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Asian tycoons lead push to make world’s cheapest green hydrogen in India

Posted on by dishanth
Asian tycoons lead push to make world’s cheapest green hydrogen in India

When Indian transport minister Nitin Gadkari arrived in parliament in a car fuelled by green hydrogen in March this year, he signalled the country’s big ambition for fuel billed as crucial for the energy transition and the fight against climate change.

“India will soon become a green hydrogen exporting country,” he said.

The government’s vision has captured the imagination of industry players in India, where two of Asia’s richest tycoons, Mukesh Ambani and Gautam Adani, are now racing to produce the world’s cheapest green hydrogen.

If they achieve their goal, the sector could potentially transform the world’s third-largest energy consumer and carbon emitter. But it will likely take at least a decade for India to realise its green hydrogen hopes, analysts say.

On 15 June, Adani announced that it had sold a quarter of the equity in group company Adani New Industries to France’s TotalEnergies and planned to invest $50 billion over the next decade in green hydrogen.

“Our confidence in our ability to produce the world’s least expensive electron is what will drive our ability to produce the world’s least expensive green hydrogen,” Gautam Adani, chairman of Adani Group, said in a statement.

 

India’s green hydrogen ecosystem could be a 1-2 trillion dollar industry over the next 20-25 years. – Rajat Seksaria, CEO, ACME Group

 

Reliance Industries’ chief executive, Mukesh Ambani, too, has pledged to produce green hydrogen at $1 per kg — which is about 60 per cent cheaper than today’s price — and plans to invest $75 billion in renewable energy production and equipment.

The plans of the two business groups alone can clean up thousands of tonnes of emissions, because Adani Group owns a chain of coal mines and coal-based power plants, while Reliance boasts of the world’s biggest petrochemical refinery as well as some of the country’s largest oil and natural gas assets.

Analysts expect both Ambani and Adani to not only replace their industrial use and production of fossil fuels at home, but to also target exports of green hydrogen.

Green hydrogen, which is produced by splitting water into hydrogen and oxygen using renewable energy, could replace fossil fuels for a variety of uses including the manufacture of commodities like steel and fertiliser as well as transport fuel.

A lot will depend on government policy support as well as improved technology to cut the high cost of fuel (around $6 per kg) that puts it beyond the reach of the majority of consumers, analysts say.

 

Pipe dream?

“I think we are quite far away from what the big majors are announcing and where we are at this point of time,” says Vinay Rustagi, managing director of Bridge to India, a renewable energ consultancy firm.

“Everybody is hoping that green hydrogen will be almost like a silver bullet. But it’s a technology in the nascent stages and there is lack of clarity on the manufacturing plans,” Rustagi said.

There are several key challenges that are looming for the sector.

India will need to build manufacturing capacity for electrolysers, the equipment that splits water into hydrogen and oxygen, which is still a niche market worldwide, notes Thirumalai NC, sector head, strategic studies at Center for Study of Science, Technology & Policy (CSTEP), a Bengalaru-based thinktank.

The capacity to make electrolysers as well as better technology will be crucial to slash production costs by a third to below $2 per kg – a price level at which large-scale industrial demand is likely to kick in, say analysts.

India would also need to set up infrastructure for storage as well as pipelines that are mostly absent except for some ageing equipment, analysts added.

New Delhi would also need to source materials such as iridium, scandium, yttrium, and platinum, which are not easily available in the country and would be needed in abundance.

The federal government has started taking steps and in February announced a National Hydrogen Mission, outlining a program to incentivise the production of green hydrogen such as by offering cheaper land and fee waivers for electricity transmission across provinces.

The government is expected to flesh out the initial announcement with a more detailed program in about a month with specific mandates for sectors such as chemicals, fertiliser and steel to use the fuel.

India plans to produce five million tons of green hydrogen by 2030, which is nearly the same amount as it produces now using natural gas to mainly make fertilisers.

 

Global ambitions

The bold ambitions made by Indian policymakers have convinced several Indian companies besides Reliance and the Adani to make moves to develop green hydrogen.

Renewables energy company ACME Group has already set up an integrated green hydrogen and ammonia plant in Bikaner in the north-western state of Rajasthan, investing about $20 million to produce up to 1,800 tons of green fuel and five tonnes per day of green ammonia that is used to make fertiliser.

The group is also developing one of the world’s largest green ammonia projects in Oman with an annual production capacity of 0.9 million tonnes, which will likely be operational by 2024. The $3.3 billion-facility will cater to European and Asian demand.

