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COP 21

It will cost $12 trillion for energy infrastructure to pace the next 24 years of population growth

John Morton
By John Morton

Chief operating officer, The Overseas Private Investment Corporation

The 2015 Paris Climate Conference has been a convergence of geopolitics, global economics, and environmental advocacy truly Olympic in proportion.

But in addition to the complex diplomatic negotiations underway at COP 21, there is another, important story that should not be overlooked. Leading nations, with comparatively small amounts of financing, are already catalyzing massive and rapidly growing amounts of private investment into clean energy.

They recognize that we are on the cusp of the most predictable economic transformation in modern times. The economics of electric power worldwide are making an evolutionary leap, and the question is not whether they will revolutionize national grids and companies, but rather who will capitalize on the change.

Major corporations and financial investors are paying attention, and investing more than ever before.

Renewable energy investment in developing countries, at $131 billion, was up 36% from 2013 to 2014, and has overtaken the level of renewable energy investment in developed economies, according to recent research. In an increasing number of countries, the cost of harnessing renewable energy of various types, especially wind and solar, is now below the cost of power generated from fossil fuels. Over the past six years, for example, the cost of solar modules has dropped by roughly 75%.

The Overseas Private Investment Corporation, the US government’s development finance institution, has introduced several new initiatives targeting clean energy in recent years. Its diverse renewable energy portfolio, now spanning 25 countries, has grown 10-fold, representing some $6 billion in commitments since 2009. The financial performance of the portfolio is excellent, and as much as 3,000 megawatts of new clean energy investments are under evaluation in the agency’s project pipeline.

In addition to large-scale grid-delivered power, developments like village-level business models and pay-as-you-go solar energy systems are underway. They are transforming everything from rural, agrarian life to massive urban grids.

However, it is critical to recognize that the clean energy industry operating in the developing world, where most of the new infrastructure will be installed, still has a short industry track record to which it can point, an assortment of untested business models, and considerable difficulty in obtaining long-term financing.

For these reasons, commercial sources of financing remain wary. Public development finance institutions have stepped in to assist with this transformation.

Multilateral banks and national development finance institutions—financial intermediaries that together account for more than $2 trillion in assets—have provided loans, green bonds, political risk insurance, and credit guarantees that serve as make-or-break capital components of private sector renewable energy projects in the developing world.

These institutions work with developing nations to encourage regulatory and power sector reforms to make renewable energy viable for commercial financing. This has created a positive feedback loop: pioneering investments encourage reforms, and reforms encourage more investment.

OPIC and similar institutions have a mandate to address development challenges—and climate change in particular. We use small amounts of capital and risk-mitigating instruments to provide loans and insurance to companies that seek to tap fast-growing clean energy markets in the developing world, even if commercial lenders are not fully ready to lend there. Risk and accountability is shared across the public and private sector, giving both sides a strong incentive to succeed.

For example, this year alone, OPIC financing is supporting the utility-scale Redstone concentrating solar power facility in South Africa, Jamaica’s largest private sector renewable energy project—the BMR Wind Power facility, and the off-grid solar company Nova Lumos, that aims to power tens of thousands of Nigerian homes with renewable electricity. All of these projects are led by the private sector, and all are moving forward because of catalytic OPIC support.

As delegates in Paris hash out the details of a global agreement on climate change, there are two figures we should all keep in mind. The world will need roughly $12 trillion in energy infrastructure to keep up with population growth over the next two dozen years, and some 60% of that will be in the form of clean energy. It’s never been more important to couple our optimism around clean energy with the momentum needed to keep delivering on its promise, for the good of the world.

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