Private Investment in Alternative Energy


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Private Investment in Alternative Energy

  1. 1. Policy Study on Regional Mapping of Options to Promote Private Investments in Alternative Energy Sources for the Poor Presented to: UNDP Technical Review Committee 23-24 March 2006, Bangkok Bikash Pandey & Team Winrock International
  2. 2. Study Objectives <ul><li>Identify and characterize major renewable energy policies, programmes and initiatives in the region against global oil price trends, revived energy security concerns, and socio-economic development and environmental goals with specific emphasis on achieving MDGs. </li></ul><ul><li>Identify and catalogue key policies, programmes and initiatives to promote private investment in renewable energy development, highlighting specific instances of successes and failures, and their underlying reasons. </li></ul><ul><li>Assess impacts of above on overall energy supply mix and consumption patterns, with special attention to the contribution of renewable energy options in meeting the energy needs of the poor and the role of private investment therein. </li></ul><ul><li>Assess impacts of increased deployment of renewable energies on various components of MDGs and relate the outcomes to progress made towards meeting the MDGs. </li></ul><ul><li>Identify strategic directions and policy options for regional governments to mitigate barriers for a substantial scaling up of private investment in renewable energy, with special reference to investment and financing options to cater for the social and economic energy needs of the poor. </li></ul>
  3. 3. Coverage of Interim Report <ul><li>Global assessment </li></ul><ul><li>— developments and trends at international level based on secondary data and live consultations with energy experts </li></ul><ul><li>Regional assessment </li></ul><ul><li>— region-specific review of policy incentives, barriers and investment climate, based on secondary data and live consultations with energy experts </li></ul><ul><li>National assessment </li></ul><ul><li>— macro level assessment based on secondary data, combined with micro level survey of 75 households in three villages of Nepal </li></ul>
  4. 4. Key Findings of Global Assessment: Major international events stressing role of renewable energy sources <ul><li>UNCED, 1992: Agenda 21 highlighting unsustainability of energy production and consumption patterns, and stressing energy resources conducive to human health, atmosphere and natural environment. </li></ul><ul><li>CSD-9, 2001: Agreement to enhance energy efficiency and role of alternative energy sources, particularly in the context of MDG 1. </li></ul><ul><li>G8 Renewable Energy Task Force Report, 2001: Priority to renewable energy market development, particularly in industrialized countries. </li></ul><ul><li>WSSD, 2002: Johannesburg Plan of Implementation emphasizing urgency of raising renewable energy share in overall supplies as a part of measures to improve access to reliable and affordable energy services in the pursuit of MDGs. </li></ul><ul><li>Post-WSSD: Emergence of global partnerships — GVEP, REEP, GNESD, REN21 and UNEP Sustainable Energy Finance Initiative. </li></ul><ul><li>Renewable Energies Conference, 2004: Bonn Action Programme on renewable energy adopted by 170 countries. </li></ul>
  5. 5. Key Findings of Global Assessment: Global renewable energy market trends <ul><li>1970s & 1980s </li></ul><ul><li>ODA-funded small-scale demonstration and pilot projects, marked by institutional and commercial unviability, and lack of market infrastructure/incentives </li></ul><ul><li>Developing country programmes of similar nature </li></ul><ul><li>1990s </li></ul><ul><li>Larger scale developing country initiatives — Brazil’s ethanol programme, China’s and India’s biogas programmes, grid-connected wind power in India, Nepal’s small-scale hydropower programme </li></ul><ul><li>Commercialization of some donor programmes — solar home systems in Kenya </li></ul><ul><li>Entry of oil multinationals — BP and Shell, primarily in solar PV, but with slow progress in developing countries </li></ul><ul><li>2000 onwards </li></ul><ul><li>Investment in 2003 USD 22 billion, up from USD 6 billion in 1995 </li></ul><ul><li>Cumulative investment during 1995-2003 USD 110 billion, much higher than preceding decade </li></ul><ul><li>Supportive policies, technology improvements, cost reductions, better market information and climate change awareness the primary driving factors for growth </li></ul><ul><li>Local environmental concerns, rural development and poverty reduction of lesser importance </li></ul>
