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Financing the frontier of energy storage
Mafalda Duarte, CEO of Climate Investment Funds talks to Ashok Thakur, Chief Editor of ETN, about CIF's financial support programs for energy storage projects in developing countries, future investment plans, and commitment to a climate-smart future through storage technologies.
What is Climate Investment Funds?
At the height of the global financial crisis in 2008, global leaders established the $8 billion Climate Investment Funds (CIF) to provide scaled-up financing for the demonstration, deployment, and transfer of low-carbon and resilient climate solutions with a significant potential for long-term transformational change. Twelve years on, CIF is a pioneer in global climate finance; mobilizing partners, opening markets, and catalyzing transformational change in more than 70 developing countries.
We are proud to be the largest source of climate finance in developing countries.
Our business model works through six multilateral development banks (The World Bank, International Finance Corporation and four regional MDBs Multilateral Development Banks) in a programmatic way across more than 300 projects. CIF aims to test new business models, build track records in unproven markets, lay the foundation for evidence-based learning to enhance climate investments and boost investor confidence to unlock additional sources of finance. We have proven that these models work even in the most challenging economic environments, such as those found at CIF's inception and today, in the wake of the global COVID-19 pandemic.
CIF-backed investments are attracting $60 billion in expected co-financing and delivering impressive results on the ground. They are contributing to the generation of 25.3GW of new clean power capacity, improved energy access for 8.8 million people and over 300,000 businesses, greater climate resilience for 45.2 million people and the sustainable management of 30 million hectares of forests.
What is your financing strategy?
CIF's strategy has been to deploy flexible, predictable and programmatic concessional capital at scale, but targeted in ways that tackle market and institutional failures and other barriers to climate action. Our business model delivers this capital by bringing together our key financiers, the MDBs.
By lowering investment costs and risks, and by providing a collaborative platform for strategic and operational coordination, we have enabled MDBs to address prevailing barriers to the commercialization of new technologies, engage private investors in first-of-their kind projects and contribute to transformational change.
Further, by enabling recipient countries to draw on MDBs' varied skill sets, CIF's business model has demonstrated its relevance in helping to identify and address the root causes determining the need for concessional financing. So, you can see the potential for this business model to accelerate the deployment of energy storage in developing countries to ensure that clean and reliable energy are the solutions of choice for developing countries.
Why is CIF investing in energy storage now?
The world has ambitious targets on renewable energy to deliver if we are to achieve the goals set in the Paris Climate Agreement and the UN's Sustainable Development Goals. By financing energy storage, the CIF is directly contributing to those targets by ensuring that renewable energy generated can be absorbed into the grid. The International Renewable Energy Agency (IRENA) estimates that we will need to invest $20 billion per year in batteries alone from now until 2030 if we are to get on track to meet these global goals.
Energy storage technologies are among the most promising tools we have to expand integration of renewables more effectively and with the speed and scale that the climate crisis demands. Some storage technologies are relatively mature, but need to be scaled up, while others are still developing. Greater investment that is reliable is needed to mitigate risk, reduce costs and clear a path for expanding use and availability of these critically important technologies. In response to these significant financing needs, CIF established its new Global Energy Storage Program, which is helping develop new storage capacity in developing countries, accelerate cost reduction, support integration of variable renewable energy into grids and expand energy access for millions of people.
How does CIF financing address different types of risk, like technology or policy risk?
CIF's financing is a powerful tool that can help accelerate the type of investments that can meet both our COVID-19 recovery aspirations and climate goals. It can help tackle upstream investment barriers like inadequate policies and regulations, or lack of capacity and advisory services for local private banks. It can also bring down the costs of new technologies, accelerate learning on the use of new financing instruments and help create markets. This lowers the risks for potential investors in climate action, whether from public or private sector or MDBs, and ultimately leads to more money being spent on this urgent mission.
For example, BloombergNEF found that in India, our model of concessional finance can help to accelerate the point at which a new wind plant becomes cheaper than running an existing gas or coal plant by as much as four years. This suggests concessional capital can have a greater impact on improving the cost-competitiveness of, for example, lithium-ion battery projects, than more mature technologies like photovoltaic and onshore wind. These concrete examples show how we use our resources to lower the technology risk not only for batteries, but also other storage technologies.
What are some of the major investments CIF has made previously?
The transformational power of CIF investments is our work with Concentrated Solar Power (CSP) in Morocco. Prior to 2010, Morocco had no signiﬁcant investment in CSP, so CIF- in partnership with the World Bank, AfDB (African Development Bank) and others - invested around $500 million in the 500 MW Noor CSP complex. Our investment helped to reduce project costs by 25 percent in Phase 1 of the project compared to financing available from commercial banks, and by a further 10 percent in phases two and three.
But that was not all. Our commitment also enabled the Moroccan Government to bring a large number of investors on board, which helped to change perceptions of risk towards investing in the technology. Morocco is now a global leader in renewable energy development and is successfully attracting foreign investment in the sector, while the CIF has supported 15 percent of current global CSP installed capacity. In addition, recent CIF investments in Noor Phase 3 included molten salt storage components, which have exceeded expectations and shown that combined CSP-thermal storage can provide all-day energy with seven hours of stored electricity.
Does CIF have experience with energy storage investments beyond the Moroccan example?
CIF has a strong financing track record, with more than $400 million in existing storage investments around the world. These investments include the Noor 3 storage project I mentioned, as well as utility-scale battery projects in middle income countries and mini-grid connected batteries in low income countries like Cambodia and the Solomon Islands.
For example, CIF invested a total of $273 million through AfDB and IBRD (International Bank for Reconstruction and Development) in a new battery storage project in South Africa. In addition to installing 80MW of storage capacity, the project is projected to create more than 58,000 full-time equivalent jobs and offset cumulative emissions roughly equivalent to 9.56 MTCO2 over the 20-yr lifetime of the batteries.
The tender for that project was issued at the end of July and has received significant private sector interest.
As another example, working together with Asian Development Bank, CIF was recently able to support the first utility-scale energy storage system in Cambodia.
The project can store 16MWh of power and it also encourages Electricite du Cambodge, the State-owned power utility, to promote inclusion and gender equality in the energy sector.
What are your plans for future investments in energy storage?
CIF's recently approved Global Energy Storage Program (GESP) will build on our track record in energy storage and push for more innovation. The Program will utilize CIF's unique MDB-driven business model to generate more investment into energy storage technologies like batteries, but also pumped hydro and green hydrogen. It will also stimulate investment in policy interventions, technical assistance and knowledge coordination. The Program already has $250 million in resources and we are hopeful that there is more to come. Demand for this Program is high, as we have a pipeline of over $800 million in potential investments in more
than 30 countries, focusing on battery, pumped hydro and green hydrogen technologies. We expect to begin approving investments in the coming months.
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