Investing in energy efficiency
Shining the light on energy efficiency
Private sector financing will play a key role in the future growth of energy efficiency in developing countries.
So concludes ‘Shining the light on energy efficiency’, a new responsAbility Investments AG (“responsAbility”) report on energy efficiency and its economic potential in developing countries in particular.
Highlighting approaches to promote growth, the report looks at achieving higher levels of energy efficiency, investing in solutions, and financing the energy efficiency sector.
“As the saying goes, the Stone Age did not end because we ran out of stones; we transitioned to better solutions. The same opportunity lies before us with energy efficiency and clean energy.”
Steven Chu, Former US Secretary of Energy
Managing energy usage
Energy efficiency is broadly defined as a way of managing energy usage so that more can be done with less.
It represents about 40 % of the greenhouse gas reduction potential globally required by 2050 to prevent the earth’s temperature from increasing by more than 2 °C.
Investing in energy efficiency
Climate change and the need to reduce greenhouse gas emissions were a universal concern even before COP21, the 2015 United Nations Conference on Climate Change.
Aside from recurring horror stories, there is also encouraging news.
According to a report from the Global Commission on the Economy and Climate (GCEC), CO2 emissions held steady in 2014 while the global economy grew, signaling that emissions can fall as gross domestic product rises.
The GCEC report also says that investing in energy efficiency could boost cumulative economic output globally by up to USD 18 trillion by 2035.
Private finance instruments USD bn
*The Global Landscape of Climate Finance, 2014.
Lowering energy consumption
In responsAbility’s ‘Shining the light on energy efficiency’, the authors point out that there is a compelling opportunity to substantially lower energy costs.
The Latin American Energy Organisation states that Latin America could achieve a reduction in energy consumption of 20-25% over the next decade if comprehensive efforts are put in place to overcome barriers across the economy.
Globally, the efficiency potential is highly fragmented across more than a hundred million residential, commercial and industrial buildings, and millions of devices.
Global investments of USD 500 billion per year
Capturing the full potential will require global investments of around USD 500 billion per year for the next decade – and a holistic approach involving information and education, incentives, and new codes and standards.
Financing for energy efficiency projects
Private sector financing will play a key role in long-term efforts to achieve this goal and further advance and expand the energy efficiency sector in developing countries.
Private sector funding already accounts for the largest share of financing for energy efficiency projects, with commercial banks, in particular, providing the necessary loans to companies and private households.
Unlocking the developing market opportunity
The three basic drivers of energy demand are economic growth, population growth and technological innovation.
Projected world energy consuption
It is therefore unsurprising that emerging economies are expected to account for a major part of the growth in energy demand in the coming decades.
As emerging economies move from poverty to middle income status, there is a fundamental shift from agriculture to more energy-intensive commercial enterprises.
“Between 2008 and 2035, non-Organization for Economic Cooperation and Development (OECD) countries are expected to account for 83 % of energy demand; together, China, India, and Brazil are expected to account for 55 % of overall demand growth.”
responsAbility report Shining the light on energy efficiency
Collaborating with local financial institutions
However, these financial institutions frequently lack both the know-how and the liquidity to even begin to tap the potential of this market.
Antoine Prédour, Head Energy Debt Financingat responsAbility, explains how his team collaborates with local financial institutions to build up this know-how.
“We demonstrate the potential of energy efficiency financing to our partner banks and help them to identify and finance lucrative projects.
“We support them with consulting services and long-term capital and thus enable them to plan and build up their environmental lending business over the long term, i.e. over a 10-year horizon.”
Antoine Prédour believes we all stand to benefit when we identify potential, supply and additional capital, and thus facilitate increased financing.
Energy efficiency opportunities
Embracing energy efficiency as a long-term growth sector in emerging markets is still a new concept for many. However, the opportunities are there.
Like novel microfinance investment vehicles that unlocked previously inaccessible financing resources for individuals at the base of the pyramid, governments, companies and financiers are uncovering a deep well of energy efficiency opportunities.
We have only begun to scratch the surface of what can be achieved.