Technical Expert Meeting at UNFCCC in Bonn, Germany
On June 3, 2015, at the 42nd meeting of the subsidiary bodies of the United Nations Framework Convention on Climate Change (UNFCCC) in Bonn, Germany, CCAP president Ned Helme moderated a Technical Expert Meeting session on policies and financial mechanisms for supporting renewable energy. After Ned set the stage – identifying common barriers and mechanisms to overcome them, and key success stories in renewable energy deployment – a panel of experts discussed related issues in greater detail and gave in-depth presentations of case studies, followed by discussion.
Kirsty Hamilton of Chatham House addressed the role of public policy and financial incentives generally, and gave advice based on her extensive experience in the energy sector. The United Kingdom’s Gareth Redmond discussed the country’s use of a feed-in tariff (FIT) for small-scale renewable energy. Thapelo Letete of South Africa addressed the lessons learned from the African nation’s Renewable Energy Independent Power Producer Procurement Program, a competitive bidding program for large-scale renewable projects that replaced an earlier FIT scheme. Finally, Rodrigo Violic, of Chile’s Banco Bice, shared the Chilean experience, and insights on policy frameworks from the perspective of a financer.
Some key takeaways include:
- Policy Trends: Renewable energy policies used to be a luxury of rich countries. However, over the last decade a majority of countries, including the poorest, have adopted measures to encourage renewable energy deployment. In recent years there has been a shift from feed-in tariffs to reverse auctions. Additionally, net metering policies have been growing in popularity.
- Long-term Signals: The private sector is interested in seeing a long-term and stable policy regime for renewable energy, for example long-term renewable energy targets. This gives them the confidence needed to make investments that may last several years.
- Policy Coherence: A country’s short term policies should align with their long term goals. Additionally, policies should act in concert, and address barriers that will increase the efficiency of public investments in renewable energy. For example, it is inefficient to subsidize renewable energy while also subsidizing fossil fuel-based electricity.
- Policy Flexibility: While a country should aim to provide certainty to investors, sometimes it may be necessary to make changes to improve the efficiency of a policy. Ideally, government policies will incorporate a level of flexibility, but the country will not renege on existing commitments.
- Elements of a strong enabling environment to encourage private sector investment include:
- Stable policy framework – in order for the private sector to invest, it needs to believe that policies that exist today are likely to remain relatively predictable over the course of its investment.
- Access to long-term financing at a reasonable cost – many countries have financial markets where capital is not available, has short tenors, or is only available to high cost. International support can help through a variety of mechanisms.
- Suitable infrastructure – infrastructure needed can include physical (roads, power lines, etc.), or operational infrastructure, such as human capital.
- Low transaction costs – Administrative and other costs can affect the private sector’s willingness to invest in renewable energy, particularly when each individual project is small-scale. Streamlining of processes, bundling of projects, and common frameworks can help overcome this barrier.