Assessing the transition to renewable energy in Rapidly Developing Countries

Periodic Reporting for period 1 - RE-DEV (Assessing the transition to renewable energy in Rapidly Developing Countries)

Reporting period: 2015-11-06 to 2017-11-05

Developing economies alone will account for all of the increase in global carbon emissions by 2035, with the largest share of it coming from power generation. To effectively reduce emissions, power investments have to be re-directed from high-carbon to low-carbon technologies and topped up by additional investments.

Renewable energy holds a promising potential, and could be the world’s largest source of electricity by 2050 ahead of fossil fuels, hydro and nuclear – saving billions of tonnes of carbon dioxide every year.

In developing economies, however, renewable energy investments are discouraged by high risks associated to technical, regulatory and financial barriers. As a result, project financing costs are up to 46% higher than in developed economies. Therefore, it is critical to shed more light into effective policies that can reduce investment risks and leverage renewable energy investments in developing economies.

To better understand the factors that influence renewable energy investments in developing economies, this project will examine the impact of domestic and international policies (in particular, the Paris climate agreement) upon investment risks. By so doing, this project aims to unravel how policy can reduce investment risks and leverage renewable energy investments in developing economies.

Overview of progresses:
-Project's publications.
-Active participation in the UN COP21, 22, and 23.
-Active participation in the Oxford climate science conference on the 1.5C Special Report.
-Active participation in other major international conferences.
-Bilateral meetings/ interviews with key stakeholders (development banks, governments, private sector, non-governmental organisations).
-UNFCCC-AfDB meeting in Abidjan.
-Interviews in media (newspapers, tv, radio).
-Executive training on renewable energy finance in Frankfurt.
-Stakeholders’ expert meeting at the host organisation with 50+ international stakeholders.

Publications:
-Developing countries at a turning point: The role of policy and regulation in the deployment of renewable energy (forthcoming).
-Abandoning oil: How do countries whose wealth is built on fossil fuels transition to a low-carbon, sustainable future? (with E. Woertz).
-Climate futures: In conversation with UN Climate Chief Patricia Espinosa, (with J. Bacaria).
-Climate change: How can we make nations “great again”?
-Financing resilient energy infrastructure in rapidly developing economies: Can the Paris Agreement leverage low-carbon investment?
-Climate change and renewables: Economics overpowering the Trump administration?
-Climate change at a crossroads: Will the US election trump the Paris Agreement?
-The Paris Agreement: A paradigm shift in global climate governance.
-The Paris climate agreement and the Sustainable Development Goals: Mutually reinforcing or weakening policy regimes? (with Eckart Woertz).
-The road after Paris: Three keys to turn the new climate agreement into reality.
-Technological revolutions.
-Climate Change: Road through Paris.
-COP21: The most crucial summit of the century

Research management (fellowship applications, funding applications, or awards achieved):
-Best Research Papers Award, World Energy Council, Istanbul 2016 Conference (this is a non-monetary prize).

Communication skills:
-Enhanced skills in writing sound publications with clear messages suitable for wider audiences such as policy-makers and the society at large;
-Enhanced personal presentation skills (delivering conference presentations, chairing panels, meetings, and conferences);
-Engagement with media, b2b meetings, conferences and policy meetings, etc.

Research skills:
-Performed training to enhance technical expertise on climate finance and infrastructure project structuring: Executive training on renewable energy finance, Frankfurt, 2017.
-Enhanced intersectoral research skills through increased exposure to practitioners and policy-making.
-Enhanced skills for expert assessment through the organisation of a stakeholders’ meeting at the host organisation.

The project took place at a turning point in global climate governance. The international community reached the first universal agreement on climate change at Paris COP21 UN summit in December 2015. As a result of this, climate finance registered historical highs in 2015, reaching €392 billion, and reflecting the reaction of markets and investors to the strong positive signals of the Paris agreement. Developing economies are now forecasted to slow down their carbon emissions as compared to pre-Paris trends. But they are still expected to drive global carbon emissions up by 13% by 2035 (which compares to 29% growth before Paris).

To effectively curb carbon emissions, however, the world needs to move from billions ($392 billion per year) to trillions of investment in sustainable infrastructure ($6.4 trillion per year globally) - of which at least $4 trillion per year in developing countries by 2030. This means that the world needs to mobilise every year more than 150 times the current yearly levels of investments if we want to stay below 2C. Every year, the world registers an average total infrastructure investment (including both high-carbon and low-carbon technologies) of €3.4 trillion. Thus a big part of the needed finance is already available but has to be re-directed from high-carbon to low-carbon energy technologies.

The presence of high risks in renewable energy investments represents a major barrier for developing economies. This project registers significant advancements in terms of policy-settings and derisking interventions with several successful cases in developing countries such as Morocco, India, Chile, and South Africa. Morocco established a successful model that de-bottlenecks critical investment barriers and risks, giving pre-secured land to project developers as well as a guarantee in case of payment default through the sovereign wealth fund. Chile largely derisked its clean energy investment environment, so that local commercial banks are investing into renewable technologies at scale. South Africa created a sound regulatory and institutional framework for PPAs, which help the country transition from frontier market to a much more mature market for renewable energy. India is progressing fast with solar electricity although currency devaluation still represents a major risk for foreign investors.

Last but not least, the project’s results have a strong societal relevance for the EU. Derisking interventions proved to have an outsized impact in mobilising public and private finance, and will therefore be crucial in order to unlock the needed finance into developing countries and help bridge the existing multi-trillion gap in clean infrastructure investments (with at least $4 trillion of yearly investments needed in developing countries). Developing countries' populations could be largely supplied with clean power by using renewable technologies that are available today and are cost-competitive with fossil fuel-based power generation. This project’s results can help policy-makers to take well-informed decisions that will contribute to achieving a sustainable energy transition (e.g. increasing EU national and regional development banks’ lending towards developing countries; creating new capacity-building and policy derisking programmes between Europe and developing countries, etc.).

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Periodic Reporting for period 1 - RE-DEV (Assessing the transition to renewable energy in Rapidly Developing Countries)

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