Technical-Financial Facility

Through the Technical-Financial Facility, the Observatory establishes the necessary mechanisms to carry out the role of facilitator of projects, always in close cooperation with governments and the respective public instances. In this way, the Observatory will have the capacity to mobilize the necessary technical and financial resources to allow the agents of every country developing and implementing specific actions in the field of renewable energy.

In order to understand the need to establish this mechanism, it is necessary to provide a short review of the financial market situation with reference to renewable energy projects.

The majority of renewable energy generation systems differ from conventional systems in the structure of their costs. The fossil combustion systems generally have moderate costs of start-up capital or even low ones, but high operational costs due to the fuel they use. On the other hand, the renewables usually do not have fuel costs, although they require a relatively high initial investment.

The financial community has hesitated from the beginning to invest in renewable energy technologies. Even though the politics of the leading European countries, as well as those of China, India, Japan and the United States, have positioned renewable energies (especially wind and solar) as one of the leading forms when it comes to a new capacity form of electricity generation. According to the Worldwatch Institute, global investment in renewable energy had reached a record high of $38 billion in 2005, 8 billion more than in 2004.

The key to this success derives from the fact that some countries have favored the advantages of renewable energy through clear and focused policies and support programs. For this reason, the countries that have benefited the most from the popularity of renewable energy are mainly those that have adopted effective public policies and appropriate financial instruments (Renewable Energy Financing Case Studies: Lessons to be learned from Successful Initiatives, March 2006. Report prepared by Envirochem Service Inc. for the Environmental Cooperation Commission of Montreal, QC, Canada).

Incentives on the renewable energy regulatory framework and tariffs scheme for the introduction of renewable energy to the electricity network have become the main support tool for renewable energies at a greater scale. Some environmental groups have successfully tried voluntary programmes on “green electricity”, with the capacity of producing considerable volumes of electricity in full respect of the environment.

For small-scale isolated systems for productive uses, the access to funding is essential to overcome market barriers. For this reason, revolving funds and credit programs (that are also being used in other sectors) have been expanding. In this context the Nobel Peace Price awarded this year to the work of Mohamed Yunus (Bangladesh, 1940) and the organization he founded in 1978, the Grameen Bank must be mentioned, for his efforts in promoting social and economic development from the most humble spheres of society through a program of micro credits as an instrument to combat poverty. This has allowed us to prove that even the poorest of the poorest can work for their own development.

Nonetheless, commercial banks continue to refuse to participate in a market of small loans, at high risks, so that renewable energy in many places continues to await improvements in this sense.

The Observatory’s Secretariat and the National Observatory Coordinators will work closely with the purpose of identifying appropriate partners and financial mechanisms that adapts themselves to the economic and financial realities of each country, taking into consideration a possible extrapolation of the mechanism to a regional level. In this way, the medium term objective would be a regional mechanism that establishes standard managerial systems for the whole region as well as credit and operation preconditions.

In principle, the implementation of the Technical-financial facility will start out with an in-depth analysis of the financial situation of each country in the energy field, followed by an analysis of those agents that could join the Facility within their national financial system.

A similar analysis of the regional and global institutions will be made from the Secretariat. This will allow a local, national, regional and global view and the establishment of necessary interconnections between these levels to enable the consolidation of the mechanism.

The Technical-Financial Facility will:

• promote the access to preferential loans directed towards the implementation of specific projects in any discipline related to renewable energy
  
  
• constantly monitor the project once it has started its implementation phase.