The first meeting of the Technical Working Group on Finance and Investment focused on the potential of blended finance to rapidly increase support for clean energy, and ways to reach more than the “low-hanging fruit” of SDG 7 through energy investments for countries and communities that need it most.
The Working Group is one of five groups that are preparing recommendations to be presented to the High-Level Dialogue on Energy, which will convene at the summit level in September 2021. This Working Group is being co-led by three UN entities: European Investment Bank, International Energy Agency, and the UN Economic Commission for Africa.
Damilola Ogunbiyi, Special Representative of the UN Secretary-General for Sustainable Energy for All, Co-Chair of UN-Energy, and Co-Chair of the High-level Dialogue on Energy, said energy investment must urgently switch gears to support human development and climate action. She said the need for investment in clean energy is USD 1.6 trillion by 2030, but only USD 380 billion was invested in 2019.
Thomas Östros, Vice-President, European Investment Bank (EIB), called for stimulating growth in clean energy, not only where it is already happening but even more so in emerging markets. He said building back better and cleaner from the COVID-19 pandemic requires universal energy access and a just transition for the most affected populations and regions. He observed that more capital is becoming available for energy, but more cooperation and more good projects are needed.
David Turk, Deputy Executive Director, International Energy Agency (IEA), said IEA will host a Clean Energy Transitions Summit, on 31 March 2021, jointly with the UK presidency of UNFCCC COP 26. A global roadmap to net zero for the energy sector will be highlighted at the Summit.
William Lugemwa, Director of Private Sector Development and Finance Division, UN Economic Commission for Africa (UNECA), described Africa as the “last frontier” for transformative energy investments. He said investment in clean energy is a key element of the region’s recovery from COVID-19, so those without electricity can gain access. He added that before the pandemic, the experience, confidence, and momentum of Africa’s energy sector had been on the rise, especially in terms of clean energy investment. He said investors are looking for better governance, enabling business policies, and better management of utilities.
Minoru Takada, Team Leader, Secretariat of the High-level Dialogue on Energy, UN Department of Economic and Social Affairs (DESA), said the Dialogue aims to fill the need for an inclusive global road map for sustainable energy under the UN General Assembly (UNGA). He reminded participants that a ministerial thematic forum will be co-hosted by the global champions for the theme of finance and investment. The global thematic champions for this theme are the Dominican Republic, Pakistan, and the Netherlands in a supporting role.
Tim Gould, Head of Energy Supply and Investment Outlooks, IEA, presented possible elements of the thematic report. He stressed the need to produce pragmatic, practical guidance on mobilizing public and private financing to achieve the two goals of the Dialogue process (achieve SDG 7 by 2030 and net-zero emissions by 2050). He noted that new risks have arisen from the COVID-19 pandemic and solutions must be embedded into recovery strategies. For example, he said energy efficiency has been set back by the pandemic, and it must be financed in order to get the energy transition back on track. He added that financing is also needed outside the power sector, in areas such as sustainable transport and low-carbon options for industry. Finally, he said the clean energy transition requires not only “building clean from now on, but investing to clean up what we already have,” as well as addressing the social implications of those changes.
During the open discussion, members of the Thematic Working Group, the Global Champions for the theme, and UN-Energy member organizations offered suggestions for the recommendations the Working Group will develop.
Blended finance was a focus of many speakers during the Working Group’s discussion. One speaker explained that the current types of capital are not “fit for purpose” to fill gaps like Africa’s infrastructure needs, whileblended finance and integrating different forms of capital can help to address this gap. Speakers als said mobilizing domestic currency capital and leveraging credit enhancements could enable more private capital to flow.
A speaker noted that SDG 7 is “the one SDG that is likely to be reached by 2030,” while cautioning that the poor could be left behind if new ways of using capital are not found. Speakers stressed the need to bring low-cost solar products further, reach more difficult markets, and incentivize impact.
On improving the bankability of clean energy projects, speakers highlighted the importance of power distribution for universal access but said distribution projects are not perceived as bankable. One suggested the use of mobile money, smart meters, and customer credit evaluation tools. Another speaker suggested an interlinked approach to improving project bankability, highlighting that while a water or energy project might not be considered bankable, an interlinked approach could better attract financing. One participant said transmission is usually handled by the public sector, but private sector involvement is needed.
Participants said other approaches to financing could include: carbon pricing; making upfront investment cheaper with a 0% tax rate for renewable energy equipment; crowdfunding to cover upfront costs, which will allow citizens to actively participate in the energy transition while also receiving a return on their investment; and taking advantage of the momentum for environmental, social, and governance (ESG) investing in capital markets, such as sustainability-linked loans that lower borrowing costs when achieving GHG emission reduction targets.
The Working Group also discussed the importance of reaching new markets and communities, even at increased risk. A participant said development finance institutions should act more like development organizations than commercial banks and be prepared for more loss and risk. Another participant suggested putting “the D in DFI” and avoid the low-hanging fruit of low-risk investments.
One speaker noted the need to take the first risk and help develop a risky project. This theory of change was voiced by multiple speakers, with one saying some countries have not even begun the journey to large-scale solar, such as in southern Africa, and need more help than those with experience in advancing wind and solar power.
Reaching the poorest people – in other words, the most difficult aspects of SDG 7 – should be a core message for the High-level Dialogue on Energy, one participant stressed. She said inequality is an underlying cause of many of our challenges and a risk factor for progress, and the Dialogue must reconfirm we will provide universal access to clean cooking and electricity while accelerating the global clean energy transition. Speakers suggested that, for finance and investment, this means ensuring financial flows reach the LDCs and discussing ways for public funding to leverage the private sector to invest in clean energy that reaches the poorest people.
The importance of rule of law and clear rules and long-term stability for energy policies was emphasized as a way to secure investors’ confidence. Speakers also noted the value of building planning capacity in government.
Conclusion and Next Steps
Linus Mofor, Senior Environmental Affairs Officer, UNECA, said discussions had highlighted the importance of derisking, supporting local currency investments, a stepped-up role for development finance institutions, capitalizing on the momentum of ESG investment, ensuring political stability and rule of law, and investing in transmission and distribution of power.
Manuel Baritaud, Senior Economist, EIB, said the Working Group had noted the need to rapidly increase bankability, including through the role of intermediaries to scale up investment, and he suggested a greater emphasis on energy efficiency projects. He said “blended finance” were the words repeated most often during the meeting, and that DFIs and MDBs can play an important role in this.
The co-leads of the Thematic Working Group on Finance and Investment expect to circulate a draft annotated outline followed by the first draft of the thematic report ahead of the next meeting in April. In late April, the five Thematic Working Groups will hold cross-cutting discussions to ensure coherence. A final meeting during the week of 17 May will discuss the final version of the report and a matrix of actions.
The first meeting of the Technical Working Group on Finance and Investment convened virtually on Friday, 26 February 2021, from 8:00 to 10:00 am EST (GMT-5), with 78 participants.