Climate Change

IRENA – Climate Finance can drive the shift to renewable energy…
According to a recent special report from the Inter-governmental Panel on Climate Change (IPCC), global warming could still, possibly, be kept within 1.5 degrees Celsius (°C) during this century – low enough to avert catastrophic climate change. Yet the report issued on 8 October stresses the need for rapid and decisive actions to mitigate, as well as adapt to, climate impacts. The Paris Agreement in 2015, which set the framework for a global response to the climate threat, highlighted the need to limit the global average temperature rise to well below 2°C, and ideally 1.5°C, in order to avoid catastrophic impacts. Scaling up of investment in climate-safe energy solutions, driven in part by climate finance mechanisms, is critical. Climate finance is a diverse concept, referring broadly to financing actions and mechanisms that seek to address climate change. It is frequently overlaps with so-called green finance, sustainable finance and lowcarbon finance. The latest report from the world’s leading expert climate panel says finance for renewable energy projects will be crucial to stave off global warming. 2 Q4 2018 Global investment in renewable energy increased steadily between 2004 and 2011 and has fluctuated since then at around USD 300 billion per year. However, decisive decarbonisation of the energy sector would require over USD 22 trillion to be invested in renewables by 2050, as opposed to USD 10 trillion investment already expected under existing plans and policies, according to analysis by the International Renewable Energy Agency (IRENA). This entails average global renewable energy investments of more than USD 600 billion per year. This is more than double their current level. As public resources are generally limited, the bulk of investment needed for energy decarbonisation will have to come from the private sector. Private sources accounted for almost 90% of total renewable energy finance between 2013 and 2016 (see figure). Likewise, most of the investment needed to implement the renewable energy components of Nationally Determined Contributions (NDCs) the pledges made by countries under the Paris accords, will have to come from private sources.
Fortunately, renewable energy is becoming increasingly cost-competitive. Yet public finance has to serve as a catalyst to attract more private capital to scale up investment in renewables. This can be achieved by focusing on risk mitigation instruments and structured finance mechanisms. Risk mitigation is particularly important in renewable energy projects because of their high upfront capital requirement. Financial de-risking instruments, accompanied by sound policy, can reduce the financing costs of and help attract capital at scale. Despite a rise in installed generation capacity worldwide, renewable power deployment still often fails to attract financial support. Perceptions of high risk with unfamiliar new technologies, cumbersome administrative procedures, insufficient transparency in the project cycle, and limited access to suitable instruments can all add to the financial challenge. Project facilitation initiatives, such as those offered by IRENA seek to tip the financing balance in favour of renewables.

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