Unlocking Commercial Financing for Clean Energy in East Asia Directions in Development Human Development

In East Asia, all middle-income countries have national targets for energy efficiency and renewable energy, and some even have targets for carbon reduction. However, a major hurdle to achieving a sustainable energy path is mobilizing the required financing. Although the lion's share of the investments are expected to come from the private sector, the challenge facing policy makers is how to unlock this commercial financing most cost effectively to scale up clean energy investments.Written for an audience of government decision makers in middle-income and high-income countries, international financing communities, and practitioners, this report draws lessons to date from recent experience in applying public financing instruments and attempts to address the following issues: when and under what circumstances to use public financing instruments; which instrument to select; and how to design and implement them most effectively. First and foremost, effective and conducive policies are essential to catalyzing commercial investment in clean energy. Energy efficiency policies should aim to remove market barriers and failures, thereby creating market demand. Renewable energy policies that compensate investors for the cost gap between renewables and fossil fuels are a prerequisite to renewable energy financing. Once the right policy regime has been put in place, public financing mechanisms designed to mitigate risks and close financing gaps proved to play a major catalytic role in kick-starting substantial investments in clean energy. Public financing mechanisms for energy efficiency are particularly important to mitigating financiers' risk perceptions, to aggregating small deals, and to enhancing the interest and capacity of domestic banks. Public financing for renewable energy can provide long-term tenure to match the long pay-back period, mitigate technology risks, and increase access to financing for small and medium enterprises.The selection of public financing instruments should be tailored to the market barriers, the targeted market segments, the regulatory environment, and the maturity of the financial market. Engaging domestic banks through credit lines and guarantees has had the greatest impact in unlocking private financing. Dedicated funds and mezzanine and equity funds are effective at increasing access to financing for small and medium enterprises and clean energy start-ups. Finally, the impact of public financing instruments can be substantially increased if they are packaged with technical assistance. Unlocking Commercial Financing for Clean Eneargy in East Asia was written for government decision makers in middle and high-income countries, members of international financing communities, and practitioners. In East Asia, all middle-income countries have national targets for energy efficiency and renewable energy, and some even have targets for carbon reduction. However, a major hurdle to achieving a sustainable energy path is mobilizing the required financing. Policy makers must determine how to unlock commercial financing to scale up clean energy investments. Unlocking Commercial Financing for Clean Energy in East Asia builds on recent experience in applying public financing instruments and attempts to address the following issues: when and under what circumstances to use public financing instruments, which instrument to select, and how to design and implement them most effectively. First and foremost, effective and conducive policies are essential to catalyzing commercial investment in clean energy. Once the right policy regime has been put in place, public financing mechanisms designed to mitigate risks and close financing gaps have proven to play a major catalytic role in kick-starting substantial investments in clean energy. Public financing mechanisms for energy efficiency are particularly important to mitigating financiers' risk perceptions, to aggregating small deals, and to enhancing the interest and capacity of domestic banks. Public financing for renewable energy can provide long-term loan tenure to match the long payback period, mitigate technology risks, and increase access to financing for small and medium enterprises. The selection of public financing instruments should be tailored to the market barriers, the targeted market segments, the regulatory environment, and the maturity of the financial market. Engaging domestic banks through credit lines and guarantees has had the greatest impact in unlocking private financing. Dedicated funds and mezzanine and equity funds can effectively increase access to financing for small and medium enterprises and clean energy start-ups. Finally, the impact of public financing instruments can be substantially increased if they are packaged with technical assistance.

Overwhelming evidence indicates that climate change, caused in large part by human activities, is already adversely impacting all people, with the very real prospect of worse to come. Nevertheless, a global treaty to curb carbon emissions remains elusive. In East Asia, all middle-income countries have set national targets for energy efficiency and renewable energy, and some even have targets for carbon reduction. This report focuses on recent experiences in applying public financing instruments and tries to draw the lessons to date: when and how to use the instruments, which instrument to select, and how to design and implement them. The wide range of financial instruments designed to support and catalyze clean energy investment over the last decade is truly remarkable. Such instruments include credit lines and risk guarantees designed to increase both the capacity and confidence of commercial banks for clean energy lending; dedicated funds and concessional financing mechanisms to kick-start new technologies; mezzanine and equity financing targeted at start-ups; small and medium enterprises and energy service companies; and various consumer financing instruments designed to lower the upfront costs of clean energy equipment. This report systematically reviews the successes and failures of innovative interventions and distills the lessons of applying them. This report is organized in following four parts: part one gives overview; part two focuses on financing energy efficiency; part three focuses on financing renewable energy; and part four focuses on clean energy financing case studies.

In East Asia, all middle-income countries have national targets for energy efficiency and renewable energy, and some even have targets for carbon reduction. However, a major hurdle to achieving a sustainable energy path is mobilizing the required financing. Although the lion's share of the investments are expected to come from the private sector, the challenge facing policy makers is how to unlock this commercial financing most cost effectively to scale up clean energy investments. Written for an audience of government decision makers in middle-income and high-income countries, international fi This report draws lessons to date from recent international experience in applying public financing instruments to unlock commercial financing to scale-up clean energy in East Asia. It addresses the following issues: when to use public financing instruments; which instrument to select; and how to design and implement them most effectively.