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$70bn IDB capital injection will boost renewables in Americas

Admin | 09.04.2012

The Inter-American Development Bank (IDB) has approved increased lending for renewables projects. Its member countries voted to authorise a $70bn increase in the bank’s ordinary capital. And with a new mandate that 25% of the bank’s loans go to climate-related projects, renewable energy stands to benefit in a big way.

The Inter-American Development Bank (IDB) has approved increased lending for renewables projects. Its member countries voted to authorise a $70bn increase in the bank’s ordinary capital. And with a new mandate that 25% of the bank’s loans go to climate-related projects, renewable energy stands to benefit in a big way.

“Thanks to this capital increase we will be in a better position to help our region in its efforts to develop more responsive governments, more inclusive economies, more liveable cities and more sustainable environments,” says IDB president Luis Alberto Moreno.

The General Capital Increase (GCI) will become effective once countries deposit instruments of subscription for three quarters of the ordinary capital shares created under the GCI. Once it is fully implemented, the GCI will raise the bank’s capital to $171bn, making it the world’s largest regional development lender.

With these additional resources, the IDB will be in a position to approve financing of about $12bn annually on average until 2021. Between 2002 and 2011, it approved an average of $8bn a year, excluding emergency lending. The IDB also provides about $700m in grants each year.

The goal of the renewables mandate is to maintain Latin America’s clean-energy supply, which is heavily dominated by hydropower, says Arnaldo Vieira de Carvalho, the organisation’s lead sustainable-energy specialist. “This [the GCI] has really facilitated our conversation with countries in telling countries that the IDB is interested in investing in renewables,” says Vieira de Carvalho.

The 25% goal, starting in 2012, is a five-year target, which will “increase the green profile of the bank”, he adds. Historically, 95% of all energy funding by the bank is, broadly speaking, renewable: 40% of that has gone to hydro, 20% to wind, solar and other sources, 20% to distribution and 20% to transmission.

“This is likely to continue,” says Vieira de Carvalho. “[Hydro] is usually cheapest and there is a lot of availability,” despite controversies surrounding social and environmental issues.

Even with the new cash, regulatory changes ­remain a barrier to deve­loping renewables in Latin America and the Caribbean, acknowledges Juan Paredes, the IDB’s renewable-energy specialist.

“In most countries in Latin America, there are regulatory frameworks that are not friendly to renewable energy,” he says.

The constitution of many nations dictates that they have to buy the cheapest electricity possible, without factoring in environmental or other issues.

Another pressing issue is that policies keep electricity prices low. “If you maintain prices artificially low, there is little incentive to developers or utilities to go to better forms of energy,” Paredes tells Recharge.

“If the price is always the same regardless of the source, I don’t have an incentive to reduce my consumption. It’s difficult for renewables because they don’t have a level playing field.”

Governments seem to be waiting for the market to regulate itself and for renewables to become competitive on their own. According to Paredes, the approach of some governments is: “It’s expensive now and our regulations don’t allow us to prioritise one technology over the other.”

There can be difficulties in accessing financing because of the absence of proper rules, or else local banks do not know the risks associated with ­renewables and are not willing to take a chance. The IDB has some tools it can deploy, even in the face of unfriendly regulation — such as guarantees or providing funding through local banks.

One country that has taken steps to remedy its regulatory situation is Mexico. An example is the creation of a Mexican energy bank that the IDB part-funded to help developers of intermittent power projects. Over the course of a year, developers are either compensated for overproduction or have to pay for power they did not generate. “That improves the risk of those projects,” says Paredes.

In the Dominican Republic, the IDB is financing two wind farms, and simultaneously aiding the government’s electricity expansion plan, in an attempt to tackle all of the issues necessary to promote renewables.

“We just don’t wait until the sector is efficient,” says Paredes. “We have to do both. If they don’t change the matrix now, they will still be dependent on oil, especially when [the price of] oil shoots up. So we try to do it all at the same time.”

Source: Rechargenews.com

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