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The Renewable Energy and Energy Efficiency Partnership: Redefining "Natural" Resources

by Marianne Moscosco-Osterkorn

Energy security is an issue facing almost every country in the world, whether developed or developing.  If clean, sustainable energy is to become part of the energy mix, and if the impoverished are to get the energy services they need, the finance and business communities need to feel more confident in backing renewable energy.  Marianne Osterkorn, International Director of the Renewable Energy and Energy Efficiency Partnership (REEEP), believes that regulatory and legal frameworks can help provide this confidence.

 

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The promotion of renewable energy is more easily said than done. There are few governments, corporations, or public bodies that would not agree that we need to make the mix of energy use more sustainable - using more renewable sources, promoting energy efficiency, and using less oil and gas. However, our energy-intensive, high-carbon economies are so firmly established as political, economic, and social structures, that changing them is a multi-faceted challenge. So action is often abandoned, postponed, or watered down.

The investment models that support coal and oil are so well-established and profitable that renewables with lower immediate returns are not considered bankable. As a consequence, many well-intentioned initiatives gather dust in government, multilateral, and philanthropic institutions around the world. There are initiatives that are making a difference. But they tend to be low-key and behind-the-scenes.

The Renewable Energy and Energy Efficiency Partnership (REEEP) is one of these. As a "partnership of partnerships" it is coming to be acknowledged as a global champion for fostering the market mechanisms for a more sustainable, secure, and reliable energy mix for both the developed and the developing world. Much of what the REEEP does is concerned with the unglamorous matter of helping ensure that the policy and regulations that underpin the delivery of energy are supportive of the increase in the use of renewables and energy efficiency. Only if those systems are in place will the renewable energy sector be able to gain the confidence of the financial markets that will provide the money to make change a reality.

Alongside other international energy initiatives that are promoting the adoption of renewable energy, including the Global Village Energy Project (GVEP), the Johannesburg Renewable Energy Coalition (JREC) and the Mediterranean Renewable Energy Programme (MEDREP), the REEEP is one of the durable achievements of the 2002 Johannesburg World Summit for Sustainable Development (WSSD).

The REEEP, now based in Vienna, is funded by the Austrian, Canadian, Dutch, German, Irish, Italian, Spanish, UK, and US governments, and the European Commission. It is a partnership the members of which are governments, businesses, and NGOs which are committed to creating a regulatory environment that will accelerate the adoption of renewable energy and energy efficiency. Their representatives within the REEEP are experienced in energy efficiency and renewable energy policy and finance within their respective regions or countries, thus providing REEEP global access to unrivalled expertise, local market knowledge, and political leverage. Equally important, they are ready to facilitate and support existing government processes around the drafting of policies and regulations which allow the market for renewable energy to exist, and to allow new technologies to be commercialized and economies of scale to drive down the cost of clean energy solutions worldwide. REEEP is sharing relevant experiences from one part of the world with a government wanting to change structures and systems in favor of renewables and reduce the perceived risk of investing in them.

One of the key challenges that the REEEP is addressing is energy utility regulation. Electricity generation systems around the world have evolved into highly centralized grids for large scale centralized power generation using coal, oil, gas, and nuclear power, and long distance transmission. Such systems have been very successful at delivering low-cost power, both in the developed world and increasingly in developing countries. The energy market reforms of the last twenty years have introduced to the power industry new and more complex regulatory regimes that mix the private sector, governments, and independent regulators.

Despite these changes in market structure, ownership, control, and regulation, the emphasis on traditional technologies and systems has usually remained. Governments and regulators recognize that changes are needed to improve the energy mix. They may lack the time and the expertise to establish the regulatory foundations for such a change.

This is where REEEP has a vital role to play. Based on work carried out by the Centre for Management under Regulation at Warwick University in the UK, REEEP has established the Sustainable Energy Regulation Network (SERN) to do the behind-the-scenes work necessary to promote forms of regulation that support and encourage the use of energy efficiency and renewable energy. The structure is regional, with global links, and a wide range of stakeholders is involved.

The SERN project is facilitating exchanges of experience and knowledge between regulators on the different policy and regulatory mechanisms, and promoting better understanding of the economic benefits of renewable energy such as greater energy security, utilization of indigenous resources, and opportunities for income generation, particularly in rural areas. Good practice guides and training courses for regulators on all forms of renewables are prosaic, but they are essential for changing the energy environment for greater energy security.

Various regulatory initiatives are now being developed through SERN. These include market obligations on energy companies to obtain some energy from renewable sources, and targets to improve energy efficiency for their customers. Some governments and regulators are also beginning to examine the need for more fundamental changes to energy systems to promote localized and distributed power sources and demand management responses on an equal or preferential basis compared with traditional large-scale power generation and transmission.
 

REEEP has a number of projects underway that will facilitate a more conducive regulatory environment for renewable energy. The Renewable Energy International Law (REIL) project, for example, seeks to ensure that new and existing international treaties and agreements on everything from free trade to biodiversity take into account the emerging need for diversification into renewable energy, and do not unintentionally create barriers. Regulations make things clear, and raise the comfort levels of everyone involved.
Such assurance is particularly important for financial institutions whose money will actually finance the introduction of renewable energy and energy efficiency. Bankers are conservative and cautious - which is why we put our savings with them. However, that same attitude often makes them reluctant to put their financial weight behind new energy projects whose technology and application may be immature and the economics untried. Renewable energy and energy efficiency investments do yield economic returns, but the perception of higher up-front capital costs and long-term payback periods is unattractive to investors.

