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  • Jun 04, 2018

Financing the Transition to a Sustainable Energy Future

Mafalda Duarte 

There are over a billion people with unreliable access to energy around the world.

Energy access – or lack thereof – affects almost every decision they make each day. 

Last month at Sustainable Energy for All, in Lisbon, I told a story about Janett Troncoso, an inspiring woman that I met in Chile. Janett lives in Ollague, a small village of around 200 people near the Bolivian border. She has three children and is the family’s sole bread winner. Energy access – or lack thereof – affects almost every decision she makes. Intermittent power to the village has meant that Janett had no refrigerator to store food safely; her kids were unable to do their homework without lighting after dark. Limited street lighting made it unsafe for the family to be out at night. Their cell phones would often be out of charge which meant the family would often have to wait hours before making emergency phone calls. Without a reliable source of electricity, Janett told me she felt, quite literally, powerless.

There are far too many Janetts around the world today – she is but one of over a billion people with unreliable access to energy. And there are a  billion more people without access to electricity at all. The knock-on effects of this energy poverty on education, employment, social mobility, healthcare are huge. So delivering on SDG7 is essential to unlocking the transformational change needed to achieve the ambitious 2030 sustainable development goals.

However, current projections indicate that we are falling behind the investment trajectory required to achieve universal access for all. The Tracking SDG7 report released yesterday indicated that if current policies and population trends continue, as many as 674 million people will continue to live without electricity in 2030, and as many as 2.3 billion people will still be using traditional cooking solutions.

Preventing this shortfall means scaled up investment in energy solutions. The IEA estimates that we need to invest $48 trillion to meet global energy needs between now and 2035. And that figure goes up by $5 trillion if we want to avoid the worst impacts of climate change and stay on a path to limit global warming to 2 degrees C. 

The good news is that we are making progress and the transition to a sustainable energy future is happening. This year alone will see another 100 GW in solar energy capacity installed worldwide. That’s the same output as 200 coal-powered plants, or enough to power over 17 million households in some countries. In 2017, the world invested more in solar energy than in coal, gas and nuclear combined.

Portugal – my country of birth – is a prime example of the ‘scale’ and speed of investment possible. Large-scale investment over the last 20 years is now paying off in the form of lower energy costs and high levels of clean energy in the power mix. In March this year, Portugal’s monthly renewable energy production actually exceeded power demand on the mainland, providing yet more evidence of the viability of clean energy alternatives to power – not just towns and cities, but entire nations. 

These are huge gains compared to where we were even two years ago. While we must of course celebrate the progress made and results achieved, we must also be realistic about the challenges ahead, which will only be met with trillions of untapped dollars.

So, onto the trillion-dollar question - how exactly do we mobilise the level of investment required?

This is a question we ask ourselves all the time at the Climate Investment Funds. We are, in fact, celebrating our 10-year anniversary this year which has prompted us, as is often the case with milestone birthdays, to pause for thought and to take stock of what we’ve achieved and what we’ve learnt as one of the oldest and largest multilateral climate funds in the world.

We were created during the somewhat turbulent period of the 2008 financial crisis. Since then, we’ve built an $8.3 billion dollar portfolio of over 300 investments in 72 countries. We are helping countries scale up renewable energy and clean technologies, mainstream climate resilience in development plans and action, and support the sustainable management of forests.

While $8.3 billion dollars sounds like a big number, we also know this amount cannot, in itself, get us to where we need to go; because ultimately, it’s the private sector that has the resources to flip the script and to turn the billions into trillions.

It’s on this fundamental premise that CIF designed its blended financing model, which we’ve helped fine-tune over the last decade in partnership with our implementing partners – the Multilateral Development Banks. 

Our investment model is simple: we seek to de-risk and incentivize private sector investment in large-scale clean energy solutions:

  • We work with governments to help them create legal frameworks that encourage rather than restrict commercial investments in large, often high-risk clean energy projects. In Tanzania for example, where only 33 percent of the population have access to electricity, CIF is supporting efforts to build an enabling environment for mini grid development. An advisory working group, including government representatives, aims to establish technical standards for mini grids to ensure supply quality and reliability so the private sector can grow. This process has brought more than 80 developers and 60 installers and suppliers into the market and plans are underway to roll out similar initiatives across East Africa. 
  • We provide market support, to the tune of over $2 billion to the private sector to help create viable commercially-oriented markets by reducing risk barriers. For example, in Mozambique, a country where 70% of the population has no access to energy, we are providing $19 million in funds for the first large-scale solar plant in the country. We are doing this with loans, not grants, along with private sector developers and the IFC. Large-scale investment opportunities are out there, even in least developed countries: though they often need large scale, risk appropriate capital alongside development banks that are keen to take on these risks. 

We’ve had a lot of success with this approach. We are supporting more than one quarter of the current concentrated solar power and geothermal installed capacity worldwide. Our $8 billion resources are expected to mobilize over $58 billion in co-financing, which will lead to over 19GW of new renewable energy capacity and 300,000 businesses with improved energy access.

The countless examples from across the CIF portfolio are proof that, with the right mix of sound financial and technical support – ‘good’ climate finance can leverage the scale of investment required to kickstart the transformative energy revolution that is needed to make good on the promises set out under the Paris Agreement and the SDGs. 

These promises were made to people like Janett who, thanks to a CIF-supported financing package in the region’s renewable energy potential, now has 24-hour access to electricity – something she told me has changed her life. The family are now able to store food safely, make phone calls in times of emergency. Janett and her previously unemployed partner recently opened a laundry business that is helping fund their daughter through high school. Jeanette is even able to study in the evenings and is about to finish her degree in human resources management.

All this because of a few extra hours of reliable electricity access per day. Janett’s story is an important reminder of the immense opportunities that smart and scalable clean energy investments enable. And in fact, the energy story is a human story. I see just how transformative an extra few hours of energy access can be when I visit CIF-supported projects. I am always humbled by the life changing impact that a reliable source of clean cooking can have on entire communities. 

In a way, every megawatt or gigawatt installed is more than just additional units of power on a grid - they are profound agents of social and economic change that transform lives, including for Janett and the billions, who, like her, can only dream of a better future if they are, quite literally, empowered.