Sustainable Energy Finance (SEF) event: Creating the Climate for Change

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Creating the Climate for Change

1-2 June, 2004 | Bonn, Germany

The following is adapted from the SEF event Communiqué

On 1-2 June 2004, the Sustainable Energy Finance (SEF) Event “Creating the Climate for Change” (organized by the Sustainable Energy Finance Initiative (SEFI), a joint initiative between UNEP FI, UNEP Energy and the Basel Agency for Sustainable Energy (BASE)) brought together 260 members of the finance community, government officials and project developers from 37 countries in Bonn as part of the International Conference for Renewable Energies. Work sessions were held on the following topics:

  • risk management,
  • venture capital,
  • consumer lending and microfinance,
  • export credit,
  • carbon,
  • infrastructure,
  • SME finance, and
  • public-private partnerships.
Each session produced specific recommendations for unlocking investment in sustainable energy, which were submitted to the International Conference for Renewable Energies. The SEF event recognized that a global transition to a sustainable energy mix based on renewable energy (RE) and energy efficiency (EE) has significant potential to mitigate climate change, address regional and local environmental concerns, reduce poverty, and prevent future resource conflicts. The challenge is to provide the right policy frameworks and financial instruments that will enable RE and EE to achieve their market potential and move from the margins of energy supply to the mainstream. Many countries and organisations have formulated targets for the uptake of RE, but achieving set goals requires a coordinated and credible process for delivery. Strength, clarity, and stability are decisive characteristics of the policy framework that attracts capital to renewable energy: that framework must be specific enough to improve the bankability of projects and provide conditions for steady market growth in the renewables sector. The key recommendations to come out of the sessions were the following:
1. Venture Capital
  • Governments can help to get the message out to the mainstream financial community by highlighting examples of high performing investments and disseminating market data and case studies about commercial activity and returns;
  • Governments can help create a high-quality investment pipeline of new companies by funding R&D, assisting with business plan development and co-funding costly patent applications.
2. Small and medium-sized enterprises (SME)
  • Financial innovations are needed to provide entrepreneurs with access to risk capital and to fill the widening gap between traditional debt and equity now available in the market. This can take the form of seed, growth, or mezzanine finance;
  • Government agencies and donors must recognize that energy SME development requires their long-term commitment to build local SME capacity and specialized service and capital providers.
3. Infrastructure finance
  • To attract mid-to-long-term financing, governments need to create a stable regulatory environment ensuring predictability as well as compatibility regarding the Renewable Energy Certificate and carbon markets;
  • By financing pilot projects, governments can play a crucial role in demonstrating the commercial viability of RE technologies.
4. Carbon Finance
  • Governments should find innovative approaches for Official Development Assistance and carbon finance to be used in a complementary and additional way. This will help develop bankable projects by bridging the investment gap and lowering perceived risks;
  • Governments can reduce risk and transaction costs by clarifying the status of Certified Emission Reductions and Emission Reduction Units beyond 2012, the national processes for project approval and the baseline methodologies.
5. Financial risk management
  • The public sector should support activities to improve availability of data to be used for private sector actuarial studies to develop new underwriting / rating methodologies;
  • Public-private partnerships should be focused on the development and re-adaptation of financial risk management instruments that aggregate and securitise risks.
6. Export Credits Agencies (ECAs)
  • Governments should consider a special Renewable Energy Sector Understanding to supplement the Arrangement on Officially Supported Export Credit, allowing longer and more flexible repayment terms, and higher local content;
  • ECAs should individually develop products and processes to address current barriers to RE projects: for example, project bundling, special products and hand-holding services tailored to SMEs, and new risk management tools to assess the carbon risk of all projects.
7. Public-private partnerships
  • The public sector should work with financial institutions and other key stakeholders to identify and nurture investment opportunities, providing targeted subsidies to build the capital and human capacity that will attract private investment to sustainable energy services;
  • Successful partnerships are dynamic, and require a long-term commitment from all parties. Working partnerships should be formed early in each initiative in order to maximize the policy support from governments, as well as the engagement of local financial institutions, initially and over the longer term.
8. Consumer lending and microfinance
  • Government agencies and donors can contribute to developing domestic credit markets in developing countries by offering capacity building and risk mitigation / sharing facilities for microfinance institutions, energy service providers and consumers.
  • Scaling up of microfinance approaches and models requires supportive fiscal and banking policies.
9. Local governments
  • With their purchasing and regulatory power, local governments significantly influence energy demand and use. They should provide financial incentives to stimulate voluntary investments in RE and EE and offer innovative financing. National governments should support local governments in their efforts to promote RE and EE.
UNEP FI’s CEO Briefing on Renewable Energy
UNEP FI’s Climate Change Working Group launched its CEO Briefing on Renewable Energy (PDF file: 375KB) at the SEF meeting and during a press conference at the main renewables event. The briefing presents the business case for renewable energy, calling for more leadership from policymakers and action by financial institutions. One of the briefing’s major recommendations is for governments to create “tough targets and 15 year schedules for the production of renewable energy”. It also details several important case studies highlighting both the opportunities and challenges in renewable energy finance. Finally, the briefing emphasizes that the “most important thing that policymakers can do is create confidence in the long-term future of the renewable energy market by policies that make the ‘deal on the table’ financially attractive”. The briefing formed part of the key summary of the Renewables 2004 conference on the Environment News Service (ENS) website.,