The markets for renewable energy are ready to take off and exceed $5 billion a year in investments, according to a major international report.
WASHINGTON, DC – The markets for renewable energy are ready to take off and exceed $5 billion a year in investments, according to a major international report.
Developing nations will need 5 million megawatts of new electrical generating capacity in the next 40 years and are ideally suited to solar, wind, hydro, geothermal and biomass energies that reduce dependence on distant and polluting sources, says the Global Environment Facility. The GEF is the major source of multilateral funding for renewable energy in developing countries.
“The opportunities for countries and for business are enormous,” says CEO and chairman, Mohamed El-Ashry. “Two billion people lack reliable energy, most of them in remote areas with little prospect of connecting to an electrical grid. If renewable energy captures just 3 percent of the market in developing nations within ten years, investments could exceed $5 billion a year.”
The world clearly needs to diversify its sources of energy, a position increasingly recognized by companies, governments, and international agencies, says the report, “Renewable Energy: GEF Partners with Business for a Better World.” It describes the barriers that must be overcome and the public-private partnerships necessary for renewable energy markets to expand.
The International Energy Agency has predicted that supplies of fossil fuels will begin to decline as population growth and economic development increase energy demands. Two weeks ago, the Intergovernmental Panel on Climate Change pointed to new and stronger evidence that greenhouse gases from the burning of fossil fuels, are changing the global climate, and that most of the warming observed over the last 50 years is attributable to human activities.
The GEF approved $580 million in grants for 51 renewable energy projects in 30 developing and transition countries in its first decade of operation. When added to co-financing and other resources, total project costs have exceeded $3 billion.
The annual world market for renewable energy systems (excluding large hydroelectric facilities) is several billion U.S. dollars, notes the report. Business experts believe that renewable energy markets are poised for expansion, particularly in developing countries where installed renewable energy capacity already exceeds 60,000 MW
“Around the world, a transition to renewable energy systems has already begun,” it continues. “From private investors to governments to multilateral assistance agencies, renewable energy is receiving increasing investment shares and attention.”
In 1999, the World Bank committed itself to preparing several hundred million dollars a year in renewable energy projects as part of a new strategic initiative and, in the past two years, Shell and BP have each committed $500 million for renewable energy investments. Some countries are proposing domestic targets for renewable energy ranging from 5 to 15 percent of new electricity supply within 20 years.
“A transition to renewable energy is inevitable, not because fossil fuel supplies will run out … but because the costs and risks of using these supplies will continue to increase relative to renewable energy,” it explains. “Costs will increase as the environmental impacts of fossil fuel use are increasingly incorporated into the costs of energy and as the cheapest reserves are depleted. Risks can increase as fossil fuel prices and availability become more variable due to such factors as privatization, deregulation, and political events. Renewable energy avoids fuel costs and fuel price risks; thus, as the costs of renewable energy technologies continue to fall, renewable energy is expected to overtake fossil fuels as the lowest cost, least-risk investment.”
There are numerous benefits of renewable energy, from economic and social to health and environmental, and the report notes that major investors are more comfortable taking on the risk of large investments in renewables in developing countries if they can build on existing local business infrastructure. Opportunities are expanding for competitive off-grid commercial or near-commercial renewable energy in rural areas of developing countries, including off-grid, minigrid, and on-grid applications.
“Forward-looking energy companies seeking investment opportunities in developing countries are increasingly focusing on ensuring economic and environmental benefits,” and GEF wants “to share the risks in expanding renewable energy markets, thereby accelerating a worldwide transition to renewable energy.”
GEF is the chief funder of renewable energy in developing countries and, as such, will have a significant impact on expansion of the sector. It offers a number of programs, including the Small- and Medium-Scale Enterprise Program, the Photovoltaic Market Transformation Initiative, the Renewable Energy and Energy Efficiency Fund and the Solar Development Group. GEF projects are executed by a wide range of partners and are managed by the U.N. Development Programme, the U.N. Environment Programme, the World Bank, the U.N. Food & Agricultural Organization, the U.N. Industrial Development Organization, the African Development Bank, the Asian Development Bank, the European Bank for Reconstruction & Development, and the Inter-American Development Bank.