A host of state-run oil companies such as Oil India Ltd, the nation’s second-largest oil and gas explorer, Bharat Petroleum Corporation and Indian Oil Corporation, have also announced plans to make green hydrogen as well as develop equipment like electrolysers, which could make the country a large producer over the long term.

The decarbonisation ambitions of other Asian countries such as Japan and South Korea are likely to play into India’s hands, as the country emerges as a low-cost green hydrogen producer, analysts say.

Although Indian companies’ production plans are at an early stage, the country can become a large supplier as it is one of the cheapest producers of renewable electricity, which accounts for up to 80 per cent of green hydrogen’s production cost, says CSTEP’s Thirumalai.

India plans to raise its renewable energy capacity to 500 gigawatts by 2030, up from 110 gigawatts now, could drive down output costs further.

“India will have its own green hydrogen demand as well be a major exporter … This would make the green hydrogen ecosystem in India a 1-2 trillion dollar industry over the next 20-25 years,” according to ACME chief executive, Rajat Seksaria.

Globally, the green hydrogen industry could be worth $12-13 trillion by 2050, according to industry estimates.

Subhalakshmi Naskar, partner at law firm Cyril Amarchand Mangaldas, says that the government’s National Hydrogen Mission is a positive step to incentivise output and encourage investments, but a lot more will be needed.

“The implementation of policy…(including production linked incentives and tax holidays) will need to be put in place without any regulatory or other policy delays,” says Naskar.

 

 

Source Eco Business

Sustainability recruitment firm Acre launches in Asia

Posted on by dishanth
Sustainability recruitment firm Acre launches in Asia

One of Asia’s first specialist sustainability recruitment firms has opened for business in Singapore as demand for jobs in the environmental, social and governance (ESG) space grows in the wake of the Covid-19 pandemic.

Acre, which was founded in London by British zoology graduate Andy Cartland in 2003, will use Singapore as its Asia Pacific base as it looks to service clients around the region.

Cartland said the time was right to launch in Asia, as the region is experiencing rapid growth in demand for sustainability talent and skills.

Acre posts candidates working in sustainability, impact investing, health and safety, and energy and clean technology, and will be compete with other firms that offer ESG recruitment services, such as NextWave, Formative Search, and Odgers Berndtson.

“Asia is arguably behind Europe and the United States when it comes to sustainability. But the region is moving at light speed to catch up. We want to be part of this transition,” Cartland told Eco-Business.

He noted that the business took a 20 percent revenue hit in 2020 as a result of the pandemic, but 2021 saw the business rebound and revenue and headcount grow by 100 percent, which has enabled the company to expand to Asia.

“We are on track for similar growth this year as well,” he said.

Singapore will be Acre’s third overseas launch, with it having established a European operation in Amsterdam and a North American hub in New York in recent years.

Acre’s Singapore launch will enable the company to service existing multinational clients with operations in the region, and also local companies in the global supply chain.

The company’s past work in Asia includes recruiting a leadership team for the Bangladesh Accord, a coalition of global brands, retailers and trade unions set up in 2013 to improve health and safety in Bangladesh’s garment industry.

Among the candidates Acre has placed recently include the global environment, health and safety director at Amazon, and the executive director of the International Cocoa Initiative (ICI), a Swiss non-profit working to tackle child labour in the cocoa sector.

Cartland, who will move from London to Singapore in August to oversee the launch, has appointed an executive director for the Singapore office, who has yet to resign from his current job and will relocate from Hong Kong.

Acre’s Asia launch comes a month after a report by business social network LinkedIn showed 30 percent growth in hiring for green jobs between 2016 and 2021, with a spike in sustainability recruitment between 2020 and 2021.

The report also highlighted a shortage of talent for ESG roles in the region.

Cartland said that while there is a large talent pool of sustainability professionals in London, candidates in Asia, where the sustainability sector is less developed, are harder to find.

“Asia faces a different candidate sourcing challenge, and we will need to help clients navigate the [ESG] skills gap,” he said. “Our role is to find people where they’re tough to find.”

This will may involve thinking creatively about transitioning people out of non-sustainability roles, he said.

Acre is aiming to double its Asia operation by its second year, following the growth trajectories of its European and American businesses, Cartland said.

 

 

Source Eco Business

Investing in the global transition to a more sustainable future

Posted on by dishanth
Investing in the global transition to a more sustainable future

Investors have had a lot to grapple with in the last few years.