The banking sector is reluctant to consider renewables because the projects are often small, and do not provide sufficient returns on investment. Furthermore, there is often limited capacity and awareness within existing financial institutions about the value of renewable energy and energy efficiency. This issue needs to be addressed to free-up funds for projects. The industry is still dominated by government-backed programs and developments.

The energy service industry is relatively small. Many renewable technologies carry a higher start-up cost (but generally lower operating costs), and the current interest is to develop smaller, dispersed power distribution systems and/or to provide energy at a household level. It is not surprising that the orthodox financial markets show limited interest in such opportunities, a result of their perception of increased risk.

Creating systems and networks that provide bankers with the level of comfort necessary for investments is a crucial REEEP role. Regulations and pricing that give preference to renewable energy sources are an important part of this process. However, direct financial backing using government money is also essential to encouraging investment. Public funds can be used to encourage a greater supply of financing for renewable energy and energy efficiency, either through guarantee mechanisms or by buying-down the rate of return required by financiers.

Our REEEP partners in the Association of South East Asian Nations (ASEAN) identified this as a particular need. In Asia as elsewhere, renewable energy and energy efficiency projects tend to be smaller-scale, modular, and capital intensive investments. Locally owned Small and Medium Sized Enterprises (SMEs) in Asia could provide energy services to those most in need, but they often lack the business development skills and necessary financial resources.

A number of regional organizations are involved in addressing the barriers to renewable energy, promoting such resources, and providing development assistance. Few, however, have access to the level of financial support needed for project implementation. Asian bankers are just as conservative in their attitude toward renewables as their European and North American counterparts.

REEEP is therefore pioneering a new and innovative approach through the creation of a Fund for Sustainable Energy. This builds on a concept suggested in 2000 and recommended by the G8 Task Force on Renewables. It is envisaged that the financing to be offered through the Fund would be "patient capital" - public and private sector investment sources melded together to provide financing that will yield a return but at lower rates than typically expected from the private capital market. This model is at the core of the European Commission's initiative to develop a Global Renewable Energy Fund of Funds. Envisaged as a not-for-profit entity, the Fund will allow donor money to be attracted and utilized in a manner that will leverage public and private sector sources.

The key aims of the Fund will be the provision of business development skills, project preparation funding, seed capital, and limited project finance to the private sector. The available finance will be a combination of donor grant funds and low return investment sources that will provide borrowers and partners with mutually acceptable terms and returns. For off-grid and distributed generation, for example, the Fund will offer support to the local private sector to develop credible service operations of an appropriate scale by providing finance that is partially matched by the energy business. For grid-connected generation projects, the Fund will provide support to the local private sector to develop business capacity to become project partners. Where appropriate, a loan facility will be available to allow project preparation and to cover expenses through to financial closure.

An initial investment target over the first three years of operation of $50 million is now under consideration. The proposal has been endorsed by the June 2004 ASEAN Energy Ministers' meeting and is now part of the ASEAN Plan of Action for Energy to 2009. The Fund is also seen as a vehicle through which a number of bilateral and multilateral donors, philanthropic organizations and corporations, regional institutions, and the private sector can cooperate and build on the commitments made at the WSSD in Johannesburg:  to provide practical and appropriate support for the acceleration of renewable energy projects in Asia and the Pacific. The fund is already in discussions with the EC Patient Capital Initiative (PCI) and EU Energy Initiative (EUEI). The establishment of strong partnerships with existing organizations in the region will be of fundamental importance to maximize the impact of the Fund.

The amount of money involved in the Fund may seem small given the world's need to diversify its energy use from high-carbon sources to include renewables and energy efficiency. However, relatively small policy and financial initiatives of this sort have an impact far beyond their immediate size and scope. They are not limelight projects, but they put in place the structures and systems without which change would be impossible to implement; and they create the confidence and the impression of reduced risk that are essential for securing investment.

Despite widespread efforts over the last ten to fifteen years and repeated assertions by many international agencies and conferences about the needs for the sustainable delivery of energy services, there has been limited practical implementation of renewable energy and energy efficiency projects, particularly in developing economies. It has been easy to make announcements about aspirations, but such intentions are of little value if we do not make the effort to adjust established energy generation, transmission, and financing systems to give renewable energy and energy efficiency a necessary helping hand.

If REEEP can put the nuts and bolts in place for an energy structure that will admit renewables and energy efficiency into the energy mix, the politicians and financiers have no excuse if they fail to deliver. REEEP's achievements in establishing the SERN, REIL, and ASEAN Fund for Sustainable Energy may not grab the headlines, but there has arguably been too much of that in the history of encouraging renewables.




The author, Marianne Moscoso-Osterkorn, is the international director of REEEP, responsible for the partnership's global operational management. ***


Related articles:

The American Council On Renewable Energy (ACORE): Building Domestic and International Partnerships for the Success of Renewable Energy, by Jodie Roussell

EREC - The European Renewable Energy Council , by Kristina Vilimaite{/access}

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