Q. Recently, SEforALL released the report ‘Energizing Finance: Understanding the Landscape 2018’. Please tell our readers about its key findings.
The Energizing Finance: Understanding the Landscape 2018 report analyzes finance flows for electricity and clean cooking access in the 20 ‘high-impact’ countries – representing 76% of those without electricity access countries with the most significant access gaps. One of those countries is India.
The report reveals alarming developments in several key areas of energy access finance that require urgent action to keep Sustainable Development Goal 7 (SDG7) – affordable, reliable, sustainable and modern energy for all – within reach. Despite annual investment of USD 52 billion or more is needed to meet universal electrification, financing commitments for electricity in the 20 ‘high-impact’ countries average just USD 30.2 billion annually.
For the second year in a row, finance tracked for clean cooking revealed a deeply confronting challenge: finance committed across the 20 countries with the largest clean cooking access gaps – representing 81 % of the global population without access – actually decreased 5% to an average of just USD 30 million, compared to the estimated annual investment needed of at least USD 4.4billion.
The data also showed us that finance for coal-powered energy is increasing, at a time when the International Panel on Climate Change is issuing stark warnings about stalling progress on the Paris Agreement targets. In the countries tracked, annual commitments for coal plants almost tripled, growing from USD 2.8 billion to USD 6.8 billion. The potential impacts of this increase pose a clear challenge to climate goals, the air we all breathe and the ability to bring energy to those that need it, at the speed promised.
Q. As in April 2018, India hit the target of electrifying all villages ahead of its deadline. What are your key suggestions for Indian Government in order to achieve universal household electrification by 2019, and 24×7 ‘Power to All’ by 2022?
While India has made solid progress on electrification in recent years, 22 million households in the country still lack any electricity access, and millions more face unreliable power supply. To address their energy access challenge, India will need a multi-pronged approach, which includes using both centralized as well as off-grid solutions (OGS) in the most efficient manner). While there are growing investments in utility scale electricity projects, the Energizing Finance report shows that OGS has secured only 1% of the total capital commitments for electricity financing.
However, the current financing landscape for the OGS segment is primarily a patchwork of international grants, government subsidy, debt from DFIs, and promoter equity for both solar home systems and mini-grids. Private commercial capital is still insufficient, and although off-grid solar markets are active with more than 40 established companies, few of them have achieved profitability and most need to scale two-to-four times the amount of capital to break even, let alone become commercially viable.
The major issue is the lack of appropriate investor class, which can support the sector by propelling the growth phase of the existing OGS players. In addition, there is also a lack of early-stage equity investors, which could support emerging OGS players.
Q. In your view, how private sector can contribute more towards achieving ‘SDG 7: Affordable and Clean Energy’ for all?
Research clearly shows that businesses and private investment flow into countries that have clear, robust policy and regulatory environments with long term targets. By prioritizing energy access, the government is sending a clear, attractive signal to business to invest in the Indian market. Energizing Finance research shows that the majority of the tracked financing flows for electricity (85%) come from domestic sources of finance, mainly from private corporations and project developers. Domestic corporations and project developers invested USD 10 billion a year in 2015- 16, compared to USD 1.6 billion a year in 2013-14. Of this, about 87% was allocated to grid connected solar and wind projects, in particular utility scale projects.
This remarkable increase was mainly driven by India’s aggressive policy target of 175GW of renewable energy generation by 2022, growing certainty around renewable technologies with more predictable cash flows and strategic potential of renewable investments. These renewable targets were backed by supporting policies such as generationbased incentives (GBIs), capital and interest subsidies, viability gap funding, concessional finance, fiscal incentives etc. in the last few year (MNRE, 2017).
However, it is important to note that rooftop solar projects, which are more essential for increasing energy access, are still struggling to receive financing as evident from its currently installed capacity of mere 2.5 GW (compared to 40GW target by 2022). This could be a key area of the Indian energy transition that the private sector could spur faster progress within.
Q. Do you think developing countries like India needs to invest more in developing new and innovative technologies for reducing the cost of sustainable energy for all. If so, what challenges and scopes shall it inculcate?
If we’re to achieve SDG7 by 2030, we must be much more efficient in our use of energy. We can provide for many more needs with much less energy through technological innovation and business models. If governments put energy efficiency at the heart of their energy transition, they can immediately reduce costs within their own budget by simply using less.
The renewable revolution that is happening globally will also be critical to providing affordable, sustainable energy for all. As the costs of renewable energy and storage solutions continue to fall, renewable energy gives us a cost-effective way to meet the needs of those who have never had reliable and affordable energy before. In particular, off-grid solutions provide affordable and accessible options for many more Indians to be able to access clean energy that they can.
Q. What do you think Indian Government should do to attract more foreign investment for the renewable energy sector?
India presents an interesting case study for electricity access finance. The country is a bright spot for electricity access, with increasing private finance driven by strong renewable energy targets and public support.
Our analysis shows that international public finance channelled to the country reached USD 2 billion in 2015-16, of which multilateral institutions and bilateral donors provided an annual average of USD 1.4 billion and USD 0.6 billion respectively, in line with the volumes tracked in 2013-14.
These investments were generally channelled to grid connected renewables (47%), transmission and distribution projects (27%), and market support activities (10%). Commitments from multilateral and bilateral institutions to the transmission and distribution of electricity, in particular, decreased by 36% to USD 700 million.
To help increase foreign investment into the Indian market, the government must continue sending strong policy signals, as well as develop policy and regulatory instruments that drive increases in electricity access, increased finance flows and a shift from fossil fuel generated power to renewable energy.
Q. How do you think organizations such as ‘International Solar Alliance’ can contribute towards filling the gaps for finance required to access clean and green energy?
Collaborative partnerships supported by international organizations are critical to meet SDG7 by 2030. They provide a platform to bring partners from business, policy, the UN, civil society and academia to come together to tackle the challenges of closing the energy access gap – helping spur new innovative projects, business models and finance solutions to support faster progress.
As a dedicated platform for cooperation among solar resource rich countries, the International Solar Alliance can provide the global community with the support and knowledge of using solar energy in meeting energy needs in a safe, equitable and sustainable manner that can help support closing energy access gaps – especially in countries that have large populations with no access.
Q. Lastly, what are your targets for SEforALL in the next few years?
At SEforALL we focus on marshalling the data and evidence, benchmarking progress, connecting partners, telling stories and following the finance. To secure affordable, reliable, clean energy for all by 2030, progress must be accelerated, and interim goals met between now and 2020.
Our work focuses on the critical path to ensure we leave no one behind in the energy transition to meet the three core goals of SDG7: ensure universal access to modern energy services; double the global rate of improvement in energy efficiency; and double the share of renewable energy in the global energy mix. This transition will require a radical rethink of the way we produce, distribute and consume energy. Our work will support this change with a particular focus on health, gender, sustainable cooling access and support in ‘highimpact countries’ – those with the largest access gaps.