  6. 6. Key Findings of Global Assessment: Market shares of renewable energy technologies <ul><ul><li> 1999 2004 </li></ul></ul><ul><li>Technology capacity/production growth </li></ul><ul><ul><li>Grid-connected solar PV 190 MW 1,760 MW </li></ul></ul><ul><ul><li>Off-grid solar PV 990 MW 2,200 MW </li></ul></ul><ul><ul><li>Wind power 13.5 GW 48 GW </li></ul></ul><ul><ul><li>Biodiesel 0.7 billion liters/yr 2.3 billion liters/yr </li></ul></ul><ul><ul><li>Geothermal power 8.0 GW (2000) 8.9 GW (2005) </li></ul></ul><ul><li>Technology shares for USD 22 billion invested in 2003 </li></ul><ul><ul><li>Wind 38% </li></ul></ul><ul><ul><li>Solar photovoltaics 24% </li></ul></ul><ul><ul><li>Solar hot water 21% </li></ul></ul><ul><ul><li>Geothermal power and heat, small hydro power and biomass power 17% </li></ul></ul><ul><li>Share of new renewables (modern biomass energy, geothermal heat and electricity, small hydropower, low-temperature solar heat, wind electricity, solar electricity and marine energy) slightly more than 2% of world energy use in 2001. </li></ul><ul><li>Out of 3,800 GW installed capacity worldwide for all power generation, renewable electricity capacity totaled 160 GW in 2004 (excluding large hydro). Small hydro and wind power account for two-thirds of this capacity. Developing countries have 70 GW of this, primarily small hydro and biomass power. </li></ul><ul><li>Fastest growing renewable energy markets are for wind power and solar photovoltaics in a handful of developed countries, notably Japan, Germany and Spain, with a recent resurgence in the US. </li></ul>
  7. 7. Key Findings of Global Assessment: Investment shares of renewable energy technologies <ul><li>In 2004, about USD 30 billion invested in renewable energy capacity and installations. An additional USD 4–5 billion in new plant and equipment was invested by solar PV manufacturing industry, and several hundred million dollars invested by ethanol industry in new production plants. </li></ul><ul><li>These numbers compare to roughly $110–150 billion invested annually in power generation worldwide. Thus, renewables now form 20–25 percent of global power sector investment. </li></ul><ul><li>Investment shares in 2004 were: </li></ul><ul><ul><li>wind power USD 9.5 billion </li></ul></ul><ul><ul><li>solar PV USD 7 billion </li></ul></ul><ul><ul><li>small hydro power USD 4.5 billion </li></ul></ul><ul><ul><li>solar hot water/heating USD 4 billion </li></ul></ul><ul><ul><li>geothermal and biomass power and heat USD 5 billion </li></ul></ul><ul><li>In addition, an estimated USD 20–25 billion invested in large hydropower annually. </li></ul>
  8. 8. Key Findings of Global Assessment: Sources of funds for renewable energy investment <ul><li>Multilateral, bilateral and other public financing sources USD 500 million/yr for developing country investment. Three largest sources are KfW (USD 180 million), World Bank (USD 110 million) and GEF (USD 100 million). </li></ul><ul><li>Other bilateral and multilateral donors contribute USD 5-25 million/yr. </li></ul><ul><li>Developing country public investment examples include IREDA (India), Grameen Shakti (Bangladesh) and Development Bank of Uganda. </li></ul><ul><li>Public investment expected to grow further, e.g., doubling by World Bank over next 5 yrs., EU-JREC ‘renewable energy fund of funds’. </li></ul><ul><li>Indirect or associated private investment often equal to are significantly greater than public investment which is usually intended to catalyze former. </li></ul>
  9. 9. Key Findings of Global Assessment: Private industry profile <ul><li>Worldwide, at least 60 publicly traded renewable energy companies, or renewable energy divisions of major companies, had a market capitalization greater than USD 40 million in 2005. </li></ul><ul><li>Solar PV is one of the world’s fastest growing, most profitable industries. Capacity expansion plans for 2005–2008 total several hundred megawatts, and an estimated $5-7 billion of capital investment will be made in 2005. </li></ul><ul><li>Large corporations like GE and Siemens have entered wind power market, historically dominated by dedicated wind-turbine manufacturing companies. </li></ul><ul><li>China and other developing countries have emerged as solar PV manufacturers. Chinese module production capacity doubled during 2004, from 50 MW to 100 MW, and cell production capacity increased to 70 MW. India has 8 cell manufacturers and 14 module manufacturers. India’s Tata BP Solar expanded production capacity from 8 MW in 2001 to 38 MW in 2004. In the Philippines, Sun Power planned in 2004 to double its cell production capacity to 50 MW. </li></ul><ul><li>Industries for biomass power and heat and small hydro are more localized, and diverse than those for wind and solar PV. Biomass heat and power investments tend to be made by companies generating waste biomass resources, such as timber and paper companies and sugar mills. European industry leads in small hydropower manufacturing. </li></ul>
