LEVERAGING PRIVATE FINANCE POLICY DESIGN

Transcription

1 LEVERAGING PRIVATE FINANCE FOR CLIMATE MITIGATION THROUGH POLICY DESIGN Presentation by Nick Johnstone at Joint OECD-GGGI Workshop Green Growth Development Paths for a Better Future Paris, Nov. 22nd, 2012

2 Why expanding low-emission finance matters? 1. Closing the emission gap GHG emissions projection GtCO 2e Outlook Baseline 450 ppm Core 3-6 C by C by Source: OECD Environment Outlook to 2050 Build more of the right type of infrastructure now 2

3 Why expanding green, low-emission finance matters? 2. Closing the financing gap Scale-up sources of capital, public/ private, international/ domestic Shift sources from brown to green Infrastructure needs (annual, in USDtn illustration, need to be adapted to country context) ?? 1.5 1? Actual spending Infrastructure needs Mitigation and adaptation in infrastructure needs Source: OECD illustration, based on estimates from WB, WEF, OECD and Kennedy and Corfee 2012, Mobilizing private sector investment in low carbon infrastructure

4 How to leverage private sector investments? Elements of a Green Investment Policy Framework 1. CLEAR GOALS Strategic goal setting and policy alignment 5. ENGAGEMENT 2. ENABLING GREEN Promoting green INVESTMENT business and consumers Enabling policies for behaviours competitive, open markets; incentives for green investment 3. MOBILISING GREEN FINANCE Financial policies, tools and instruments 4. RESOURCES Harnessing public and private resources and capacity Source: Corfee-Morlot et al., 2012 forthcoming, Towards a green investment policy framework: the case of low-carbon, climate -resilient infrastructure

5 Policy Questions (some examples) The role of different policy measures (e.g. FITs and RECs) on the allocation of private finance for projects The extent of crowding out/crowding in which exists between different public (i.e. grants) and private (i.e. equity) sources of finance ; The targeting of public support to reduce the risk of (not) picking winners ; and, Implications of projects of different technological maturity for policy design.

6 Background Leveraging Private Finance Allocation of private finance towards clean energy (and other environmental fields) has two key attributes Public policy context plays a key role in determining the returns on investment Many of the expenditures are irreversible (i.e. long-lived and specific capital) Small differences in policy conditions can have long-lived implications for finance volumes across countries Small changes in policy conditions can have significant implications for changes in flows across time

7 Methodological Approach Case studies are a useful way to assess these issues. OECD work in areas such as transport and energy across a range of OECD and non-oecd countries. However, more formal empirical analysis can be a useful complement. Analysis of > 22,000 financial deals. Steps to implement: - Development of commensurable (countries, years, sectors) database of policy measures (in progress) -Development of a relational database of finance (type of finance, project characteristics, organiszational attributes, etc.) (initiated) - Links with other relevant relational databases (i.e. UDI/Platts, Orbis, PATSTAT etc ) (to be done)

8 Targeting Support Without Picking Winners Some general principles: i Support a portfolio of projects and technologies to diversify downside risk of getting g it wrong Benefits of chosen portfolio should be robust with respect to information uncertainty (i.e. ancillary benefits) Identify local general purpose technologies and investments which complement a variety of emissionreducing strategies => An example related to renewable energy

9 An Example: Intermittency of (some) Renwables and Targeting g of Incentives

10 Challenge of Increased Penetration of Renewables The most important renewable energy sources (wind, solar, ocean/tide) are intermittent Generation potential is subject to significant temporal variation (minutes, hours, days, seasons), which is uncertain and often correlated, and negatively correlated with peak demand (in some cases) This means that increased capacity of renewable energy generation is not a perfect substitute for dispatchable generation capacity (e.g. fossil fuels) Challenge of LOLP becomes greater as share rises note that some countries have targets > 40%, where capacity credit starts to converge to zero

11 Means of Overcoming Intermittency Reduce correlation of variation in intermittent sources and/or allow for ex ante/ex post adjustment. How? o Back up dispatchable sources (include some hydro) o Disperse (space) and diverse (type) of sources o Improvements in load management and distribution o Trade in electricity services (states, countries) o Investment in advanced energy storage o Malleability of demand (e.g. smart grids) Benefits hypothesised to vary at different levels of penetration of intermittent renewable power 11

12 Summary Results of Empirical Model (Estimated Effects of Strategy Variables) Although ECF mostly depends on ecological factors (wind speed), it is also significantly affected by other explanatory variables Note. Summary results (elasticities) for the European sample (21 countries 322 obs). Source: D. Benatia et al. Increasing the Productivity and Penetration of Intermittent Renewable Energy Power Plants (ENV/WPCID(2012)2).

