Financing Clean Energy Projects

As we argued in Chapter 1, with respect to clean energy technologies, while IPRs may have a negative impact on innovation, competition, and affordable access, we argue that the focus of the debate regarding access to clean energy technologies should not be on IPRs. First, achieving reforms to the international intellectual property regime is likely to prove difficult. Second, IPRs do not represent the main obstacle to innovation, competition, and affordable access for clean energy technologies. For example, the fact that the United States has applied countervailing duties on imports of solar panels from China indicates that IPRs are not a sufficient barrier to competition in this sector. Otherwise, countervailing duties would not be necessary to protect the US solar panel industry from Chinese competition. With respect to clean energy technologies, the debate on IPRs is misplaced and distracts from the real issues: creating incentives for and removing obstacles to clean energy development and dissemination.

Fossil fuel subsidies need to be reallocated to the development and the dissemination of clean energy technologies. This is a policy that many developing countries can adopt without the need for multilateral agreements or foreign aid, by reallocating their budgets for fossil fuel subsidies. This may require reforms to WTO subsidies law, depending on the direction that WTO jurisprudence takes. Countries also need to remove barriers to trade in clean energy technologies, rather than erect such barriers. This, too, may require reforms to WTO subsidies law, although reforms to national countervailing duty law could be undertaken without reforming WTO law. WTO law does not require countries to apply countervailing duties; it merely permits this practice as long as it is done in accordance with the requirements of the SCM Agreement.

Clean energy projects make economic sense for the rural population who do not have electricity. In 2010, 1.4 billion people lived without electricity with 85 percent living in rural areas that are far from electricity grids. Without any additional help, the number of people without electricity will fall to 1.2 billion by 2030. The number of people relying on traditional biomass as fuel was 2.7 billion in 2010 and projected to rise to 2.8 billion in 2030.[1]

As a result, it is more practical to consider decentralized, renewable energy technologies for rural areas that are far from the electricity grid. In these circumstances, it is feasible to leapfrog fossil-fuel generated electricity and go directly to clean energy sources. We illustrate this principle with an example from India with three options: (1) traditional coal fired power grid, (2) biomass fuel, and (3) hybrid solar/wind powered electricity.

Solar and wind powered village-scale mini-grids can provide electricity for lighting and other small electric appliances such as radio, television, and cellular phones. In addition, solar cookers can provide clean cooking. Solar crop dryers and solar water heaters can be used for crops, other agricultural processing and for hot water needs. Mechanical wind powered pumps or solar photovoltaic pumps can replace diesel generators for pumping water. Biogas from household scale digester and small-scale biomass gasifiers can provide for village-level lighting and other small-scale electric needs. Biomass gasifiers can be fed into small electricity grid systems to power small industry. They can also pump water for drinking and agriculture. Biogas digesters can also help with heating, cooking, heating water, and commercial stoves and agricultural processing.

Figure 8.5 shows us an experiment conducted in India to demonstrate the following. Coal-fired power plants are cost-effective when the power source is less

Cost comparison of coal powered electric grid and biomass and solar/wind hybrid generators in India

Figure 8.5 Cost comparison of coal powered electric grid and biomass and solar/wind hybrid generators in India

Source: Access to Energy for the Poor: The Clean Energy Option. Oil Change International, June 2011, Figure 2.

than 5 kilometers from the place of consumption. The cost of consumption keeps rising with the distance because of loss of power over longer distance. The advantage of wind, solar, and biomass fuels comes from their local nature. The cost does not depend on distance because they are always locally produced. For more than a billion people, coal-fired power plants are not really an option. Figure 8.5 clearly shows that it is inefficient to try to connect these people to the power grid. It is better to assist them financially to get them to clean energy sources like biomass or wind or solar power.

We should also note that the cost calculation for coal powered electricity here did not take into account the externality that coal powered plants produced (discussed in detail in Chapter 6). Neither does it take into account the subsidy that the government in India provides for all the power plants (fixed cost). It simply takes into account the marginal cost of producing a kWh of electricity in 2010.

Since 1992, the World Bank has contributed USD 790 million to solar home system components in 34 countries, mostly with Global Environmental Facility subsidies and relying on microfinance for consumers. These projects can have economic rates of return of 30 to 90 percent, but have little impact on GHG reductions because off-grid households use so little energy. Nevertheless, climate change is a serious threat to development, particularly for the poor.61 Promoting the electrification of poor, rural communities with clean energy technology is a cost-effective means of economic development that avoids increasing GHG emissions and can benefit a large number of poor.

Dissemination of clean energy technologies can also be facilitated by removing barriers to foreign investment and international trade in services, a topic that we discuss in the following section.

  • [1] International Energy Agency, Energy Poverty: How to MakeModern Energy Access Universal (IEA/OECD, Paris 2010) 7.
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