12 October, 2016: In the lead up to the 8th annual BRICS Summit on October 15-16 in Goa, India, the Institute for Energy Economics and Financial Analysis (IEEFA) released a report that studies the targets each BRICS country presented under the Paris Agreement, their stated energy goals to understand the renewable energy expansion needed and the corresponding magnitude of investments required to meet those targets.
The numbers are impressive: total capacity addition of about 498GW and annual investment requirement of US$ 177billion (Bn). Yet the variations in the current pace of progress are stark – from almost non-existing investments in clean energy in Russia, to the Chinese clean revolution.
According to the IEEFA report, the current renewable energy targets of BRICS countries require an annual investment of US$51Bn above the investment in adding renewable energy capacity in 2015.
This investment gap needs to be filled by “Blended Finance”, catalysed by public finance.
The report finds that overall, nearly US$10Bn needs to come in from public finance institutions, like the New Development Bank (NDB), annually.
Jai Sharda, the author of the report, said, “NDB plans to increase its loan book by about US$1.2bn annually over the next 3 years, which is only 11.7% of the incremental capital required from public institutions. As such, there is a clear need to increase the rate at which it deploys additional capital. Also, NDB needs to ensure that going forward, it continues to focus on financing renewable energy projects.”
In the post Paris context, investments into low carbon and clean infrastructure may leapfrog developing economies on the way towards a net zero emissions world, if the financing needs are met.
The NDB, also called the BRICS Bank, includes funding for sustainable development as one of its primary objectives. A major push by it is required to propel the BRICS nations into higher clean energy orbit
Peng Peng, Director of Policy Research at the Chinese Renewable Energy Industry Association said:
"NDB should support the development of renewable energy in BRICS countries, which are representatives of the developing world, to reduce long-term energy costs and the dependence on fossil fuels. Currently, financing costs in the majority of developing countries are too high. NDB could have its own programs supporting clean energy, and could support BRICS programs achieve long-term low-cost financing in the international financial market."
Srinivas Krishnaswamy, Vasudha Foundation’s CEO, said:
“While the bank has defined certain kind of investments as eligible for NDB financing, in the absence of a clear definition of sustainable development, it is possible that some projects that come under the category of “clean coal” for instance, could end up being financed by the Bank. If the NDB is going to be something new, it will need to break away from the hitherto followed model of supporting extraction oriented model of development.”
NDB has so far given out 5 loans equivalent to US$911mn. Each of the founding partners has been extended a loan. Notably, almost all the loans extended by NDB have been in the “clean energy” space – in line with the stated agenda of the Bank.
The Executive Director of Brazil’s Institute for Climate and Society, Ana Toni, said:
“The climate agenda must be placed at the heart of the economic agenda of BRICS. Energy is a vital premise of economic growth and social inclusion and, with the entry into force of the Paris Agreement, the only possible way to move forward is clean energy. Much of the energy matrix of Brazil comes from clean sources, but if we are to effectively fight climate change so that rising temperatures do not compromise our agriculture, our cities and the health of citizens, we need to go further, uniting all economic agents around a low carbon development agenda.”