  10. 10. Key Findings of Regional Assessment: Policies to promote renewable energy <ul><li>Investment subsidies </li></ul><ul><li>Tax and duty rebates/exemptions </li></ul><ul><li>Mandated market shares for renewable energy </li></ul><ul><li>Independent power producer programmes, especially for small-scale power generation using renewables </li></ul><ul><li>Special funds for renewable energy financing </li></ul><ul><li>New financing modalities/partnerships to cater for different consumer groups </li></ul><ul><li>Emerging CDM-based opportunities </li></ul>
  11. 11. Key Findings of Regional Assessment: Strategies to enhance access to energy <ul><li>Integration of energy into rural development — China and India in the lead </li></ul><ul><li>Renewable energy commercialization — Nepal’s Biogas Support Project and Bangladesh’s Grameen Shakti Solar Home System Project </li></ul><ul><li>Community-Based projects for rural development — Nepal’s REDP focused on rural livelihoods </li></ul>
  12. 12. Key Findings of Regional Assessment: Poor’s lack of access to modern energy
  13. 13. Key Findings of Regional Assessment: Impacts of renewables on poverty <ul><li>Renewables offer social benefits from lighting, TV and radio powered by solar home systems, mini-grids, and biogas, and even some economic benefits from reduced kerosene and candle use. But little evidence of poverty reduction impacts. </li></ul><ul><li>Biogas for cooking and improved biomass stoves reduce expenditure on fuel wood, either in time or money, as well as create jobs. Experiences in Nepal show 3 hours/day per household of time savings for women and girls, annual kerosene savings of 25 liters/household, and annual savings of fuel wood, agricultural waste and dung of 3 tons/household. </li></ul><ul><li>In general, insufficient evidence of large rural development benefits from renewable energy, though some studies do point to benefits. Not clear how welfare and quality of life benefits will drive demand for renewable energy systems beyond the wealthiest rural households. </li></ul><ul><li>Applications of renewable energy for income-generation and social benefits, e.g., clean drinking water, cottage industry, distance education, and improved agricultural productivity, may appeal to increasing segments of rural populations. </li></ul><ul><li>Lessons suggested indicate: </li></ul><ul><ul><li>social benefits and quality of life, rather than income and economic benefits, have driven markets for renewable energy in rural areas </li></ul></ul><ul><ul><li>experience with “productive uses” of renewable energy is still in its infancy and deserves much greater attention from donors, development agencies and governments </li></ul></ul><ul><ul><li>economic benefits from renewables are more likely in rural areas that can incorporate the additional energy dimension into existing development activities for water, health, education, agriculture and entrepreneurship </li></ul></ul><ul><ul><li>published studies of income generation and economic benefits from renewable energy are still limited and call for further research. </li></ul></ul>
  14. 14. Key Findings of Regional Assessment: Factors favouring renewable energy development in the region <ul><li>Energy for sustainable growth and development </li></ul><ul><li>Improving energy security </li></ul><ul><li>Reducing vulnerability to increasing oil prices </li></ul><ul><li>Renewable energy and CDM </li></ul>