The Covid-19 pandemic and a rapidly changing macroeconomic outlook have brought unprecedented risks and volatility to financial markets, while the urgency to fight climate change has become one of the biggest challenges facing governments and industries.

These developments highlight the importance of “sustainable wealth”, which HSBC Premier describes as growing assets not just for the short term, but for the years and generations to come. To achieve that, investment portfolios must be able to stand the test of time.

Many investors are now rethinking their approach to investing, and seeking new ways to future-proof their portfolios as they look to build long-lasting wealth. More than ever before, investors are exploring new sustainability-themed investments.

“Employing ESG (Environmental, Social and Governance) factors is a must,” says Mr James Cheo, Chief Investment Officer, South-east Asia at HSBC Global Private Banking and Wealth. ESG refers to a set of criteria that investors commonly use to evaluate the impact of a company’s activities before making an investment decision.

“This will not only reduce the risk when it comes to investing, but also improve the resilience of your portfolio over the long run. That’s because the quality companies that you choose to invest in tend to deliver stronger, more sustainable earnings.”

It also allows investors to support the global movement towards a more sustainable and equitable future. The trend of aligning one’s values with investment decisions is taking off, especially among younger investors.

 

A survey by HSBC Global Asset Management last year found that over 82 per cent of investors in mainland China, Hong Kong, Singapore and the United Kingdom rate sustainable, environmental and ethical issues as “quite” or “very important” to their investments. In Singapore, that figure stands at 80 per cent.

But the investors estimated that on average, they explicitly consider ESG factors for only around 28 per cent of their current investments, according to the survey. That reveals a gap between investors’ intentions and their actions.

To help investors bridge the gap, HSBC has made sustainable financing and investment a priority. The bank has more than 150 years of experience navigating a constantly changing world, and it sees the transition to a net zero economy as a major opportunity for investors.

 

Mr James Cheo, Chief Investment Officer, South-east Asia at HSBC Global Private Banking and Wealth. PHOTO: HSBC

 

“Sustainability is at the core of what we do. It’s extremely important and central to our discussion when it comes to investment decisions,” says Mr Cheo.

“It is a journey and there will be challenges along the way. Ultimately, our role is to help our clients through this transition. We believe that every portfolio should and can be sustainable, with ESG at its core,” he adds.

 

Opportunities in ESG investing

Investors surveyed by HSBC Global Asset Management cite a lack of suitable investment products, and not wanting to limit their choices, as major barriers to sustainable investing.

But Mr Cheo says sustainable investment opportunities have increased tremendously in the last few years as more investors – especially those in Asia – become interested in the space, and the market for ESG products mature.

“Investors should start to take that first step to be invested,” Mr Cheo says. He suggests incrementally increasing one’s ESG investments “because that’s going to be a very important pillar to investing, especially in the years ahead”.

 

Integrating ESG considerations into your investment decisions will help create a more resilient portfolio that will stand the test of time. PHOTO: HSBC

 

He shares three broad themes that would offer investment opportunities in the years to come:

Energy transition: An increasing number of governments and industries have made net zero carbon emissions pledges, and the transition to a low-carbon future is set to involve major reconfigurations in the way industries and society function.

Winners from this megatrend are companies that successfully adapt to the transition. Producers of low-carbon or renewable energy, as well as those developing new technology that help the world in the transition, will also benefit.

In Asia, China’s ambition to reach net zero emissions by 2060 will herald a green revolution with significant investments aimed at increasing the use of clean energy, promoting electric vehicles and greening supply chains.

Protecting biodiversity: A research by the World Economic Forum found that more than half of the world’s GDP is moderately or highly dependent on nature. So, damage to nature and biodiversity threatens global economic activity.

The winners in this area are companies in the circular economy, which promotes recycling and reusing products for as long as possible to reduce waste.

Social factors: The social pillar of ESG investing is receiving more attention as research shows that socially responsible companies perform better in the long term2. This is because companies with a more diverse workforce as well as those that respect human rights and focus on developing talent tend to have stronger leadership, happier employees, and more resilient operations.

 

Navigating economic uncertainties 

Financial markets are likely to remain volatile in the coming months, given higher inflation, slowing economic growth and the likelihood of further interest rate hikes by the US Federal Reserve and other central banks.

“Such an environment requires investors to be more proactive in strengthening the resilience of their portfolios,” says Mr Cheo.

Steps that investors can take include reducing cash holdings to avoid having portfolio value eroded by inflation, and diversifying investments with a mix of stocks, bonds and alternative assets to hedge against rising inflation.

