Feed-in-tariffs and tariff premium for new technologies or small markets
Feed-in tariffs or tariff premiums are a policy instrument that allows a premium in addition to the cost of generation or market price of electricity from renewable energy sources for the project or debt service timeline. This instrument has been used widely by several countries since the beginning of this global transition and is today used primarily to support new or nascent technologies. Tariffs are then regularly revisited and revised downwards as the market matures and competition increases. Secured tariff per unit of electricity generated throughout the lifetime of a project can mitigate financial and operational risks for investors and reduce financing costs.
PPP for large-scale solar programme
Morocco has become an exemplar for forging successful public-private partnerships (PPPs) for its ambitious solar target of 2,000 MW capacity by 2020. In its first phase, the 160 MW Ouarzazate Noor 1 CSP Project was implemented through a PPP between the Moroccan Government (in various capacities), international financing institutions (IFIs) and a private sector consortium led by ACWA Power. The Government contributed to the PPP by providing tariff subsidies, and securing offtake and debt guarantees reducing risks to private and public investors. The tariff subsidy is spread through the lifetime of the project, reducing upfront capital requirements. The IFIs contributed through institutional expertise and concessional debt. The consortium of private parties, selected through a public tender, contributed equity financing and technical knowhow. The PPP model brought the total costs of the project down by 25-30%. A mandatory clause of local content procurement in the agreements will be crucial to boosting the local economy.
Green bonds guidelines for financing large-scale renewable energy
Green bonds are becoming an increasingly popular financing instrument to raise funds for large scale renewable energy projects. The Government of Morocco has successfully and strategically utilised green bonds to attract national and international financing for its green energy infrastructure. With a target of drawing 42% of the energy needs from renewable sources by 2020 and 52% by 2030, Morroco launched a Green Bonds Guidelines, setting the rules and an operational framework for national green bonds market. Over the years, green bonds in Morocco have been used for solar power projects, energy efficiency, green buildings, among other infrastructure projects. Till February 2019, Morocco, through the issuance of green bonds by different organisations, collectively raised $420 million for green energy projects. In the long run, Morocco hopes to raise $30 billion from green bonds to fulfil the financing requirements for its renewable energy targets.
Green bonds market
Green bonds are becoming an increasingly popular financing instrument for raising private sector and institutional funding for large scale renewable energy and energy efficiency projects. Indonesia, in 2017, developed a Green Bond and Green Sukuk Framework (the GBGS Framework) to extend both market and regulatory support for the issuance of Green Sukuk, a shariah-compliant bond. Funds raised through Green Sukuk will be exclusively used to finance or refinance eligible green projects. Eligible green projects were defined as “projects which promote the transition to low-emission economy and climate-resilient growth, including climate mitigation, adaptation, and biodiversity”. By April 2019, Indonesia had issued bonds worth $ 2.7 billion, making it the largest green bond issuer amongst ASEAN countries. The GBGS Framework was prepared in compliance with the Green Bonds Standards (GBS), an ASEAN initiative, so that the green bonds can be traded within the ASEAN market.
Carbon pricing to encourage provincial climate actions
Carbon pricing is considered one of the most efficient public policies to manage carbon emissions. It simply puts a price on emitting carbon dioxide. Canada's carbon pricing policy is one of the leading examples, as the government made it politically palatable and encouraged sub-national climate policies that are suited to the region and local economy. Through the Pan-Canadian Approach to Pricing Carbon Pollution and the Greenhouse Gas Pollution Pricing Act, 2018, the federal government of Canada set benchmarks for provincial governments to locally design their carbon pricing policies. If provincial governments do not comply, there is a backstop system comprising of a fuel charge and emission trading system. The most important feature of this policy is that it encourages the recycling of the carbon tax revenue to compensate vulnerable and low-income communities to avoid unfair financial burdens.
Provincial carbon tax policy and social equity in British Columbia
British Columbia (BC), a province in Canada, has one of the most advanced and arguably most successful carbon pricing policies. BC introduced a price on fossil fuels used within the province - diesel, gasoline, and natural gas - in 2008 which covered 70% of BC's greenhouse gas emissions. The carbon tax has been set to increase incrementally to avoid any major shocks while giving advance signals to the business sector. Underpinning the policy is its key feature that ensures that the tax does not have any regressive effect. Revenue from the tax is recycled to lower income households through tax cuts or direct payments to offset energy price increases. In 2018, studies indicated that 140% of the revenue was returned to households and firms. Recent studies estimate that the scheme has reduced greenhouse gas emissions by 5-15% of in the province. Clear and transparent communication on how the carbon tax revenue would be spent helped to gain widescale public support for the tax.
Fossil fuel subsidy reform
Fossil fuel subsidies are an inefficient way to protect the incomes of poor households. The vast amounts of money governments spend on artificially suppressing the prices of the dirtiest fuels could be better targeted on specific poverty reduction policies. They also encourage greater emissions, often make governments indebted to foreign institutions, and are a barrier to investments in a clean energy transition. The Ghanaian government's experience with petroleum subsidy reforms shows how subsidies can be redirected to more targeted social development policies. After a failed attempt in 2001, Ghana gradually reduced petrol subsidies in 2005 and 2013 and introduced a pricing formula that reflected international prices. Both these reforms were accompanied by ambitious social policies that included eliminating school fees, improving public transport, and making cash payments to poor households to alleviate the impact of fuel price increases. These measures were supported by a communication campaign that explained the need for subsidy removal and outlined the programmes the government was able to finance by cutting its spending. While these reforms did face challenges, independent studies show that the social policies made possible through these reforms led to a significant increase in school enrolments and successfully supported poor households.