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  • A BOTTOM-UP APPROACH: LOW-CARBON ENERGY TRANSITION IN DEVELOPING COUNTRIES

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    A Bottom-up Approach: Low-Carbon Energy Transition In Developing Countries

     

     
     
    International Trade Forum - Issue 1/2010

    Small-Scale Sustainable Infrastructure Development Fund (S³IDF), India.

    The world's rapidly growing demand for resources, influenced by high growth rates and urbanization in countries such as China, India and Indonesia, is resulting in higher overall commodity prices, particularly for fuels. Yet there are technologies available which can help to ease the demand for fossil fuels in developing countries and to produce goods and services more efficiently. These technologies can also reduce greenhouse gas emissions.

    Although the world is likely to continue its heavy dependence on fossil fuels in the near term, low-carbon energy technologies will increase their share. These include technologies that traditional environmentalists do not always view as sustainable: advanced clean coal technologies, fourth-generation nuclear energy and carbon capture and storage all offer lower carbon emissions. Clean energy systems, i.e., renewable energy and energy efficiency systems, are expected to play a key role in decarbonizing the energy sector and reducing greenhouse gas emissions.

    Much attention has already been placed on policy measures that will help shift the energy sector to a low-carbon path. However for developing countries, low-carbon energy brings a specific set of issues, or more accurately barriers, that continue to constrain its rate of growth. These factors include increased investment costs, the need for technology transfer, perceived technology risk and its management, and limited capacity of developing countries to integrate innovative technologies.

    REEEP's role

    In a developing country context, renewable energy and energy efficiency represent a new challenge in how to integrate the planning of energy systems into policy priorities of energy security, climate, decentralization, pluralism and local employment.

    The Renewable Energy and Energy Efficiency Partnership (REEEP) is a global public-private partnership that was launched as a type-II United Nations partnership by the United Kingdom to deliver the commitments made at the World Summit on Sustainable Development and implement the recommendations of the G8 Renewable Energy Task Force. Over the past five years the partnership has worked with more than 50 developing countries to accelerate the development of renewable energy and energy efficiency technologies to support sustainable development and poverty alleviation.

    The partnership takes a bottom-up approach. Initiatives are often led by local organizations - governments, businesses and financiers who are establishing replicable and scalable examples of clean energy market development. Many use innovative financing approaches and new business models that tackle barriers from the grass-roots level. The aim is to reward innovative thinking and recognize potential.

    One example is the establishment of a finance facility with the Fiorello H. LaGuardia Foundation. It set up a fund to provide financing for using renewable energy as an input to rural economic development. This finance facility has leveraged local finance to support renewable energy-based agricultural systems in João Pessoa in Brazil. Small farmers have used the loans for technologies such as micro-irrigation combined with solar pumps and bio-digesters for biogas production and organic fertilizers. They have also financed solar dryers for dried fruits and spices.

    Private Financing Advisory Network

    This hybrid finance approach has now been replicated in Mozambique through another REEEP-supported initiative, the Private Financing Advisory Network (PFAN).

    Another issue in developing countries is that people might be willing to consider clean energy solutions, but there are simply no retail outlets offering them, particularly in rural areas. This problem is compounded by the absence of trade and consumer finance which are available for regular consumer goods and automobiles, but not for clean energy systems.

    Small-Scale Sustainable Infrastructure
    Development Fund


    REEEP is working with the Small-Scale Sustainable Infrastructure Development Fund (S³IDF) in the state of Karnataka in India to establish supply chains for compact fluorescent lamps, efficient pressure cookers, stoves and solar lanterns. S³IDF also engages microfinance institutions and provides guarantees for purchase of the systems by households, small shops and other retail establishments. S³IDF is also trying to sell the verified emission reductions from its initiatives in the voluntary carbon markets through mechanisms such as the Gold Standard (another REEEP-supported initiative) as a source of co-financing.

    Carbon Disclosure Project (CDP)

    The corporate world is also increasingly a driver for renewable energy and energy efficiency investments, driven by corporate social responsibility strategies. Here, REEEP has a long-standing partnership with the Carbon Disclosure Project (CDP), which integrated both renewable energy and energy efficiency measures into the framework that it applied to evaluate the carbon footprint of FT 500 companies. Currently REEEP is working with CDP to analyse the renewable energy use and energy efficiency measures of the 200 largest public companies in India and 100 of the largest public companies in Brazil, China and South Africa. The resulting report will be published in the second half of 2010 and will provide an understanding of the current levels of engagement and investment of the private sector in these BASIC group countries.

    While still in progress, these local initiatives have provided important lessons such as:

    • Microfinance can play a major role in developing markets for small low-carbon energy systems and devices, but the achievements have so far only been in market niches. The three critical factors to be addressed to scale up the role of microfinance in low-carbon energy are: the management of transaction costs; credit risk management; and the availability of low-cost, long-term financial resources.
    • The perception is that both urban/peri-urban and rural poor people cannot pay for low-carbon energy. Most poor people, however, pay for energy at levels that are quite significant, considering their total incomes. Another belief is that low-carbon energy delivery services are more suited to not-for-profit organizations. However, providing energy services to the poor is a profitable business with a bigger role for for-profit principles and enterprises.
    • The private sector needs to play a more active role in low-carbon energy transition in developing countries to increase the scale, and thereby the impact, of the transition. While increasingly there is a business case for sustainable energy, public policy needs to regulate and provide incentive for private action to move it from the realm of social responsibility into mainstream business.

    Useful websites

    REEEP's ongoing projects overview
     
    Fiorello H. LaGuardia Foundation

    PFAN

    S³IDF

    Carbon Disclosure Project

    Gold Standard Foundation
     

    REEEP's experience, based on the 130 projects it has funded during the last five years in more than 50 developing countries, shows that the rate at which renewable energy and energy efficiency are deployed can be accelerated by innovative financing approaches, institutional initiatives and new business opportunities.