In terms of investment options, HSBC picks the US market for its economic growth prospects and those in South-east Asia, given the region’s reopening from pandemic-related closures. The bank also suggests adding income through dividend stocks and high-yielding bonds.

“Remember that time in the market is more important than timing the market, so they have to stay invested through the cycle,” says Mr Cheo.

ESG investing could help investment portfolios navigate current uncertainties and prepare for the major transition towards a greener and more equitable future.

“You have to look for quality companies that can thrive with higher prices, that can navigate a volatile environment. That’s why we think that ESG leaders are going to be one of the winners that will come out from this uncertain macro-environment,” says Mr Cheo.

But above all, investors should always pick investments that suit their risk appetite and profiles.

 

Approaches to sustainability-themed investments  

Mr James Cheo shares that there are multiple ways to invest sustainably. Here are three of the most common approaches:

Firstly, investors can consider negative screening. This method involves excluding companies that are not aligned with investors’ values or investment objectives. For example, some investors exclude tobacco companies from their portfolios due to the harmful effects of smoking on health.

Secondly, investors can look across sectors and asset classes for companies that have high ESG scores3. ESG is a set of criteria that evaluates how a company operates in relation to environmental (such as how it uses energy or manages wastes), social (such as the treatment of workers) and governance (such as its choice of board members) factors. Companies with high ESG scores are seen as better-managed, and thus more likely to do well in the long term.

Thirdly, investors who want to achieve certain environmental or social objectives alongside financial returns can do that through a practice known as impact investing. For example, investing in research and development aimed at finding cures to diseases, or new technology to improve access to banks.

 

Making a difference together

HSBC is a firm believer in doing business responsibly and sustainably. It is also committed to encouraging customers to invest and live in a sustainable manner. For that, the bank has forged a global partnership with non-profit charity One Tree Planted to plant trees on behalf of clients in selected parts of Malaysia, Indonesia and India.

From now till June 30, customers who sign up for a new HSBC Premier banking account with the bank will have 10 trees planted on their behalf. For existing customers and staff of HSBC, up to 10 trees will be planted on their behalf for every ESG Unit Trust fund investment they make.

Visit www.hsbc.com.sg/esg to explore HSBC’s suite of ESG funds, which cover themes such as climate change, sustainable energy and healthcare.

Disclaimer: 
Customers are advised to make independent judgment with respect to any matter contained herein. This material is not and should not be construed as an offer to sell or the solicitation of an offer to purchase or subscribe for any investment. You may wish to seek advice from a financial consultant before making any investment decisions. If you choose not to do so, you should consider whether the investment is suitable for you.

Footnotes: 
1, 2 HSBC Global Private Banking – January 2022 – Q1 2022 Trend Brochure
3 ESG scores are calculated by rating agencies such as MSCI, Sustainalytics (owned by Morningstar), ISS, RepRisk, Refinitiv, Bloomberg, S&P Global, and FTSE. Refer to https://sustainfi.com/impact/esg-score/

 

 

Source The Straits Times

Cloud technology could be the most disruptive digital tool for empowering ASEAN’s vulnerable communities

Posted on by dishanth
Cloud technology could be the most disruptive digital tool for empowering ASEAN’s vulnerable communities

Cloud technology in Asia Pacific is projected to grow dramatically in the next few years, and plays a crucial role in modernising and empowering communities across the region. But it is not without challenges to ensure its benefits are broadly felt.

Cloud technology plays a crucial role in modernising and empowering communities across Southeast Asia, from boosting financial inclusion to streamlining access to formal markets for smallholder farmers, according to a report by Eco-Business Research launched on Friday (19 March). But multiple stakeholders must collaborate to ensure that there is true democratisation of cloud technology across the region.  

Cloud technology – the delivery of on-demand computing services through a network of remote servers – is projected to grow by 117 per cent in Asia Pacific between 2019 and 2024, according to GlobalData with more businesses allotting bigger budgets towards it.

Cloud needs minimal infrastructure and investment while it has the ability for companies to operate at scale quickly making it particularly appealing for emerging economies. 

Nevertheless, the development and adoption of cloud technology vary considerably across the five focus countries studied in the Eco-Buisness report.

Singapore is a leader in cloud adoption and growth potential, which is underpinned by its robust infrastructure and enabling policies. It is ranked top in the Eco-Business Cloud Opportunity Matrix. Its ‘Smart City, Smart Nation’ initiative places heavy focus on cloud technology to enable a more efficient provision of services and to streamline government systems. 