13 Benefits of Investing in Transmission Capacity: Simulation of Capacity Requirements to Meet Penetration Targets Capacity in GW Product WPEN_EUR WCAP_ABS WCAP_congpath WCAP_denspath WPEN_EUR 13

14 Benefits of Investing in Transmission Capacity: Value of Capital Stock $2009 billion mean of cost_denspath mean of cost_congpath mean of cost_densify mean of cost_congestion 14

15 Asset Finance for New Build Renewable Energy Projects* ($US Million) * Wind, solar, geothermal, biomass, waste, small hydro. Source: OECD Project on Leveraging Private Finance for Clean Energy Through Public Policy Design: Finding Evidence from Micro-Data (OECD, forthcoming). Note only new build

16 Exposure to New Energy of Asset Finance Providers Note: Based on Weighted Mid-Point of BNEF Classes. Source: OECD Project on Leveraging Private Finance for Clean Energy Through Public Policy Design: Finding Evidence from Micro-Data (OECD, forthcoming)

17 % of Renewable Energy Projects* Financed from Balance Sheet 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% * Wind, solar, geothermal, biomass, waste, small hydro. Source: OECD Project on Leveraging Private Finance for Clean Energy Through Public Policy Design: Finding Evidence from Micro-Data (OECD, forthcoming)

18 Targeting of Grants for Renewable Energy Projects in Selected Countries ( ) United States Canada GP_CapitalSubsidy GP_Demonstration GP_ProductDevelopment GP_PureResearch GP_CapitalSubsidy GP_Demonstration GP_ProductDevelopment GP_PureResearch Australia China GP_CapitalSubsidy GP_Demonstration GP_ProductDevelopmentProductDevelopment GP_PureResearch GP_CapitalSubsidy GP_Demonstration GP_ProductDevelopmentProductDevelopment GP_PureResearch

19 Largest Grant-Giving Agencies (all new energy ) 2012) $US Million Recipients > $50M Asian Development Bank China, Indonesia, Nepal, Sri Lanka, Philippines, Thailand, Vietnam Inter-American Development Bank Argentina, Barbados, Bolivia, Dominican Republic, Nicaragua, Peru Norway Ministry of Foreign Affairs 1000 Brazil Japan Int l Cooperation Agency Egypt, Indonesia, Kenya, Vietnam World Bank India, Uganda, Philippines, Thailand, Vietnam Agence Francaise de Developpement Kenya, Morocco, Vietnam European Investment Bank China, Nicaragua, South Africa Federal Republic of Germany Kenya, y, South Africa, China European Commission Bulgaria Nordic Investment Bank Lithuania International Finance Corp South Africa International Bank for R&D 62.2 Argentina Source: OECD Project on Leveraging Private Finance for Clean Energy Through Public Policy Design: Finding Evidence from Micro-Data (OECD, forthcoming)

20 Main North-South Asset Finance Flows in Renewable Energy* ( ) 2012) * Wind, solar, geothermal, biomass, waste, small hydro. Source: OECD Project on Leveraging Private Finance for Clean Energy Through Public Policy Design: Finding Evidence from Micro-Data (OECD, forthcoming)

21 Main North-South VC Flows in Renewable Energy* ( ) 2012) * Wind, solar, geothermal, biomass, waste, small hydro. Source: OECD Leveraging Private Finance for Clean Energy Through Public Policy Design: Finding Evidence from Micro-Data (OECD, forthcoming)

22 Estimated Effects of FITs/RECs on the Value of Assets (Preliminary) Note: Figure shows the estimated elasticity in terms of disclosed transaction values of assets per MW to a 1% increase in the level of the respective policy measures. Unbalanced panel of 31 countries (OECD & BRICs) over 12 years ( ). Unfilled bars indicate not statistically significant at 5% level. Source: OECD Project on Leveraging Private Finance for Clean Energy Through Public Policy Design: Finding Evidence from Micro-Data (OECD, forthcoming) 22

23 Estimated Effects of Different Renewable Energy Project Characteristics on Gearing Ratio (Preliminary) Note: Elasticities for continuous variables and marginal effects for discrete variables. Source: OECD Project on Leveraging Private Finance for Clean Energy Through Public Policy Design: Finding Evidence from Micro-Data (OECD, forthcoming)

24 1200 Estimated Effects of Policy Leveraging on Private Finance Flows (Preliminary) $US Millio on No Yes No Yes No Yes No Yes No Yes No Yes No Yes Capital Subsidy** Prod Dvlpmt Research FP_single*** FP_stream*** FIT_d* REC_d Note: Figure shows predicted effect of the presence of different policies on allocation of private finance towards different clean energy projects. Dotted line represents mean value. * s represent degree of significance. Source: OECD Project on Leveraging Private Finance for Clean Energy Through Public Policy Design: Finding Evidence from Micro-Data (OECD, forthcoming) 24

25 What role for governments? There is no one-size-fits-all London Specific country contexts (resources and capacity, maturity of financial markets, access to international climate finance) Specific sectors (transport, energy) Specific challenges of adaptation ti finance Staged approach: Short-term vs. long-term responses Lagos Jakarta Tailor government s interventions to specific challenges 25 and capacities 2 5

26 MORE INFORMATION AT: & ORG/ENV/CC/FINANCING & 26