  15. 15. Key Findings of National Assessment: Case of Alternative Energy Promotion Centre, Nepal <ul><li>AEPC is an intermediary between renewable energy promoters (NGOs, private sector) and government policy makers. Its functions include: </li></ul><ul><ul><li>Short, medium and long term policy and plan formulation </li></ul></ul><ul><ul><li>Promotion of RET development programmes </li></ul></ul><ul><ul><li>Standardization, quality assurance and monitoring service and support </li></ul></ul><ul><ul><li>Subsidy and financial assistance delivery </li></ul></ul><ul><ul><li>Co-ordination of government organizations, donors, NGO/INGOs and private sector </li></ul></ul><ul><ul><li>Monitoring and evaluation </li></ul></ul><ul><ul><li>Strengthening AEPC and its partners </li></ul></ul><ul><li>Its major renewable energy programmes are: </li></ul><ul><ul><li>Energy Sector Assistance Programme (ICs, SHS) </li></ul></ul><ul><ul><li>Rural Energy Development Programme (micro hydro) </li></ul></ul><ul><ul><li>Biogas Support Programme </li></ul></ul><ul><ul><li>Renewable Energy Project (solar PV) </li></ul></ul><ul><ul><li>Improved Water Mills Programme </li></ul></ul>
  16. 16. Key Findings of National Assessment: AEPC Financing models for renewable energy technologies <ul><li>Biogas and solar </li></ul><ul><ul><li>23-45% capital cost subsidy + owner’s equity (highest subsidies for remote mountain areas) </li></ul></ul><ul><ul><li>bank loan </li></ul></ul><ul><li>Micro hydro </li></ul><ul><ul><li>72.5% capital cost subsidy + 15% community equity (district & village committees) + 12.5% loan </li></ul></ul><ul><ul><li>53% capital cost subsidy + 47% community equity OR 150 days/hh sweat equity </li></ul></ul>
  17. 17. Key Findings of National Assessment: Impacts of micro hydro, solar home and biogas systems on MDGs in 3 villages surveyed <ul><li>MDG 1: Poverty reduction </li></ul><ul><ul><li>Average kerosene saving (3.2 liters/month) and dry cell battery saving (2 pairs/month), equivalent to Rs. 190/month for SHS users and Rs. 100/month for MHP users. </li></ul></ul><ul><ul><li>Average fuel wood saving of 140 kg/month for biogas users, equivalent to 12 work days/year and cash expenditure of Rs 150/Month. Time savings mostly associated with women. </li></ul></ul><ul><ul><li>In Lwangghal village, 3 agro-processing mills run by electricity are major sources of income for mill owners. Diesel savings of 35 liters, equivalent to Rs. 1,300 net cash savings. </li></ul></ul><ul><ul><li>Local carpenters are providing better furniture and are paid better. </li></ul></ul>
  18. 18. Key Findings of National Assessment: Impacts of micro hydro, solar home and biogas systems on MDGs in 3 villages surveyed <ul><li>MDG 2: Education </li></ul><ul><ul><li>Increased study time of 1.2 hrs/day </li></ul></ul><ul><ul><li>Access to educational information from TV/radio </li></ul></ul><ul><ul><li>Negative impacts of TV as well — reduction in study hours due to children watching entertainment programmes. </li></ul></ul><ul><ul><li>Better informed teachers </li></ul></ul><ul><ul><li>Occasional audio-visual teaching </li></ul></ul><ul><ul><li>No impact on school enrollment rates </li></ul></ul><ul><ul><li>No experience with night classes or adult education </li></ul></ul><ul><li>MDG 3: Gender Equality </li></ul><ul><ul><li>Significant increase in women’s involvement in community activities and leadership </li></ul></ul><ul><ul><li>Extra time due to lighting </li></ul></ul><ul><ul><li>Significant reduction in fuel wood collection time for biogas users </li></ul></ul><ul><ul><li>Significant reduction in drudgery where agro-processing units installed </li></ul></ul>
  19. 19. Key Findings of National Assessment: Impacts of micro hydro, solar home and biogas systems on MDGs in 3 villages surveyed <ul><li>MDGs 4 & 5: Health and Sanitation </li></ul><ul><ul><li>General reduction in health problems claimed, but no association with specific diseases/illnesses </li></ul></ul><ul><ul><li>Non-electricity/biogas users with larger number of diseases/illnesses </li></ul></ul><ul><ul><li>Reduced indoor air pollution due to avoidance/reduction of kerosene for lighting </li></ul></ul><ul><ul><li>Improved maternal health and reduced childbirth mortality </li></ul></ul><ul><li>MDG 6: Combating HIV/AIDS, Malaria and Other Diseases </li></ul><ul><ul><li>Villagers believe that media facilities have created awareness to combat different diseases, especially HIV/AIDS. </li></ul></ul><ul><li>Impact on MDG7: Environmental Sustainability </li></ul><ul><ul><li>Significant reduction in indoor air pollution through use of biogas, SHS and MHP. </li></ul></ul><ul><ul><li>Greater forest sustainability due to decrease in fuel wood consumption. </li></ul></ul>
