Financing a Transition to a Low-Carbon Future

This blog post was originally published at Worldwatch Institute.

Let’s say that Worldwatch’s Low-Carbon Energy Roadmaps help convince key decision makers in target countries to move away from fossil fuel dependency and toward a more renewable energy portfolio. And let’s assume that Central and South American countries decide that they all want to have 50 percent of their energy needs met by renewable sources by 2050. While we’re at it, let’s suppose that governments also have the political will to bring these ideas to life and sign a binding agreement that they are all in this together. One question remains: Who is going to pick up the check?

Last week, Euromoney Energy Events, the American Council On Renewable Energy (ACORE), and the Latin American and Caribbean Council On Renewable Energy (LAC-CORE) helped answer that question by hosting the first Renewable Energy Finance Forum focused on Latin America and the Caribbean, also known as REFF-LAC. For two days, financiers, developers, policy professionals, and multilateral banks explored the challenges present in today’s global markets, including uncertainty due to risk, legislative initiatives, and a credit crisis. Similar to its sister event, REFF-Wall Street, REFF-LAC was an opportunity for participants to learn how to start addressing these challenges and move the industry forward. It was also the perfect forum for assessing the changing role of governments, multilateral banks, and commercial lenders.

REFF-LAC confirmed that the market drivers for exploring renewable energy sources in Latin America and the Caribbean are the same as those in developed countries: energy security, volatile oil prices, increasing demand and, in many cases, access to energy for those in remote areas. The region is also experiencing a shift that many developed countries have seen as well: a shift in focus from the economics of these projects to their potential return on investment. However, investment in Latin America and the Caribbean is sometimes stalled by a lack of proven success with renewable technologies (large hydropower not withstanding).

The REFF-LAC keynote speakers included Jose Maria Figueres, former President of Costa Rica, and Juan Manuel Urriol Tam, Panama’s Secretary of Energy. Both provided an overview of the renewable energy sector. And while they spoke more from positions of public policy, both noted that renewable energy sources are finally at a point of being cost-competitive with traditional sources. Furthermore, markets are growing such that the public sector can no longer provide support through the project development process. Therefore, this is the opportune moment for the private sector to show its leadership by investing in projects that it has previously deemed too risky.

Sliding into this driver’s seat would continue the transformation of commercial lending with respect to renewable energy finance. To make that transition easier, the industry will need some TLC. Not Tender Loving Care, but Transparency, Longevity, and Certainty (this became a recurring, but unofficial theme throughout the conference). Transparency means that decision makers, in both the public and private sectors, are sharing realistic data and being honest about market realities. Longevity means having long-term planning horizons instead of focusing on short-term gains. Both of those reduce investor uncertainty and improve the chances that these grand plans – which we all know are possible – will come to fruition.

Presenters noted that with costs falling, multilateral lending institutions (and the governments they have been assisting) are seeing their role shift as well. For the past decade or so, institutions like the Inter-American Development Bank (IDB), the World Bank (WB), the Export-Import Bank of the United States (EX-IM), the International Finance Corporation (IFC), and the Central American Bank for Economic Integration (CABEI) worked to economically stabilize Latin American and Caribbean countries. Now that these countries are on their feet, it is time for governments to shift their role to one that supports the “risk of trying” through economic incentives, particularly for projects led by NGOs or nonprofits.

Some REFF-LAC presenters also argued that governments should be taking on more of the “risk of non-repayment,” meaning the risk that a private entity might not carry out its obligations while the government satisfies its own. This is where the transformation of multilateral institutions becomes important. Instead of the forementioned stabilizing role, or the role of providing grants to give renewable energy projects their start, these institutions should shift their efforts to support the change in the role of government.

Overall, the event was a great success. Presenters and participants all seemed energized about facing the challenges of spurring renewable energy investment in Latin America and the Caribbean. One presenter noted that the region is currently at the stage the United States was five years ago in terms of a future of investing in renewable energy. Judging by the presenters and institutions they represented, there is an equal amount of projects and equity to help manifest that bright – and sustainable – future. If the actors involved successfully transform their respective roles, REFF-LAC will truly be an idea whose time has come.

Note: Worldwatch Institute is extremely grateful to Mr. Michael Eckhart, former president at ACORE, for making our attendance possible. Like everyone at the conference, we applaud his leadership at ACORE and wish him


#Caribbean #LatinAmerica