9 Global Energy Efficiency and Renewable
Energy Fund
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13809/06
+ ADDS 1-2
COM(06) 583
| Commission Communication mobilising public and private finance towards global access to climate-friendly, affordable and secure energy services: The Global Energy Efficiency and Renewable Energy Fund
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| Legal base | — |
| Department | Environment, Food and Rural Affairs
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| Basis of consideration | Minister's letter of 26 February 2007
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| Previous Committee Report | HC 41-viii (2006-07), para 1 (30 January 2007)
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| To be discussed in Council | No date set
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| Committee's assessment | Politically important
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| Committee's decision | Cleared
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Background
9.1 According to the Commission, most parts of the world have
enjoyed unprecedented economic growth since the early 1990s, accompanied
by a 20% increase in oil consumption, and it points out that the
International Energy Agency (IEA) estimates that energy demand
will increase by more than 60% by 2030, requiring an estimated
investment of $16 trillion over the next 25 years. The Commission
says that there is thus a need for "profound" changes
in the way in which energy services are delivered and energy sources
used, and it has drawn attention to the agreement at the World
Summit for Sustainable Development in 2002 that the share of renewables
in the global energy mix should be "urgently and significantly"
increased. The Commission has also noted that the bulk of the
investment required will have to come from private sources, and
that there is a need to create the right incentives to ensure
that such investment will be forthcoming.
9.2 The Commission therefore put forward in October
2006 this Communication, which proposes that a Public Private
Partnership — the Global Energy Efficiency and Renewable
Energy Fund (GEEREF) — should be set up to mobilise private
investments, particularly in developing countries and emerging
economies. The Fund, which would be a separate legal entity, would
have an initial contribution of €80 million from the Commission
over the period 2007-10, and €20 million from other sources.
This would be used to set up regional sub-funds, in the expectation
that this would encourage over time an additional €1 billion
from other sources, representing a leverage factor of around 12.
The Fund would be used to support renewable energy and energy
efficiency projects involving proven technologies[38]
in various areas,[39]
and would be divided between high, medium and low risk projects,
with the Fund's proportional contribution increasing in line with
the risk involved. The Commission also believes that the Fund
would be financially sustainable and revolving, though it adds
that, given the implicit risk in investing in untested markets
in developing countries, it is "under pessimistic assumptions
possible that 100% capital recovery will not the achieved".
9.3 In our Report of 30 January 2007, we noted that
the Government had said that the proposal was highly supportive
of the UK objectives of encouraging renewable energy and energy
efficiency, as a key element in meeting global energy demand in
a sustainable way. However, we went on to raise two concerns,
which had not been addressed in the Government's Explanatory Memorandum.
First, since the success of the proposal obviously depends critically
upon whether the high leverage it envisages can be achieved in
practice, we asked for the Government's views on this. Secondly,
we noted the Commission's confidence that the Fund would be sustainable,
except under certain pessimistic assumptions, and we asked whether
the Government shared that confidence.
Minister's letter of 26 February 2007
9.4 We have now received a letter of 26 February
2007 from the Minister for Climate Change and Environment at the
Department of Environment, Food and Rural Affairs (Mr Ian Pearson)
addressing these two issues, following clarification from the
Commission.
9.5 On the question of the fund's leverage potential,
he points out that what is envisaged here is in line with similar
funds elsewhere in the small and medium scale renewables sector,
and that the large size and the structure of the Fund means that
a relatively high ratio is possible. He also suggests that, insofar
as more risk will be borne by public capital, its attractiveness
to private investors may be increased, thus increasing its leverage
potential.
9.6 On the Fund's sustainability, the Minister says
that the Government agrees with the Commission that, in attempting
to develop new markets and address the lack of investment in areas
of perceived high risk and low return, such as Africa, there is
an inherent vulnerability. However, he points out that it is this
risk, and the lack of investment in sustainable energy sources
which makes public sector intervention necessary. He adds that,
according to the Commission, there are "very positive"
early signs for the development of the Fund, in that there are
already more than 30 short listed potential investment projects
in the pipeline, providing a good spread of risk and geographical
location. Also, in addition to the initial €80 million pledged
by the Commission, there have been pledges of €24 million
and €8 million respectively from the German and Italian governments,
as well as expressions of interest from the Dutch and Norwegian
governments. He suggests that this — together with interest
from financial development institutions, and the increased political
momentum for an increase in global investment in renewable energy
— indicates an optimistic outlook for the Fund.
Conclusion
9.7 We are grateful to the Minister for his response
to our questions, and we now clear the document. However, we hope
that the Government will monitor the operation of the Fund, and
let us know if the issues we have raised should give rise to difficulties
38 Such as biomass and hydro and on-shore wind power. Back
39
Sub-Saharan Africa, the Caribbean and Pacific Island states, the
countries of the European Neighbourhood, Latin America and Asia. Back
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