funds can assist their plans to energise the private sector in driving the renewables revolution.