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Investing in Renewable EnergyInvesting in Renewable Energy

Frank PoolWorking as: Sustainable Energy Development SpecialistPromotion of Renewable Energy, Energy Efficiency and

Greenhouse Gas Abatement (PREGA) at Asian Development Bank

http://www.adb.org/reach/netherlands.aspPresentation at

APEC Village Power WorkshopCanterbury, New Zealand, 9 November 2004

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Why Renewable Energy?Why Renewable Energy?

• Kyoto only 1st tiny step in global GHG reductions of 60–80% needed in next 50 - 100 years

• Most developing Countries struggling to maintain existing energy infrastructure – let alone keep up with demand – let alone increase electrification

• Many mature renewable energy solutions available

• Complex barriers & slow stock turnover = slow & steady major impact of energy efficiency possible

• Profound implications of peak oil for transport, industry & grid/self/remote generation

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Renewable Energy is Different Renewable Energy is Different from Energy Efficiency from Energy Efficiency

• Renewable energy projects generally from larger “packages” = easier to identify, design & finance

• Energy efficiency projects often smaller & more complex to quantify, design, implement & M&V

• Range of different energy efficiency measures Range of different energy efficiency measures often need to be “bundled” for fundable projectsoften need to be “bundled” for fundable projects

• But - energy efficiency projects can be more cost effective than renewable energy projects

• Below grid level - cost reflective pricing & energy efficiency could make large renewable energy projects oversized/uneconomic

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Critical Role of Energy Pricing

• Energy prices rarely reflect full costs of resource Energy prices rarely reflect full costs of resource proving, extraction, transformation, T&D, retailingproving, extraction, transformation, T&D, retailing

• Environmental & social costs rarely included = Environmental & social costs rarely included = externalities not internalised = energy still further externalities not internalised = energy still further under-priced - including in developed countries under-priced - including in developed countries

• Economics 101 - under-priced goods/services = Economics 101 - under-priced goods/services = under supplied on supply side + wasted on demand under supplied on supply side + wasted on demand sideside

• But - complex mix of other barriers can prevent But - complex mix of other barriers can prevent cost-reflective pricing being effective on its owncost-reflective pricing being effective on its own

• So cost-reflective energy pricing is a necessary (but So cost-reflective energy pricing is a necessary (but not sufficient in itself) pre-requisite for RE & EEnot sufficient in itself) pre-requisite for RE & EE

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Generic Renewable Energy Barriers

• Fossil fuel based technologies mature, well known, Fossil fuel based technologies mature, well known, with common O&M skills even in remote areaswith common O&M skills even in remote areas

• Fossil fuel subsidies common, very low first cost Fossil fuel subsidies common, very low first cost equip, still runs when worn out & decades old equip, still runs when worn out & decades old

• Experimental renewable technologies often deployed Experimental renewable technologies often deployed in remote locations without ongoing local skillsin remote locations without ongoing local skills

• Energy services expectations exceed ability to payEnergy services expectations exceed ability to pay• Assumed ongoing “free fuel” inputs -esp biomassAssumed ongoing “free fuel” inputs -esp biomass• No local ownership - “parachuted in” solutionsNo local ownership - “parachuted in” solutions• More general marketing, awareness campaigns, TA More general marketing, awareness campaigns, TA

for RE capacity building expected to solve problems for RE capacity building expected to solve problems

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Specific Barriers

• Unrealistically low tariffs undermine economicsUnrealistically low tariffs undermine economics

• Necessary resource assessments poor/unavailable Necessary resource assessments poor/unavailable

• Over-reliance on new renewable energy policiesOver-reliance on new renewable energy policies

• Early work not started on policy implementationEarly work not started on policy implementation

• Common mindset that new subsidies neededCommon mindset that new subsidies needed

• Multiple new/weak/overlapping govt agenciesMultiple new/weak/overlapping govt agencies

• Capture by single technology focused advocatesCapture by single technology focused advocates

• Unrealistic/incomplete pre-feasibility studiesUnrealistic/incomplete pre-feasibility studies

• Lack of land collateral & real world track recordLack of land collateral & real world track record

• More innovative financing instead of fundamentals More innovative financing instead of fundamentals

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The Good NewsThe Good News

• Ongoing tariff reform & utility unbundlingOngoing tariff reform & utility unbundling

• Fossil fuel subsidies becoming unaffordableFossil fuel subsidies becoming unaffordable

• Growing donor/development funding interestGrowing donor/development funding interest

• Strong higher technical skills in most countriesStrong higher technical skills in most countries

• CDM already $4/tonne CO2 - can double FIRRCDM already $4/tonne CO2 - can double FIRR

• Likely growing CDM price/market/simplicityLikely growing CDM price/market/simplicity

• Successful commercial examples - eg PV SHSSuccessful commercial examples - eg PV SHS

• Grid connected windpower now mainstreamGrid connected windpower now mainstream

• Still hydro (without major resettlement) Still hydro (without major resettlement) potentialpotential

• Efficient cook stoves & village biogas examplesEfficient cook stoves & village biogas examples

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Unlocking Existing Funding

• Large under-utilised env/dev/SME funds common – Large under-utilised env/dev/SME funds common – available to provide necessary project co-fundingavailable to provide necessary project co-funding

• Local banking sector often keen/able to investLocal banking sector often keen/able to invest• Domestic banking TA, loan guarantees etc can be Domestic banking TA, loan guarantees etc can be

effective in mobilising existing funding sourceseffective in mobilising existing funding sources• Sustainable energy services provision model - wider Sustainable energy services provision model - wider

than traditional narrow R/ESCO business modelsthan traditional narrow R/ESCO business models• Utilise/develop local expertise/networks/buy inUtilise/develop local expertise/networks/buy in• Use commercially available/well proven Use commercially available/well proven

technologiestechnologies• Ensure key stakeholders have strong commercial Ensure key stakeholders have strong commercial

drivers or are funded for active participationdrivers or are funded for active participation

