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Monica_55905 May 17

Sustainability and Climate Finance today

Sustainability and Climate Finance today image
How does Sustainability and Climate Finance look today for green energy champions Camco? Geoff Sinclair, Managing Director, discusses how the sector has changed, the speed of change itself and what needs to change in project financing to end with energy poverty in Africa. 
Founded in 1989, Camco Clean Energy has become a global leader in low-carbon energy projects and climate finance.

Since formation, the company has provided creative finance solutions to 180 projects worth $15bn, and in geographies as diverse as China to Malaysia and the Caribbean to Uganda. Today, Camco’s core focus is managing funds that support the development of, and provide finance to, renewable energy projects in sub-Saharan Africa
, including the UK government-funded Renewable Energy Performance Platform (REPP).

We had the opportunity to discuss climate finance, renewable energy through the past 10 years and the importance of financial solutions for energy efficiency projects with Managing Director, Geoff Sinclair.

Camco has three decades of experience in renewable energy and climate finance. What have those 30 years taught you about not only the potential of renewables to both raise the economy and lower emissions, but also about change itself in the field? 

The power sector has changed and continues to change at an incredible speed. When Camco started, the renewables sector was a very new concept in need of subsidies because the technologies were costly. To many people, renewable energy represented “tree-huggers” and was a bit of a turnoff. Now it’s not only cheaper, it’s mainstream, which is a major factor in why the cost has come down so much. It’s got to the point where in a lot of areas that we operate in it is - intermittency issues aside - one of the cheapest forms of generation, if not the cheapest.

Renewable energy has also changed the model of the electricity grid, from one where large centralised generation was the most economic option, to one where distributed generation is quickly becoming the most economic option in many circumstances.

This is certainly a global shift that is affecting us all. But given Africa suffers so much from the inadequacies of the old system, does the continent stand to benefit most from the shift to renewables?

Geoff Sinclair: It certainly does. The centralised grids in many African countries are very often unreliable and in many cases have only managed to reach a fraction of the population. Renewable energy technologies are giving us cheap, reliable grid power as well as providing people with a cost-effective way of gaining access to reliable energy by bypassing the grid.

It stuns me how the growth of renewables is so quickly changing the nature of the electricity supply globally - and nowhere more so than in Africa. In a very similar way to how the development of mobile technology has enabled most people to own a mobile phone by removing the need for fixed wire telephony, I think the same thing is happening to power supply.

So, in a way, change itself has accelerated?

Geoff Sinclair: It really has. When I started dealing with the power sector at the start of the internet tech boom the power industry it was all about regulation and was kind of boring. Now thanks to the rise of renewables it’s become this sexy subject that’s got everybody interested and involved.

And this change in perception is not just being seen within the power sector itself. If you think of climate finance, it used to be the domain of grants and donor-funded research projects. But now the term is becoming increasingly obsolete, and is shifting to being just finance. Climate finance has become more sophisticated, too, moving from grants to much more nuanced structures and practices where the donors are using money much more selectively so as to mobilise other forms of finance.

Donors also appear to have become more aware of the distortive effects that grants have on the market and seem to be designing their interventions to avoid such distortions.

You recently submitted your first Communication on Progress (CoP) to the United Nations Global Compact since becoming a signatory in April last year. In which ways have you been able to work towards some of its 10 Principles so far?  

Geoff Sinclair: It’s pushed us to get our own house-keeping in order, that’s for sure. Since signing up to the Global Compact we’ve looked at the actions that we were already taking and clarified them into comprehensive policies and procedures covering environmental and social safeguards, code of conduct, general action and strategy plans. It’s also prompted us to think about how we hope investees will behave once they’ve got money from us.

In some ways it has been easy for Camco, since we’ve always been about green issues and social impact. But being part of the Global Compact has placed everything in a wider context and has helped us to understand how it all fits together. For example, we’ve always had a firm stance on equality, but never had a gender strategy. Now we’ve developed a full gender action plan that ensures we follow through on our values and try to avoid any hiring bias, pay gap or misdemeanour towards equal opportunities.

In terms of SDG7, almost everything we were already doing was contributing to the achievement of that goal, but we weren’t measuring it. Being a Global Compact signatory has added a new level of discipline around how we do that. For instance, we had never done a carbon footprint evaluation of our company, despite our own zero carbon emission goal. Now we’ve got one, and thankfully it’s where we wanted it to be.

