30 January 2019: In 2018, moderate declines in investments in renewables globally were offset by increased investments in energy efficiency technologies across the building industry and transport sectors.

Since December 2018, support for renewable energy schemes were announced by the UK for projects in Africa, and by the European Commission for measures undertaken by Portugal and Lithuania. Several energy efficiency projects in Latin America received financing from the Green Climate Fund (GCF).

In the green building sector, the UK and International Finance Corporation (IFC) joined a partnership in blended concessional finance for climate change mitigation. Lebanese electricity distribution services received clean climate finance to increase its grid efficiency through deployment of new technologies. To ensure that energy-saving investments in electricity transmission and distribution technologies are aligned with the Paris Agreement on climate change, the World Resources Institute (WRI) presented a methodology to screen their mitigation impacts.

Global Clean Energy Investments: Steady-State Above USD 300 Billion

Global investments in renewable energy have increased five-fold over the last 15 years, and remain strong above the annual USD 300 billion mark. Intermittent decreasing trends, such as those observed in 2018 and in 2016, are in part driven by the continued decline in renewable technology costs. Such movements are observable in climate finance flows. In 2018, declines in renewable energy investments have been offset by increased investments in energy efficiency technologies across the building industry and transport sectors. These trends emerge from reports by the UNFCCC Standing Committee on Finance, IRENA and Climate Policy Initiative, as well as the International Energy Agency.

According to the research company Bloomberg New Energy Finance (BNEF), a total of USD 332.1 billion was invested in renewable energy in 2018, excluding large hydro-electric projects, but including equity raised by companies to invest in smart grids, digital energy, energy storage and electric vehicles. BNEF’s report titled, ‘Clean Energy Investment Trends 2018,’ presents sector and country-specific data that shows:

• Overall investment in solar dropped 24% to USD130.8 billion;
• Wind investment rose 3% to USD128.6 billion, with offshore wind having its second-highest year with USD25.7 billion invested;
• Biomass and waste-to-energy investment rose 18% to USD6.3 billion, while that in biofuels rallied 47% to USD3 billion; and
• Geothermal energy investment increased by 10% to USD1.8 billion, small hydro investment decreased 50% to USD1.7 billion and investment in marine energy sources increased by 16% to USD180 million.

In terms of of regional trends, data in the BNEF report show that the Asian region continued to lead since having caught up with Europe in 2012. Comparisons by country show that, over the 2017-2018 period, clean energy investments increased in some countries and decreased in others:

• China continued to lead with total investments of USD 100.1 billion, even though this figure is 32% on its 2017’s record investments. The decline can be attributed to a reduction in the value of solar commitments;
• Europe saw clean energy investment leap 27% to USD 74.5 billion;
• The US ranked as the second-highest country, investing USD 64.2 billion, an increase of 12%; and
• Investments decreased in Japan to USD 27.2 billion, down 16%, India at USD 11.1 billion, down 21%, and Germany at USD 10.5 billion, down 32%.

Most other countries show an upward trend in clean energy investments. [BNEF Press Release] [BNEF Report: Clean Energy Investment Trends 2018] [SDG Knowledge Hub on Climate Finance Flows on the Rise, but Improved Data Needed to Track Progress] [SDG Knowledge Hub on IRENA Assembly Discusses Geopolitics of Energy Transformation]

Investment News for Biomass, Wind, And Small-Scale Solar, Hydro and Geothermal Projects

Several notable renewable energy investments were announced since December 2018. At the Katowice Climate Change Conference, the UK announced its support of £100 million for up to 40 renewable energy projects across Africa over the next five years. To help improve access to clean energy, cut carbon emissions and support energy and job creation, developers of small-scale solar, wind, hydro and geothermal projects will be supported in harnessing each country’s natural resources. The funding is part of the UK’s commitment to invest £5.8 billion in international climate finance by 2020 to encourage ambitious action from other governments, the private sector and communities to tackle climate change. According to the UK government, this new funding could unlock an extra £156 million of private finance into renewable energy markets in Africa by 2023.

In January, the European Commission approved state aid for renewable energy schemes in Portugal and Lithuania. Portugal received €320 million to support a 15-year biomass energy installations scheme, which will be funded via an increase in energy tariffs. The new installations, located in forest areas, will produce both electricity and combined heat and power (cogeneration). Using forest residues to produce biomass energy will help preventing future forest fires in Portugal, and increase the country’s share of electricity produced from renewable sources.

The Commission also approved state aid granted under a Lithuanian scheme from 2012 to 2015, which supports electricity producers of wind, solar, hydro, biomass and biogas sources until 2029. Support for a period of 12 years is provided in form of a “feed-in-premium,” a top-up payment over the market price paid to the generator. Small-scale electricity plants receive support in the form of a fixed “feed-in-tariff,” a guaranteed price for the electricity produced. The overall budget of the scheme is expected to amount to €1.24 billion, financed via a levy paid by final electricity end-users.