Parking, tax and government platforms allowing you to register births and businesses are powered by cloud technology. “We now have the ability to use data to manage transport systems like never before,” Jamie Leather, chief of Transport Sector Group, Asian Development Bank said in the report.

 

Source: Eco Business

 

Thailand and Malaysia are ranked next in the matrix, with conducive regulatory environments and relatively high digital penetration at around 80 per cent of the populations in both countries.

Indonesia, the most populous country in Southeast Asia, and the Philippines still have some way to go, the report noted, with both countries lacking the bedrock digital infrastructure needed to propel cloud technology. 

Nevertheless, Indonesia is one to watch as it is one of the fastest growing markets for cloud computing, with a thriving digital start-up industry boasting companies such as multi-service platform and digital payment group, Gojek and e-commerce company, Tokopedia.   

Growing pains are to be expected as digital infrastructure, awareness and enabling policies develop alongside the uptake of cloud technology.

“Everyone is still on this journey, no-one has a solution for best practice,” said Calum Handforth during a panel discussion launching the paper, and who advises on smart cities and digitalisation for the United Nations Development Programme. 

 

Breaches in data privacy are a headache for both public and private sector entities and could undermine the adoption of cloud technology, despite most providers having robust security systems in place, the report said. Singapore’s digital success story is marred by serious data breaches including one in 2018 when hackers accessed 1.5 million medical records, including those of Prime Minister Lee Hsien Loong. 

“Governments are upskilling their ability to understand the discussions around privacy and security,” May Ann Lim, executive director of Asia Cloud Computing Association, said in the report.  

Cloud technology is in a strong position to be a “force for good” the report said, enabling collaborative cross-border efforts to cohesively deal with cybercrime. However, borders must stay open to allow cloudtech to maximise on trade and economic opportunities. The report suggests the creation of a “common set of principles governing cross-border data flows” will boost economic competitiveness collectively as a region.

The report said that the digital divide is a major impediment to cloud technology. Some in Southeast Asia are being left behind in the race to digitise with stuttering power supply and unstable internet provision in developing markets including the Philippines and Indonesia. 

Even in markets with high internet provision, “policymakers and digital service providers need to address the disparity between different segments of society,” the report charged. Meanwhile, improving computer literacy is instrumental in ensuring cloud technology is inclusive of all.  

The report showcases several examples of best-practice in the region. Indonesia has rising potential in using cloud technology to help support and modernise agribusiness. “The farm-to-customer model has also helped the industry address the ongoing problem of multiple middlemen who typically take a 10 to 15 per cent margin each,” according to the report.  

 

There is potential for smallholders to tap into the e-commerce market using cloud-powered apps as the country’s growing middle class opts for online shopping over the traditional open-air ‘wet’ market, Purnama Adil Marata, an expert in agribusiness in Indonesia told the panel. Meanwhile, cloud-powered innovations can “make modern farming more inclusive for the smallholder farmer,” Marata added.  

Cloud has also played a part in facilitating access to finance for smallholder farmers in Southeast Asia, home to one of the world’s largest unbanked populations. By leapfrogging bricks-and-mortar banking, Indonesia’s farmers, one of the poorest groups in the region that would be ordinarily regarded as high-risk borrowers by traditional financers, can tap into micro-loans as well as agricultural cooperatives where farmers can pool their resources.

“These cloud-enabled lending platforms have also provided farmers with legitimate and safer alternatives to predatory loan sharks,” said the report.

More collaboration is needed in the region to maximise cloud potential. “For this to work, it requires more than just technology…you need to combine it with leadership,” Jane Treadwell from Amazon Web Services said during the panel discussion, whose backlog of experience also includes the digital transformation of governments for the World Bank.

Greater collaboration is needed between government, the private sector, academia and customers to ensure democratisation of the cloud, and that the benefits of this technology can help the most vulnerable people in the region. “Without partnerships, collaborations, we have nothing,” Akanksha Bilani, regional alliance head at Intel told panellists.

 

 

By Gillian Parker

Source Eco Business

Singapore renewable energy finance firm Positive Energy scales back as Covid stymies investment

Posted on by dishanth
Singapore renewable energy finance firm Positive Energy scales back as Covid stymies investment

The startup endured a tough 2020, shed staff and its co-founder relocated to the Netherlands as the firm’s only remaining employee. The startup’s struggles reflect the difficulties of renewables entrepreneurship in the Covid era.