  20. 20. Comments for Follow-Up <ul><li>Global Assessment </li></ul><ul><ul><li>Poverty and MDGs covered in broader energy context, but not in relation to renewable energy. </li></ul></ul><ul><ul><li>Question over reflection of poverty and MDGs concerns in global renewable energy initiatives addressed only in the passing; needs more explicit analysis to be able to make clear statement one way or another. </li></ul></ul><ul><ul><li>On the whole, a good factual summary of market development and investment trends, but slanted towards technology advocacy and ignores sidelining of poor in emerging markets. </li></ul></ul><ul><ul><li>Necessary to bring out (a) inherent limitations of different technologies and (b) poor’s affordability problems vis-à-vis front-end costs. </li></ul></ul><ul><ul><li>Related to this, need for greater coverage of emerging microfinancing initiatives targeting rural poor and low income populations to balance against discussion on large investors catering for affluent market segments. </li></ul></ul><ul><ul><li>People consulted for views are all energy experts. Need for greater diversity, especially NGOs, women’s groups, microfinancing institutions, local industry, local governments — with substantial representation of individuals from developing countries. </li></ul></ul>
  21. 21. Comments for Follow-Up <ul><li>Regional Assessment </li></ul><ul><ul><li>Section on regional energy consumption and supply trends terse and limited to a very few countries. Need to present this more systematically based on access gaps for poor (country grouping in next section should be replaced with this kind of grouping). </li></ul></ul><ul><ul><li>Description of policy frameworks follows country economic/energy resource-based grouping. For ‘mapping’ of options, grouping should be by policy type. </li></ul></ul><ul><ul><li>Section 4.3 on status of renewable energy in the region should be better organized using tables and figures, especially to bring out by country/country group the saturation of different technologies and their market shares in overall supply capacity/supply. What will be most interesting is to see if market shares are increasing with all the investments being made, and this should address countries other than China and India which lead the region in overall renewables shares. </li></ul></ul><ul><ul><li>Section 4.4 on status of regional investments in renewable energy hardly addresses the main topic. As with the global assessment, one needs market and investment shares by technology, and an indication of investment trends over time. Ideally, the data should be by country. (These numbers are hard to come by in public documents/reports, but market assessment reports from industry sources could be purchased.) </li></ul></ul>
  22. 22. Comments for Follow-Up <ul><li>Regional Assessment (contd.) </li></ul><ul><ul><li>Section 4.5 misses out on a good opportunity to examine the flaws in prevailing renewable energy market promotion efforts. Following its description of poverty impacts (or the lack of them), this section (or a separate one following) should critically evaluate existing models using a poverty lens, leading to the identification of certain guiding principles for alternative paradigms which can be developed later in the recommendatory part of the report. </li></ul></ul><ul><ul><li>People consulted for views are all energy experts. Need for greater diversity, especially NGOs, women’s groups, microfinancing institutions, local industry, local governments — with substantial representation of individuals from developing countries. </li></ul></ul>
  23. 23. Comments for Follow-Up <ul><li>National Assessment </li></ul><ul><ul><li>Macro level assessment of national policies on private investment in renewable energy, coupled with poverty-directed access policies, should be dealt with at length to be able to relate assessed micro level impacts with broader policy review. </li></ul></ul><ul><ul><li>Need to track development and growth of renewable energy in national energy supply configuration. </li></ul></ul><ul><ul><li>A comparative assessment of alternative financing models used by AEPC will help. Survey should have assessed user feedback on financing mechanisms, also explaining why certain households still do not have access to renewables installed in community (claimed disinterest not credible, affordability is more likely reason). </li></ul></ul><ul><ul><li>All quantified survey data should be presented in tabular form supported by analysis. </li></ul></ul><ul><ul><li>Household income/expenditure profiles, and energy expenditure profiles should be included ‘before and after’ RETs installation. </li></ul></ul>