The Climate Group hosts key event at Climate Week NYC on financing LED lighting in developing regions

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6 October 2016

NEW YORK:  The Climate Group hosted two events as part of its LED scale-up program at Climate Week NYC on September 22, that addressed the key challenges to accelerating a global switch to energy efficient light emitting diode (LED) technology.

The morning session focused on the issue of financing LED street lighting in developing countries, as identified through The Climate Group’s ongoing Global LED Consultation, and was followed by an afternoon discussion focused on driving the adoption of LED lighting by US cities and utilities.

Accelerating the adoption of energy efficient LED lighting was a central topic during this year’s events at Climate Week NYC that was convened by The Climate Group from September 19-25. Following the ambitious targets agreed in December as part of the Paris Agreement, this year marks the transition from commitment to action and LED lighting has been recognized as a key technology that will help achieve the global climate goals over the next decade.

Energy transition

LEDs are capable of achieving energy savings of between 50-70% and have been recognized as the ‘low hanging fruit’ and a leading technology ready for implementation at scale in the transition to a net zero emissions global economy.

The urgency of adopting LED lighting was highlighted during the opening day of Climate Week NYC 2016 at a special event - RAISING THE STANDARD – a High-Level Progress Review and Call to Action on Buildings and Renovation - hosted by Philips Lighting and the World Green Building Council. Bill Bien, Head of Strategy, Philips Lighting, stressed the importance of LED lighting adoption in driving down global emissions and deliver better quality illumination to citizens around the world. During the event, Bill Bien also renewed The Climate Group’s 2025 call to action for all street lighting around the world to be LEDs (or as energy efficient) by 2025. To help stakeholders reaching this target, The Climate Group has been running a Global LED city Consultation to identify and address remaining challenges to adoption and drive scale-up globally.

Challenges and opportunities

The morning session highlighted the challenges of financing city LED lighting projects with a key focus on developing nations. The event convened a wide range of stakeholders and financiers from the World Bank, the International Finance Corporation (IFC), LED manufacturers, financial institutions, advisors to donors and foundations as well as policy makers from developing regions.

All participants recognized LED lighting as a mature and proven technology providing guaranteed energy savings over the lifetime and broader benefits to the society and communities. However, regional specific project and political uncertainty can exist, particularly in developing regions where investment risk may remain high due to cities low credit rating or fear over repayments being met.

The meeting demonstrated that the capital to finance the scale-up of LED technology is now largely available and it is now a matter of finding innovative financial instruments to deploy capital in a way that ensures the parties can securer payment and return on investment. Novel investment models proposed included risk-mitigation instruments that could be supported by foundations and combined with commercial funding to help reduce the perceived risk, thereby unlocking much larger sources of domestic and international financing.

Participants at the events heard that several initiatives to provide risk guarantees on loans for cities looking into energy efficiency infrastructure upgrades are already underway and India is in a leading position in this space.

Building investor confidence

Thanks to the Indian government’s ambition to upgrade all light bulbs in the country to LEDs by 2018, several initiatives have been undertaken, driven by organizations including the World Bank and Energy Efficiency Services Limited (EESL), that allow cities and financial institutions to get a share of their loan guaranteed and to provide capacity building for local energy service companies (ESCOs) to implement projects. India’s commitment has helped align national goals, industry and policy and is helping to build internal long-term investor confidence. Similar concepts on risk guarantees are also being explored in Mexico and Brazil.

The participants also looked into the option of aggregating projects in selected countries and territories, creating a larger portfolio to decrease transaction costs associated with the investments and build local capacity. This approach is being explored by the World Bank/IFC in Brazil who recently produced a report grouping major Brazilian cities in 6 categories based on their lighting size and assets and analyzing the opportunities for these groups to secure financing.

Overall, there is consensus on the fact that technology is now proven and ready to be deployed, and that the capital to finance the transition is largely available. It is now time to develop regional and national investment vehicles to address the localized finance risks and develop investment mechanisms, through blended finance and options for first loss guarantees.

“The finance round-tables at Climate Week NYC allow The Climate Group to convene key stakeholders to help explore and develop new financing solutions that can help accelerate adoption of LED lighting around the globe,” said Peter Curley, Project Manager of the LED program, The Climate Group. “There is clear urgency around energy efficient technologies such as LEDs, where the unprecedented savings of up to 50-70%, which can provide a dramatic reduction in global emissions is being delayed, not by perceived risks around the technology, but by credit risk and concerns around loan repayments – particularly for cities in developing regions.  New finance approaches and guarantee mechanisms need to be developed to provide routes for roll-out of such current highly energy efficient technologies and those of the future. “

by Arianna Tozzi

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