Insights and Commentaries
Focus on private sector financing for climate technologies
15th May 2015
Topic(s): Carbon capture, Economics, law and regulation, Policy, use and storage (CCUS)
The Institute attended the Climate Technology Centre and Network (CTCN) meeting for Network members in Bangkok over 28-29 April 2015.
The CTCN is the operational arm of the United Nations Framework Convention on Climate Change (UNFCCC) Technology Mechanism and is responsible for overall coordination, development of the Climate Technology Network and liaison with National Designated Entities (NDEs).
The meeting convened a broad range of CTCN stakeholders including:
- a number of regionally based NDEs,
- key Network members, and
- external financial focused organisations.
The NDEs are key to the CTCNs work as they are the institutional nexus between requests for technical assistance from developing countries and provision of CTCN advice (which is provided by its members and wider network).
The Global CCS Institute within the CTCN
Only 30 requests in total have been submitted to the CTCN to date. While no CCS-related requests have been submitted as yet, the Institute was again recognised at the meeting as the primary reference point for CCS-related requests.
In the sideline of this two day meeting, the CTCN hosted a private sector workshop on technology and financing. The workshop symbolises the high priority that the CTCN places on the role of the private sector, not only for the successful operation of the CTCN, but also in the transformation of local economies to lower carbon signatures.
Importantly the meeting highlighted international bodies that can specifically assist in and/or actually broker financial arrangements between clean energy suppliers and buyers. These include:
- groups established under the auspice of the UNFCCCs Climate Technology Initiative – Private Sector Advisory Network (CTI-PFAN)
- multilateral banks (such as the Asian Development Bank's (ADB) IPEx).
Private sector financing crucial for climate goals
A notable observation offered by an expert finance delegate, in regards to improving the chances of success for clean energy projects, was the importance of competent project organisational capacity; he proffered that an "A+ project team with a B+ plan will more likely attract funding than a B+ project team with an A+ plan". Another related theme discussed at the meeting was the importance of getting the ‘business model’ right in order to attract private sector finance for clean energy projects.
This was discussed within a context that global climate goals cannot and will not be met through a sole reliance on public sector funding. While it was generally acknowledged that in the current investment climate it was difficult to attract private sector funding for climate technology projects (adaptation and mitigation) many of the finance experts considered it still to be ‘very’ possible.
CTI-PFAN observed that it is the business model that offers the most scope to be the 'disruptive' element in terms of supporting step-change mitigation outcomes, rather than any specific mitigation technology. It further noted that conventional finance models are increasingly being challenged by more entrepreneurial business models (almost implying that these approaches are largely beyond the grasp of most policy makers).
CCS in the Climate Technology Initiative
CTI-PFAN also noted that it considered CCS to be a very promising next generation technology. It is generally accepted within the CTI that no single technology (including renewables) will replace fossil fuels within the timeframe needed to deliver on the 2 degree C target. It was positive to hear such visionary support for CCS from a member of the finance community, along with Thailand’s strategic reference to CCS in its presentation on its Technical Needs Assessment (TNA). It did however provide the Institute with a good opportunity to publicly inform this important audience that CCS solutions are 'here and now', which seemed to prompt many developing country delegates to seek out further discussions on CCS throughout the two days.
The ADB, which has just been accredited as a Green Climate Fund (GCF) Implementing Agency (along with 6 other organisations), referred to the adoption of private sector investment in climate technologies as a priority by its Private Sector Operations Department. It observed that private sector co-financing arrangements currently amounted to some 20% of ADB's lending volumes in this regard, with the bank aspiring to increase this level to 50% by 2050.
Private clean energy finance services continue to mature
There is clearly a growing number of finance-focused organisations who can assist the CTCN in its efforts to facilitate clean energy projects. One example is IPEx (pronounced "IP" "Ex") who indicated at the meeting that its role, as established by the ADB, was to serve as an independent one-stop-shop for clean energy technology buyers and sellers, offering services such as legal (including on intellectual property rights), technical, commercial and financial assistance. It is supporting an emerging clean energy marketplace in Asia by essentially matching technology buyers to sellers as well as servicing their commercial needs (such as informing risk perceptions).
The IPEx presenter noted that there are often ‘trust’ issues between technology suppliers and buyers that can prevent successful projects from taking place. It was interesting to hear him observe that in his experience, to restore trust amongst all stakeholders mostly depends on human interaction and communication rather than any increased reliance on remote, digital or electronic platforms in which to conduct business (due to the immature nature of clean energy markets). It was also useful to hear IPEx outline its value proposition that could be of interest to future CCS project proponents (and for which it is presumably similar to other organisations like it), including helping buyers and sellers:
- Lower transaction costs
- Structure deals and negotiating support
- Assess counter party risks and perceived country risk (re-balancing perceptions)
- Provide intellectual property advisory support, and
- Provide/help access to finance capital raising, technical detail due diligence (TDD).
By engaging in this two day workshop, the Institute effectively:
- Networked with important stakeholders within the CTCN and the Technology Executive Committee (TEC), as well as its associated Network community, to position CCS as an integral and continuous element of these important discussions
- Reaffirmed its role as the preferred Network member for CCS project requests, and primary channel of influence on CCS matters within the UNFCCC technology agenda
- Reached out to developing country government delegates, many of whom serve as intermediaries between technology requests for assistance and the UNFCCC architecture (including CTCN and the Green Climate Fund), and
- Listened to global finance experts and contributed to an essential funding dialogue on clean energy mitigation technologies, as well as strongly affirming the critical role of the private sector in this regard.
The road to Paris
The 'road to Paris' theme was also a prominent theme highlighted within these discussions, and the importance of the negotiations to take place in the upcoming UNFCCC intersessional meeting in June in Bonn noted. The Institute will be present at this meeting, and would welcome any discussions on any issues. If you would like to discuss further, please don't hesitate to contact Mark Bonner (mark.bonner@globalccsinstitute.com) or John Scowcroft (john.scowcroft@globalccsinstitute.com).