In the Ukraine, a 250 MW wind farm project received support through a syndicated loan of €150 million arranged by the European Bank for Reconstruction and Development (EBRD) with co-financing from the Green for Growth Fund, the Netherlands Development Finance Company and the Nordic Environment Finance Corporation. Power generation is expected to start by the end of 2019, produce over 850,000 MWh of renewable energy and CO₂ emissions reductions of 470,000 tons annually. [UK government Press Release] [ European Commission Press Release on renewable energy scheme in Portugal and measures in Lithuania] [EBRD Press Release]

Electric Transmission and Distribution Investments

The EBRD also announced in January its USD 18 million loan for Lebanese electricity distribution service provider BUTEC Utility Services. Together with an additional USD 2 million concessional tranche by the Global Environment Facility (GEF), the funding package supports a service contract for the 2018-21 period with state-owned utility company Electricité du Liban. The aim is to address the county’s energy supply crisis by expanding the electricity distribution network and improving its efficiency with deployment of smart meters, thereby reducing network losses and greenhouse gas (GHG) emissions by 297 ktCO₂/year.

Yet, as WRI points out, transmission and distribution technologies that enable more distributed sources, such as smart grid technologies or high-voltage direct current transmission lines can also convey fossil power. Still, electricity transmission and distribution investments have generally been considered to be climate or clean-energy finance if the investment reduces energy use or electricity losses and/or facilitates renewable energy. A more specific evaluation of such investments is in place as parties to the Paris Agreement have committed to making financial flows consistent with a pathway toward low GHG emissions and climate resilient development, stipulated in Agreement Article 2(1)(c).

In its December 2018 paper titled, ‘Aligning Electricity Transmission And Distribution Investments With A Paris Agreement Pathway,’ WRI presents a project-level methodology to assess such alignment. The methodology calls for justification of such investments determined by the inclusion of a robust shadow carbon price and consistency with a country’s long-term decarbonization plan for the electricity sector. The paper suggests that with these two criteria met, transmission and distribution investments that are not directly supporting renewable energy could still be classified as aligned with the Paris Agreement Pathway, while certain development priorities, such as energy access, might allow for increased GHG emissions. [GEF Press Release on Funding For Lebanese Electricity Distribution] [WRI Paper]

Climate Finance to Four Latin American Projects in Energy Efficiency and Agriculture Sector

The GCF and the Inter-American Development Bank (IDB) signed funding agreements to support four projects in Latin America promoting sustainable energy, energy efficiency and sustainable agriculture.

• In Guatemala and Mexico, GCF and IDB will set up a risk-sharing facility that will unlock innovative financial instruments totaling USD 158 million over 15 years to empower low-emission and climate-resilient agricultural practices among micro- and small and medium enterprises (MSMEs).
• In Argentina, a GCF loan of USD 100 million will support SMEs investing in energy efficiency, biomass and biogas technologies.
• In Paraguay, GCF will provide USD 23 million in concessional financing to support SMEs reducing reliance on fuel wood and other fossil fuel energy sources, increasing their energy efficiency and shifting energy use to renewable hydropower.
• El Salvador is supported with a USD 20 million loan from GCF to the National Development Bank, which will help open a credit line to support SMEs replace energy-intensive with energy-efficient motors, air-conditioning, refrigeration and boilers.

[GCF Press Release]

Market Accelerator for Green Construction Could Mobilize US$2 Billion In Financing

Globally, buildings generate 19% of energy-related GHG emissions and consume 40% of electricity. In addition to recognizing the climate change mitigation potential in green buildings, the IFC, a member of the World Bank Group, also estimates an investment opportunity of USD 3.4 trillion over the next decade. In December 2018, the IFC announced its partnership with the UK in blended concessional finance through the UK-IFC Market Accelerator for Green Construction Program. The partnership seeks to leverage as much as USD 2 billion in public and private sector financing for certified green buildings in emerging markets. The UK’s contribution of £105 million will include £80 million for investments and £25 million for advisory services. The funds will be used to incentivize the development of green buildings through certification with IFC’s EDGE and other leading certification systems. [IFC Press Release]

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The SDG Knowledge Hub publishes monthly climate finance updates, which largely focus on multilateral financing and cover, inter alia, mitigation and adaptation project financing news and lessons, institutional events and news, and latest developments in carbon markets and pricing. Past climate finance updates can be found under the tags: Finance Update: Climate Change; and Finance Update: Sustainable Energy.