A new financing model for a cleaner tomorrow

As countries around the world are rapidly developing, the question of how we supply energy for this growth becomes one of the most pressing issues of our time. By 2030, the global middle class is expected to reach 4.9 billion people, compared with about 2 billion today. As more people become more affluent, their energy needs are growing too. In fact, by 2030, global energy demand is projected to increase by 33 per cent and global power demand by 60 per cent, if current trends continue.

Reliable access to energy is crucial for economic growth and for a meaningful and healthy life. But serving the growing energy demand solely with fossil fuels would result in a dramatic increase in local pollution and CO2 emissions. It would also increase energy security concerns for fossil fuel-importing countries. It is imperative that the international community intensifies the quest for clean and sustainable energy solutions.

Global renewable energy investments have increased significantly in recent years, growing six-fold, from $40 billion (Dh147 billion) in 2004 to $244 billion in 2012. But financing remains one of the key challenges to renewable energy deployment, particularly in developing countries. This reflects several risks, which need to be understood and addressed in order to reduce the cost of financing. Renewable energy technologies have high up-front costs and a high need of capital. These costs often translate into higher power-generation costs in the short- term; many renewable energy projects are also too small to attract interest from global financiers.

Local co-financing

To address this challenge, a new financing model is evolving from Abu Dhabi. It breaks the traditional pattern of North-South development partnerships. The UAE has committed up to $350 million for the financing of renewable energy projects in developing countries. Irena is reviewing and recommending the projects, and Abu Dhabi Fund for Development is providing loans for up to half of the total project costs. This ensures that all projects receive local co-financing, while stabilising the local financial markets and transferring valuable knowledge.

The recipients of the first six concessional loans will be announced today in Abu Dhabi. With a combined capacity of more than 33 MW, the projects will deliver sustainable, reliable and affordable energy to rural communities that today lack access to modern energy services. Representing a variety of different technologies, communities and geographies, the financed projects have in common that they will have substantial socio-economic impact in the medium to long-term.

This new approach is not only de-risking investment in small, but highly effective renewable energy projects, it is also an excellent example of the emerging role of Abu Dhabi as a global clean energy hub. As leaders from all over the world convene for the Abu Dhabi Sustainability Week, the emirate is increasingly becoming a global force in energy innovation and leadership.

Irena is proud to be a pillar of this local knowledge cluster, and grateful for the ongoing support of the global energy transition by our host country. In close cooperation with our partners, we are working hard to ensure that the knowledge about renewable energy sources that is available today is accessible globally; and is put to use — particularly in developing countries.

The new way of financing renewable energy is helping to meet the world’s growing energy demand. We must take advantage of the benefits renewable energy has to offer today, because our children deserve a better and cleaner tomorrow.

Adnan Z. Amin is Director-General of the International Renewable Energy Agency (Irena), Abu Dhabi.