Select Committee on European Scrutiny Twelfth Report

9 Global Energy Efficiency and Renewable Energy Fund



+ 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

Legal base
DepartmentEnvironment, Food and Rural Affairs
Basis of considerationMinister's letter of 26 February 2007
Previous Committee ReportHC 41-viii (2006-07), para 1 (30 January 2007)
To be discussed in CouncilNo date set
Committee's assessmentPolitically important
Committee's decisionCleared


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.


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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Prepared 16 March 2007