Of course, having lots of well-meaning policies and procedures in place doesn’t mean a thing unless they are adhered to, which is why we’ve formed a Sustainable Business Committee of the Board. It’s the Committee’s job is to advocate for better performance and better practice across this whole range of topics.

Becoming a signatory has prompted us to develop a set of policies and procedures that we will be able to apply to our funds straight away.  That’s incredibly useful.

Energy efficiency is a hugely important part of driving down emissions and meeting the Paris targets, but is largely being overlooked. What steps are Camco taking to make energy efficiency mainstream, especially within Africa?  

Geoff Sinclair: Without energy efficiency we’re simply not going to meet the Paris targets, and there are several ironies about this. The first is the fact, that despite making a small contribution to the problem, Africa will suffer the consequences of climate change very harshly for a range of reasons including geography, economic development and ability to afford adaptation measures.

The second is that African power use is very inefficient. The third, which is entirely commercial, is that energy efficiency is in a sense the cheapest form of energy generation. By avoiding the use of energy in the first place, you’re saving money. It’s that simple.

This means that many energy efficiency projects have better economics and shorter paybacks than most, if not all, generation projects. They are more profitable, so from a financier’s point of view, they should be the things that happen first, and not the things that happen last. But the thing is, they’re not.

Businesses consume a lot of electricity, and in my experience corporations tend to put energy consumption into a sort of a “facilities operational expense” category, meaning that quite often they don’t think about it from a capital budgeting point of view at all. When they do, they end up having to choose between either doing an energy efficiency project or what they would see as ”core business”. I would argue that that distinction is false: energy efficiency is core business because it’s about minimising cost.

Then there’s also the relative lack of an industry around energy efficiency, meaning there are few stable, capable, sizeable service providers that can go to a company and say “I’m going to save you X”. There are consultants and a few companies, but we’re nowhere near where we have to be, especially if you compare the African market to the US, for example.

Lastly, there are very few financing options for that sort of stuff.  Normally, if a company wants to implement an energy efficiency project, their bankers would tend to ignore it as a stand-alone project, and instead only evaluate financing on a corporate lending basis.  As a result there aren’t enough financing solutions available to many companies.

In response to this, Camco is putting together a financing company that will work with intermediaries to provide these financing options. The idea is to help experts, tech providers, installers, etc., to build up financing balance sheets, so that they can offer quick and easy energy efficiency options to medium and large users of electricity.
For companies that invest in energy efficiency, the returns are obvious – it’s a great proposition from a commercial perspective. The implementation is not quite so obvious, but we’re confident in our understanding of the region and sector.

Would you say capital acquisition is the main challenge for these energy efficiency projects? 

Geoff Sinclair: Yes, I would. Despite the huge potential savings energy efficiency offers - in Kenya, for example, energy efficiency costs a third of what grid power costs on a per MWh basis, and an eighth of the cost of diesel back-up - finance is a major barrier to the rollout of projects.

If you look at it from a lender’s point of view, a power generation project is typically sizable, and you can forecast your finance accordingly. In contrast, energy efficiency is very small and you cannot wrap it up in project finance – how do you take security over the non-consumption of something?  So our challenge is to effectively position it so that it is bundled up as a nice bankable parcel. 

At the moment, businesses that want to implement energy efficiency often have to fund it on balance sheet, whether from cash reserves or corporate borrowing.  That might be okay for some of the larger players, but many others end up thinking that they have a choice between using their credit line for “core business” or for an energy efficiency project – and the former normally wins.  In countries like the US or the Netherlands there are companies that help with this, but not so much in Africa.

Your projects cover a wide range of technologies, but which one of these has seen the biggest revamp in the last 10 years, and which is the one showing most promise in the following 10 years?

Geoff Sinclair: That’s easy: solar. Ten years ago, solar was very expensive, but now we’re seeing some incredible results coming out of tenders. And from a financier’s point of view, construction risk has also become really manageable.  The wind sector has also seen a massive improvement, but not yet on the same scale as solar.
I think the next big breakthrough will be in energy storage, since there’s still quite a lot of development to be done. So far a lot of the technology being implemented – especially lithium ion – is better suited for frequency support and other short duration applications.  The technology for longer durations is still some way off in terms of commercialisation,  but I think that will be the next advance, and over the next 10 years we’ll start to see the emergence of a variety of batteries for different purposes providing a range of different solutions.

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