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Role of ADB as Development Role of ADB as Development BankBank

• ADB key Asia Pacific regional development bankADB key Asia Pacific regional development bank• Largest bank activity large loans – esp infrastructureLargest bank activity large loans – esp infrastructure• Loans only made to governments = sovereign debtLoans only made to governments = sovereign debt• Loans often on-lent to local govt & private sectorLoans often on-lent to local govt & private sector• Major loans involve long preparation & strict formatsMajor loans involve long preparation & strict formats• Bank also administers, assists many donor grantsBank also administers, assists many donor grants• Major re-focus underway towards REGA technologiesMajor re-focus underway towards REGA technologies• Regional departments work with developing Regional departments work with developing

countriescountries• Central Dept (RSFI) co-ordinates 3 donor funds Central Dept (RSFI) co-ordinates 3 donor funds

under REACH (Renewable energy, Energy efficiency under REACH (Renewable energy, Energy efficiency And Climate Change) & developing CDM facility And Climate Change) & developing CDM facility

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ADB Support Available

• Major formal loansMajor formal loans• Energy policy studies & development support Energy policy studies & development support • Support for energy restructuring/unbundling etcSupport for energy restructuring/unbundling etc• Energy infrastructure & rehabilitation loansEnergy infrastructure & rehabilitation loans• Capacity buildingCapacity building• Innovative financing scheme developmentInnovative financing scheme development• Resource assessment studiesResource assessment studies• Engagement by resident missions @ local levelEngagement by resident missions @ local level• Support from ADB staff, staff/special consultantsSupport from ADB staff, staff/special consultants• GEF project fundingGEF project funding• Operating Canadian, Danish, Dutch REACH fundsOperating Canadian, Danish, Dutch REACH funds

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PREGAPREGA

• Netherlands funded project – Phase 2 to 31 Dec 06Netherlands funded project – Phase 2 to 31 Dec 06• Works through National Counterpart AgenciesWorks through National Counterpart Agencies• Work done by National Technical ExpertsWork done by National Technical Experts• International Technical Expert assistance possibleInternational Technical Expert assistance possible• National contacts through ADB Regional Depts – National contacts through ADB Regional Depts –

mainstreaming enduring change in focus within ADBmainstreaming enduring change in focus within ADB• Co-ordination through RSFI – ADB Central DeptCo-ordination through RSFI – ADB Central Dept• Strong links to RSFI’s new CDM FacilityStrong links to RSFI’s new CDM Facility• Country reports and policy studies mostly completedCountry reports and policy studies mostly completed• Further pre-feasibility studies, feasibility studies. Further pre-feasibility studies, feasibility studies.

workshops, few targeted demonstrations in Phase 2workshops, few targeted demonstrations in Phase 2

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GEF Support Availability

• Works through executing agencies incl ADBWorks through executing agencies incl ADB• Grants for project design & implementationGrants for project design & implementation• Local & international consultants for project designLocal & international consultants for project design• Strong focus on barrier identification, removal, Strong focus on barrier identification, removal,

M&VM&V• National implementationNational implementation• Requirement of 5:1 national co-funding: GEF grantRequirement of 5:1 national co-funding: GEF grant• Huge database of completed & current projectsHuge database of completed & current projects• Strong project support from executing agenciesStrong project support from executing agencies• Well defined & transparent project processesWell defined & transparent project processes• 6 –18 month project design processes possible6 –18 month project design processes possible

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Specific Project Attributes Specific Project Attributes NeededNeeded

• Realistic & rich country, energy & project contextsRealistic & rich country, energy & project contexts• Make explicit current subsidies & non-tech lossesMake explicit current subsidies & non-tech losses• Realistic hours of use & consumer energy demandsRealistic hours of use & consumer energy demands• Realistic tariffs/energy prices/special Realistic tariffs/energy prices/special

attributes/explicit ongoing subsidies/O&M & attributes/explicit ongoing subsidies/O&M & training supporttraining support

• Realistic O&M costs, renovation timescales & costsRealistic O&M costs, renovation timescales & costs• Realistic, complete & explicit FIRR & EIRRRealistic, complete & explicit FIRR & EIRR• Commercially proven technology configurationsCommercially proven technology configurations• Accounting for local social & cultural dimensionsAccounting for local social & cultural dimensions• Realistically real world field O&M post Realistically real world field O&M post

commissioning, project hand over & warranty commissioning, project hand over & warranty periodsperiods

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PREGA Renewable Energy Pre-PREGA Renewable Energy Pre-Feasibility Project ExamplesFeasibility Project Examples

• BAN – coastal site wind-PV-diesel hybrid mini-gridBAN – coastal site wind-PV-diesel hybrid mini-grid• IND - hydro added to existing irrigation schemesIND - hydro added to existing irrigation schemes• NEP – trolley buses using abundant hydropowerNEP – trolley buses using abundant hydropower• PAK – windpower, mini hydro, cattle colony biogas PAK – windpower, mini hydro, cattle colony biogas • PHI – coconut, bagasse, rice husks, tyres, waste oil PHI – coconut, bagasse, rice husks, tyres, waste oil

for cement clinker, bagasse cogen for elect exportfor cement clinker, bagasse cogen for elect export• PRC – wind farmPRC – wind farm• SAM – new hydro project’s social acceptabilitySAM – new hydro project’s social acceptability• SRI – coppice biomass power generationSRI – coppice biomass power generation• VIE – geothermal, wind, rice husk, small hydroVIE – geothermal, wind, rice husk, small hydro

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http://www.adb.org/reach/netherlands.asp