Singapore-based renewable energy financing company Positive Energy has scaled back operations after enduring a difficult year impacted by the Covid-19 pandemic.

Positive Energy is a digital platform that connects renewable energy projects to investors, and aims to simplify and speed-up renewable energy project financing. Founded in 2017, the Asia-focused firm makes money by taking a cut of deals made on its platform.

Having raised seed funding and launched the platform in 2019, the firm ran into difficulties after failing to secure further financing in 2020. The platform was suspended late last year, and the company let go employees in Singapore, where it was headquartered, as well as business heads in Vietnam and India.

Co-founder and chief finance officer Vincent Bakker joined another firm at the start of this year. Co-founder and chief executive Nicolas Payen is now the sole employee, and has relocated from Singapore to the Netherlands.

Positive Energy recently landed a waste-to-energy deal that saved the company, and the platform is up and running again, Payen told Eco-Business.

Positive Energy is not the only player in the renewables space to face difficulties over the last year. The pandemic has applied the brakes to development capital, and investors have pulled back in emerging markets, meaning fewer potential deals to run on Positive Energy’s platform. The Covid-induced fall in electricity demand has also slowed the planning and execution of energy deals.

Payen said that although 2021 still presented uncertainties, if Covid vaccinations are rolled out quickly, a return to peak energy demand would follow, and that would mean a need for additional clean energy generation and investment.

“We have seen a number of countries declare net zero ambitions, and a lot of investment will be oriented towards climate friendly technology. So the fundamentals of our business are very strong,” he said.

“We will see growing momentum among climate technology venture capitalists this year. If we get the capital support we need, we can play our role in the energy transition.”

Payen said he remained focused on the company’s mission — rethinking the energy funding process to accelerate the deployment of renewable energy assets globally.

 

By Robin Hicks
Source EcoBusiness 

Financing Sri Lanka’s Renewable Energy Drive – From Energy Storage to Diversification of Energy Generation

Posted on by dishanth
Financing Sri Lanka’s Renewable Energy Drive – From Energy Storage to Diversification of Energy Generation

I have been following World Bank Group’s Massive Open Online Course (MOOC) “Unlocking Investment and Finance in Emerging Markets and Developing Economies (EMDEs)” and have been challenged to draw up a finance and investment strategy for a developing economy of my choosing. With the election season (presidential election in 2019 and parliamentary elections in 2020) drawing closer, I felt that I could focus on Sri Lanka and particularly on its development challenge in meeting its intended Nationally Determined Contribution of reducing GHG emissions in the energy sector by 20% against the Business As Usual scenario and recommend an investment strategy from the point of view of a Government Official. I hope this article will spur further discussion on the options and avenues available for the country in financing the desired transition on the energy profile and serve to inform decision makers on the best course of action.

 

Sri Lanka has made major strides in its development journey with 100% of the population having access to electricity by the end of 2016 and approximately 83% of all adults having a bank account, with 18.6 bank branches for each 100,000 people in the population as at March 2018. These growth statistics could be taken to mean that the country is managing its energy and financial sectors well, however, a closer look will reveal that behind these respectable numbers are structural weaknesses in domestic resource mobilization and national financing strategy, which impede private sector investment in energy infrastructure and cause inefficiency in the system leading to higher costs for tax payers and higher energy cost for industry (posing a challenge to national competitiveness).

 

Ceylon Electricity Board (CEB), a state-owned enterprise, controls all major functions of electricity generation, transmission, distribution and retailing in Sri Lanka. In attempting to make energy affordable for low-income households, a differentiated tariff regime is in place where the rates for low-energy consuming households are subsidized and some of this subsidy is recovered though higher rates to high-energy consuming households. Whilst subsidized electricity has helped to provide a better quality of life and led to positive externalities, the losses to the Government from this subsidization and reliance on expensive power generation has had to be met through increased taxation (with proportion of indirect taxes being approximately 80%). Therefore, even though low-income households spend less, directly for electricity, as a result of high proportion of indirect taxes, they are footing the heavy losses of the State Owned Utilities (eg: CEB reporting a LKR 23bn loss in Q1 2019).

 

This distortion in pricing of electricity and the extent of national grid coverage is also limiting renewable energy uptake and possibility of community-based micro-grid systems. In Kenya, with the coverage of the national grid being limited and with mobile money having a rapid uptake, off-grid solutions such as M-Kopa that employs “pay-as-you-go” solar model has seen great success. Similar off-grid solutions are also gathering great momentum in India, with the cost of renewable energy generation becoming cheaper than traditional fossil fuel sources. In Sri Lanka, with over 70% of the population having a mobile connection as at 2017 and with mobile money services such as Frimi and Genie available, “pay-as-you-go” rooftop solar investments are not attractive to many in the bottom of the pyramid because electricity is subsidized.

