Innovative financing has not been widely applied in the energy sector. However, of late, international energy initiatives like Sustainable Energy for All [SE4ALL] has highlighted the importance of innovative financing for achieving Sustainable Energy for All’s objectives. The SE4ALL estimated that approximately $500 to $1200 billion of additional capital per year will be required to meet the objectives of the SE4ALL and hence resourceful solutions that promote the use of innovative finance to mobilize and leverage public and private capital are needed in order to positively transform the world’s energy systems.
The International Energy Agency (IEA) has reported in its recent Global Energy Demand Report that the world requires $48 trillion investment till 2035 in order to meet the growing need for energy. To meet this increasing energy demand, countries need to diversify sources of energy production and means of energy distribution and countries must invest $40 trillion in energy supplies over the next 21 years, according to the same report of IEA. Economic growth and rising living standards have been fuelling the global energy demand, forcing governments to find ways and money to increase supplies. The world has invested $1.6 trillion in 2013 for energy supply, more than double the amount in 2000. Until 2035, the annual investment figure is expected to reach $2 trillion, report says.
In the recently published Global Status Report on Renewable 2014 it is stated that that total investment in renewable power and fuels (excluding large hydro-electric projects) fell for the second year running in 2013, reaching $214 billion worldwide, some 14% lower than in 2012 and 23% below the 2011 record. That means, there is a significant gap between financing need and the existing financing, which is more than $50 billion investment gap (23% of the $214 billion).
In this context, the key question is- where from such a big investment can be generated to meet the growing needs of financing, while the global economy is affected with financial crisis? Indeed, this difficult situation has stimulated increased interest in innovative financing to help deliver more and better aid.
Therefore, there is a need of analysis on innovating financing, which could be linked to the renewable energy sector, a critical review of existing and possible mechanisms and a proposed selection of avenues for the development of such mechanisms on the basis of literature review, meetings with relevant professional actors. We need to focus on two large categories of innovative financing mechanisms namely 1) Mechanisms for generating new resources 2) Mechanisms for catalyzing private investment. Countries and development partners may consider to take up this work to support the development of innovative finance in the energy sector.
Keshav C Das
March 26, 2016