Low Carbon Logic: How southern businesses are saving money by going green.

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2 Low Carbon Logic: How southern businesses are saving money by going green. Challenges & Solutions in Kenya Karen Ellis & Alberto Lemma Private Sector & Markets Programme, ODI 17 th July 2013

3 3 Manufacturing

4 Outline 1. Government Green & Growth Policy 2. Challenges for Low Carbon Competitiveness 3. Opportunities for LCC innovations: Solar, Cement and Agroprocessing Sectors 4. Opportunities and Risks & the emerging overall story 4

5 Links between Growth and Environmental Policies NIP plans involve the promotion and use of more energy efficient capital, increased recycling and decreased energy use. NIP recognises the country s decreasing supply of wood, encouraging the duty free imports of low cost wood from other sources NIP also looks to support green energy production in the country by promoting the manufacture of green energy products i.e. solar panels, micro hydro generators etc CCAP s plans for industry are more limited in scope, focussed solely on reducing emissions from charcoal production Government is in the process of expanding a mandatory energy efficiency audit scheme, which could help improve the sectors low carbon competitiveness in the future. 5

6 6 Challenges in the manufacturing sector Knock on effects on agriculture could impact the agroprocessing industry, water availability changes could result in less water for industrial processes and hydroelectric power generation = companies may need to start producing more of their own energy Poor access & unreliability of energy means that over 65% of companies in Kenya own their own (cost-ineffective) generator Even with higher (planned) energy production, increases may not be enough to meet growing demands. Energy costs are higher in Kenya than for competitors competiveness loss in the long term. Access to finance - banks are not interested, credit decisions are based on the enterprise rather than the green project payback.

7 Opportunities for Low Carbon Competitiveness 7 Alternative energy sources can help companies efficiently access energy, especially in rural areas. Feed-in-tariffs and tax breaks could help increase renewable energy by manufacturing companies as well as reduce production costs. Energy efficiency measures can help manufacturing plants save in the long-term. Fossil fuels could be exported to subsidise investments in renewable energy production which in turn can help to produce sustainable energy for the manufacturing sector.

8 Solar Energy Substantial gap in access to energy in rural areas, only 5% of rural people have access this creates a market for small scale renewable energy such as solar. Renewable energy solutions like small scale solar installations can be used by households or for commercial uses such as telecommunications towers. 8 The solar market is estimated to be growing 20% a year but only accounts for 1% of energy consumption.

9 Solar Energy However, most of the demand is met by imports. Even where panels are being manufactured in Kenya (i.e. Ubbink) most of the components are imported: High technology requirements Raw materials unavailable Better feed-in-tariffs and more favourable renewable energy policies (i.e. lower import tax rates) in competitor countries means Kenya is losing out. 9

10 Cement One of the biggest GHG emitters in the manufacturing sector. Main sources of industrial emissions in Kenya (GoK, 2010) 10

11 Cement Multiple opportunities to reduce emissions: More efficient processes - EAPC Clinker replacement Possible in Kenya but not currently happening! Fuel replacement Bamburi Cement & EAPC New technologies are being developed and Kenyan cement companies need to stay up to date to stay competitive 11

12 Agroprocessing Oserian power plant uses geothermal for energy and heat production. Biomass (i.e. sugar bagasse) can be used to generate energy i.e. Mumias Sugar KTDA uses microhydro to create energy for its tea drying facilities. Bilshaka Flower Farm uses 5,500m 2 of solar panels to make its own energy. 12

13 Opportunities & Risks Opportunities & Risks High prices, limited access = undermined competitiveness. Renewable energy investments = long term competitiveness gains. Energy efficiency = save money, improve competitiveness & reduce CO2 Higher energy prices = reduced competitiveness Domestic fossil fuels = reduced energy prices but less renewable energy/efficiency New manufacturing industries Limited finance for green investments 13 Implications & Responses Invest in energy infrastructure, including renewable energy. Needs incentives i.e. feed-in-tariffs Better regulation & more enforced energy efficiency audits. Economic / competitiveness C&B s of increasing energy supplies vs. investment in alternative energy. Strategic decision = requires long vs. short term analysis Needs appropriate investment climate Engage with financial sector to raise awareness

14 Emerging overall story High prices, poor access and unreliability of energy significantly undermines the sector s competitiveness. Some of these issues can be resolved by the private sector, but better government regulation and policies are also important. Regulations are catching up with what the private sector is already doing, but additional incentives may also be needed in order to drive further actions. Firms are innovating by finding alternative sources of energy and energy efficiency potentially leading to competitiveness gains and access to sustainable energy in the long term. Necessity is leading to more dynamism in green growth in countries such as Kenya vis-à-vis high income countries.

15 Key Policy Recommendations Enforce regulations regarding energy efficiency audits, advertise the financial benefits of energy efficiency. Engage with financial providers to raise awareness about lending opportunities for energy efficiency measures. Identify the most energy intensive sectors, incentivise innovation to reduce emissions. Build industrial development strategies around renewable energy sources. 15

16 Key Policy Recommendations Identify opportunities for new (realistic) manufacturing industries which Kenya has potential to develop. Consult with businesses to create an appropriate investment climate for such developments i.e. through the introduction of building codes or regulations and skills development. Support renewables development, and capitalise on innovation by individual firms to enhance the supply of renewable energy by creating an enabling regulatory framework. Reward investment by firms in alternative energy solutions, through appropriate feed-in-tariffs, the establishment of minigrid frameworks, and net metering mechanisms etc. 16

17 Thank You! Karen Ellis Alberto Lemma 17

18 ODI is the UK s leading independent think tank on international development and humanitarian issues. We aim to inspire and inform policy and practice to reduce poverty by locking together high-quality applied research and practical policy advice. The views presented here are those of the speaker, and do not necessarily represent the views of ODI or our partners. Overseas Development Institute 203 Blackfriars Road, London, SE1 8NJ T: Initial.surname@odi.org.uk

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