 

For high-energy consuming households in Sri Lanka, however, rooftop solar is attractive proposition with payback being between 5 to 8 years. As a result, there is high conversion to solar in this segment (177 MegaWatts (MW) of rooftop solar installed as at April 2019) . This would be a positive development in the country’s ambition on climate action, however, it does not bode well for the CEB, the utility provider, for whom this would mean a loss of revenue, because it is losing the client segment that is paying high tariffs. This would exacerbate the losses further and affect Government’s debt sustainability.

 

If renewables could provide consistent power, this solar rooftop adoption would not have been an issue. However, with the renewable energy generated being intermittent and with peak demand occurring at night time, CEB, the utility provider, has had to rely on large hydro and thermal power plants to provide the base-load. It also has to pay for peaker plants operated by Independent Power Producers and even buy expensive emergency power, when installed capacity falls short to provide the peak energy demand. The high energy consumers who have taken up rooftop solar systems park the excess power they generate during day to the grid and draw power from grid at night. Therefore, Government has to still incur the costs of maintaining the base-load and buy peak hour supply for night time energy demand.

 

Therefore, the need of the hour in scaling up renewable energy uptake is to invest in energy storage systems, where the excess energy generated during day can be made use of at night and in bad weather conditions. The Government has identified pumped storage hydropower plant (3 x 200MW in Maha Oya) to come online by 2028 and 125Mw of Battery Capacity Facilities to be set up where timelines have not yet been declared to address this issue. It has also planned for new investments in 1800Mw of solar , 850Mw of wind, 200Mw of Biomass, and 100Mw of Waste to Energy (6 plants).

 

The investment size for the pumped storage hydropower project is expected to be USD 621mn (USD 1,063/Kw). Delaying the set-up of pumped storage to 2028 will significantly affect amount of renewable energy that could be grid connected and renewable investments that could be scaled up. Government currently plans to invest in 4 new coal power plants due to issues in debt sustainability and grid reliability (noting that coal power is cheaper option and stabilizes the grid), however, if energy storage solutions are integrated to the grid making renewable energy investments feasible and if the inefficient subsidies are gradually replaced by alternate incentives facilitating self sustaining community micro-grids (loan schemes, roof rental for solar companies in working with low-income households, and making P2P energy trading possible through electricity auctions on micro-grids), Government will be able to ensure clean energy supply without having to spend public money on coal power plants, by crowding in private investment. This author came across a proof of concept developed by a group of students from University of Jaffna in having a mobile app for P2P energy trading in Sri Lanka during Sri Lanka’s first fintech hackathon. However, current regulatory set-up does not allow for such electricity trading within community micro-grids as sale of electricity is controlled. Therefore, a serious review on incentives for public engagement in support of the renewable energy drive needs to be undertaken and the enabling environment created.

 

With regards to funding the energy storage solutions and renewable energy investments (over USD 56 billion is needed between 2017 – 2050 to meet 100% renewable energy generation by Sri Lanka power sector), Government need not be restricted to public finance in financing these large investments. It could and it should crowd in private investment for these sustainable energy infrastructure, rather than place extra burden on the tax payer. It could resort to financing internationally, as the Cost of Funds in Sri Lanka is high. Sri Lanka is yet to issue a Green or Sustainable Bond. As in Fiji, the Government can raise a sovereign green bond or work with Sri Lanka Banks’ Association’s Sustainable Banking Initiative to get local banks to lead on issuing Green Bonds and working with MDBs such as IFC, FMO, etc to support this process. Additionally, Government could tap directly and through partnerships vertical funds such as Global Environmental Facility and Green Climate Fund, where there is additionality and market is not ready to accept the risk return profile of the investments. Recently launched Central Bank of Sri Lanka led Roadmap for Sustainable Finance in Sri Lanka identifies the need to build capacity and integrate financial sector to support the real economy through new solutions such as Green Bonds and there is interest by banks to engage in blended financing. Government should fast track the implementation of this roadmap on sustainable finance and I recommend that the Government work with IFC and Sri Lanka Banks’ Association’s Sustainable Banking Initiative to launch Sri Lanka’s first Green Bond to immediately fund the Pumped Storage (also referred to as Pumped Hydro Energy Storage [PHES] or Pump Water Storage Power Plants [PWSPP])  and Battery Solutions and relevant upgrades to the national grid to transition to a smart grid. London Stock Exchange Group has also expressed support to Sri Lanka and Colombo Stock Exchange. Therefore, these support networks must be leveraged.

