Multilateral Roundtable Discussion
International Finance Corporation (IFC), Washington, DC
January 23, 2014
Event Summary and Recommendations
Context
With some exceptions, overall investment in renewable energy sources in lower income countries (LICs) and emerging market economies (EMEs) has been on a slight decline since 2011 despite the near universal awareness of climate change, the need for energy security, and an improving cost equation for shifting to renewable energy alternatives vis-à-vis traditional energy to serve the needs of communities. While consumer energy demand continues to rise and more than 50% of new capacity is being built in EME vs. OECD countries, long term forecasts suggest approximately 80% of online energy production will remain carbon-based by 2035.
On January 23, 2014, the Bretton Woods Committee – in cooperation with the International Finance Corporation (IFC) – brought senior IFI and U.S. government officials together with Bretton Woods Committee members and other private sector market participants – to consider the trends, challenges and future of investments in renewable energy in LICs and EMEs, and to exchange ideas over what it will take for the IFIs and private sector to invest further and help drive renewable energy solutions in lower income countries and emerging markets.
In general, participants discussed and agreed on the following themes and recommendations:
Improving Domestic Policy Framework and Planning Environment
• Participants agreed the policy framework and institutional planning capacity within LICs remains insufficient to support large amounts of investment deployed into renewables. With generational costs of solar and other renewables decreasing due to technology, LICs now have opportunities to develop indigenous renewable resources and significantly alter the overall mix of energy supplied to next generation users.
Recommendation: Sharpen IFI focus on investing in enabling national and local planning capacities that foster renewable energy investment in LICs and EMEs
Strengthening Local Infrastructure and Transmission Mechanisms
• Participants noted the lack of basic transmission infrastructure in LICs makes it easy for IFIs and the investment community to be risk averse – but creative local and IFI solutions for enhancing either centralized or distributed power development are needed to overcome common infrastructure impediments. Use of renewables such as solar energy, which has declined in cost and improved technologically through enhancements such as mini-grids, should be considered as a viable alternative in cases where weak transmission and utility capacity have historically been a bottleneck to sustainable energy development.
Recommendation:Infrastructure and transmission capacity should remain a high priority for IFI-supported renewable energy investments in LICs and EMEs, as well as support for cross-border transmission capacity in key communities
Recommendation: IFIs can improve collaboration – both interdepartmentally and with each other – to minimize the silos that may develop among operational units supporting traditional thermal vs. renewable energy investments. Consider opportunities to leverage gas (which can cycle intermittently) as a bridging energy to support societal shift from reliance on fossil fuels to renewables.
Diversifying and Innovating Renewable Energy Financing
• Participants shared a broad array of perspectives on financing, and generally agreed that a) disconnects remain in debt and equity capital financing of renewable energy projects in LICs and EMEs, which may be keeping economically-sound and developmentally-useful projects from materializing or achieving their potential; and b) opportunities for more innovative IFI financing exist, and would be an inducement to entrepreneurs and private sector investment. They noted that debt capital hasn’t been adequately tested in many markets due to a lack of projects – and in countries like Brazil, Nigeria, and South Africa, state development agencies have financed a disproportionate number of auctions, while domestic banks involved in early stage auctions have experienced sector exposure restraints. Until policy frameworks enable many projects to come into the market simultaneously (as in the U.S. or Europe), the verdict remains to be seen on whether existing debt capital mechanisms in EMEs are sufficient to attract large foreign investors. Additionally, they urged the IFIs to become more creative in their lending instruments and terms, such as: shifting out the capital structure to the (typical) 25 year term of the power purchasing agreements (PPAs), separating out higher upfront risks (e.g. construction risk) from longer term cash flows; and offering equity financing in early stage investment in renewables.
Recommendation: For larger renewable energy projects, IFIs should consider extending loan terms of longer term debt financing (usually up to 15 years) to match terms of the power purchasing agreements (PPAs), which would improve alignment of cash flows for investors.
Recommendation: For smaller renewable energy projects that follow more of a distributional model of deployment (e.g. off-grid), the private sector lending arms of the World Bank and regional development banks should consider offering equity investment funds, to give entrepreneurs more access to venture capital. A portion of IFC profits could go toward supporting development of such venture capital funds offered by IFC.
Participants
IFI and Government Representatives
Mr. Ricardo Arias
World Bank
Ms. Pepukaye Bardouille
International Finance Corporation
Mr. Patrick Doyle
Inter-American Development Bank
Mr. Guillermo Eschoyez
Inter-American Development Bank
Ms. Teresa Maurea Faria
Inter-American Development Bank
Mr. David Feldman
The National Renewable Energy Laboratory
Mr. Daniel Morris
U.S. Department of the Treasury
Mr. John Morton
OPIC
Mr. Bernie Sheahan
International Finance Corporation
Ms. Bella Tonkonogy
U.S. Department of the Treasury
Mr. S. Samuel Tumiwa
Asian Development Bank
Mr. Arnaldo Vieira de Carvalho
Inter-American Development Bank
Bretton Woods Committee Members and Guests
Mr. Joseph Brandt
ContourGlobal
Mr. Steve Cashin
Pan African Capital Group
Ms. Laura Lovelace
Lovelace Energy Advisors
Ms. Sherry Odom
GE
Mr. Randy Rodgers
Bretton Woods Committee
Ms. Hua Tan
Bechtel
Mr. Hidemitsu Terasawa
Bank of Tokyo – Mitsubishi UFJ, Ltd.
Mr. So Uehara
Marubeni America
Mrs. Valentina van der Dys
Santander
Mrs. Adriane Wodey
Bechtel
Mr. Peter Woicke
Ashesi University Foundation