Oct 28, 2021
How innovative investment can help achieve the goals of COP26
The goals of COP26 are a bold and ambitious horizon whoever you are. If you’re a developing country, the pace required to phase out coal and transition to clean energy may add even more mileage to the road ahead. Factoring in any infrastructural and economic challenges you might have, that clean horizon could become a daunting prospect.
And yet…
In a few short years, some developing countries have made quantum leaps in their renewable energy capacity, created thousands of green jobs, and massively contributed to global efforts to achieve net zero goals.
The rapid enabler of change is concessional finance.
How it works…
Concessional finance is aimed at developing economies who want to join the push to net zero but don’t have the capital to get started, or access to reasonably priced loans and risk friendly investors. Development banks or multilateral funds step in to buffer the risk and so speed the way to our climate objectives - a range of below market-rate financial packages are tailored to the unique economic and infrastructural challenges of each beneficiary. This innovative approach has underwritten pioneering clean energy projects in places like Chile, Mexico, Morocco, Thailand and Kazakhstan.
With impressive results…
The case for Kazakhstan
As of March 2021, Kazakhstan had 115 renewable energy projects and has increased capacity (by a factor of six) since 2015. The winning of hearts and minds is also vital to achieving COP26 goals; such progress has led to a sea-change of opinions in a historically staunch fossil-fuel supporting economy. Against the backdrop of newly favorable conditions for green energy, in May 2021, President Kassym-Jomart Tokayev directed his government to hasten the pace of transition to renewables. The wind beneath the wings of those favorable conditions is The Climate Fund’s Clean Technology Fund.
What it means for the COP26 goals
The fund deploys concessional finance alongside on-the-ground technical support. In Kazakhstan, this resulted in constitutional changes such as a renewable energy law, feed-in tariffs and purchase obligations for renewable energy projects. The finance was not structured as a loan, but as grants to kickstart a commercially viable renewables market. While challenges still lie ahead e.g., switching out the country’s ageing power grid, targeted support like this has since attracted a further $1 billion of clean energy investment into the region, while enabling the delivery of its Paris agreed NDCs
To reach net-zero, it’s estimated the world needs to invest $1-2 trillion annually. Which makes concessional finance the tool to bridge the enormous gap from the limited pools of philanthropic and public-sector funding, to the vast private-sector opportunities in existence; as recently as 2019 there were total assets under management in the private sector worth $6.5 trillion.
Tapping that kind of investment firepower is where initiatives like the Clean Technology Fund come into their own. As we’ve seen in Kazakhstan, the blend of concessional finance and technical support greatly enables sector transforming results, powering the way to the goals of COP26 and a clean horizon.