 

Government has been successful in soliciting concessional finance from China, Japan and India for energy infrastructure (government to government loans and grants). Beyond this, the Government could also encourage FDI and public-private partnership for investments. Support from MIGA could be elicited to give international investors the confidence to infuse capital to the country.

 

In conclusion, Government would need to implement concerted effort to on the one side improve domestic resource mobilization and on the other hand, expand its sources of sustainable finance in the energy sector. Like the energy profile, the country also needs to diversify its investment streams and not excessively rely on Government funding for green energy infrastructure. An investment opportunity of over USD 56 billion exists and a healthy mix of international, domestic, public and private and debt and equity investment streams need to be explored. A first step in this journey could be a 10 year US$800mn syndicated green bond using SLBA Sustainable Banking Initiative platform, where use of proceeds will be for renewable energy storage solutions.

 

This article first appeared on Green Building Council of Sri Lanka’s newsletter “Green Guardian” in December 2020.

Published by Adheesha Perera

European Commission prepares ground for ‘ambitious’ sustainable finance strategy

Posted on by dishanth
European Commission prepares ground for ‘ambitious’ sustainable finance strategy

One year ago, Commission president Ursula von der Leyen presented the European Green Deal. 

“This is Europe’s ‘man on the moon’ moment’” and the European growth strategy for the next decades, she said.

But transforming the European economy to meet the CO2 reduction targets and mitigate global warming will not be easy or cheap: it will require an additional investment of €350 billion annually, according to the Commission.

This massive effort cannot be carried out only with taxpayers money. For that reason, the Commission launched a sustainable finance initiative in 2018 to guide private investments towards the green recovery. 

As the EU is in the process of increasing its ambition in CO2 emissions reduction to 55% by 2030, the Commission will present in early 2021 an “ambitious and comprehensive” renewed sustainable finance strategy, the Commissioner for Financial Services, Mairead McGuinness, announced in a speech in November.

The new strategy will build on the action plan launched two years ago and will explore new ways to include sustainability principles in finance and corporate sectors.

“We need a complete rethink. Sustainable finance needs to become mainstream to have a transformative impact on society and on the planet, while also generating strong returns,” McGuinness wrote in her first op-ed published by EURACTIV in November.

The priorities of the new strategy will be to strengthen the foundations for sustainable investment; to increase the opportunities for citizens and the private sector to support sustainability targets; and to integrate climate and environmental risks into the financial system.

The tools to progress on these three priorities will include the non-financial reporting directive to enhance sustainability disclosures by corporates, and the development of a voluntary EU Green Bond Standard, with a legislative proposal expected in the first half of next year.

The Commission is also implementing the EU taxonomy regulation, which helps to distinguish what investments are truly sustainable, and the climate benchmark regulation.

All these instruments will increase the transparency and the integrity of the green finance and will help to avoid the so-called “greenwashing” (investments that falsely claim to be sustainable). 

The planned review of Solvency II rules, the EU regulation for the insurance sector, would also offer an opportunity to reward institutional investors’ support to the transition toward a more sustainable economy. One of the options could be demanding lower capital charges for sustainable investments. 

Insurers, however, do not support these “non-risk-based reductions” in capital requirements as incentives to address climate change, according to Insurance Europe, an industry group. 

‘Finance Watch’, a civil society association, instead proposed to penalise polluting activities by increasing capital charges for insurance companies’ investments in activities detrimental to a climate-neutral European economy.

In addition to the new sustainable finance agenda, the Commission is also reviewing other pieces of legislation that could spur green investment.

As part of the Stability and Growth Pact revision, the EU executive is considering including a “golden rule” that would favour public spending in sustainable projects under the deficit and debt thresholds. 

The Commission also started a review of its state aid rules last year to see whether they are aligned with the ‘green’ priority, which could open the gates to public support for sustainable projects.

Some other attempts, however, have failed to gain enough traction, such as the possibility of lowering the capital banks must hold for loans given to sustainable projects.

European Banking Authority chairman, José Manuel Campa, said that “we’re not going to get to a green economy if in the process we end up encouraging banks to be insolvent, and get into another financial crisis.”

 

 

By Jorge Valero

Source EURACTIV.com