Investing in renewable energy in developing countries
[Music]
if i told you
that a traditional pension fund can
achieve a solid financial return
by having a real positive impact on
climate would you believe me
what if i also told you that this
pension fund can venture into markets
that often are considered too risky
would you believe that is possible
it is possible in fact this is the case
with our investments in renewable energy
in developing countries
and that is very good news because we
need to turn
billions of investments into trillions
in order to reach the goals in the paris
agreement and what klp has done can
hopefully inspire other investors
to do something similar i’ll share with
you today
the benefits of private sector
investments
going hand in hand with public sector
investments
or blended finance as it is called i
want to show you some of the projects
that we are proud to be a part of in
order to describe the impacts of what we
are doing
let us start in mozambique which is one
of the poorest countries in the world
where only 31 percent of the population
have access to electricity
here we helped finance mokuba
mozambique’s first large-scale solar
plant
it provides enough electricity to serve
the equivalent of 175
000 households besides reducing
emissions
by around 80 000 tons annually
it helps to stabilize the grid and the
energy supply in
northern mozambique at the peak of
construction
the project employed 1500 people
which most were hired locally and
although it currently
employs only a handful of people
the wider impact on the economy is
significant
as people and businesses get a better
more stable access to energy
productivity improves and new businesses
are established
leading to more jobs and economic growth
now let us turn to the lake turkana wind
farm in kenya
this provides almost 17 percent of
kenya’s installed energy
generation capacity thereby avoiding
production from fuel oil plants
and providing reliable and low cost
electricity
also the project this has had additional
positive impacts
a new road has reduced time and costs of
travel and has helped to increase trade
in the region these are investments that
we have done
with north and the norwegian investment
fund for
developing countries we have started an
investment
company together which make direct
investments in projects
and although northland is publicly owned
it is commercially oriented and thanks
to their expertise
operational setup and thanks to their
way of structuring projects
klp found a way to enter these markets
that wasn’t feasible
before and wasn’t feasible on our own
the return
has also been attractive a 12 annual
return so far
this has eased our initial hesitations
and has
encouraged us to continue building this
portfolio
we all know that renewable energy plays
a critical role
in achieving the goal in the paris
agreement
we must reduce the use of coal as an
energy source
at klp we have already become coal free
and have focused more of our attention
uh on the opportunities that comes with
fighting climate change
according to the oecd we need 6.9
trillion
u.s dollars in infrastructure
investments every year to 2030.
to meet the goals of the paris agreement
contrast this to about 300 billion
dollars which is the figure for the
current annual investments in renewables
there is absolutely no doubt that we
need more renewable energy
especially in developing countries where
we expect
the largest growth in needed capacity
and where we now have the chance
to replace the coal plants
the question is how this can be financed
at the pace and
the scale needed again we must turn
billions into trillions
in order to bridge the financing gap for
renewables and private institutional
investors
can and should take a bigger role so my
message today
is that klp and other institutional
investors
can fight climate change while at the
same time harvesting competitive returns
and managing the risks that are involved
by establishing new partnerships and
using new tools
we can accelerate the spread of
renewable energy
i already told you about klps and
orphans
co-investments but there are also other
ways
that private and public investments can
play together
let’s dig deeper in the blended finance
toolbox
the beauty of blended finance is that
both parties benefit
public money can be used as an effective
risk cushion
which means that investors dare to make
investments
that previously was too risky as the
risk is now lower
the government on the other hand can do
more
while spending less as it becomes a
catalyst
for mobilizing private capital the
blended finance mechanisms
have the potential to unlock private
money
that otherwise hadn’t been there it can
be done in many ways
but i’ll show you another example from
klps investments
this is the innovative fund climate
investor one
that financed the whole life cycle of a
renewable project
this fund consists of several components
with three different financers public
donors
state guaranteed loans and commercial
investors
the public donors are essentially giving
a very cheap loan to the project
they are however the last ones to get
their money back meaning that
in the case the project fails
the initial loss will be covered by the
donor
this is what is called a first loss
mechanism the
state guaranteed loans help reduce the
credit risk in the project
and combined with a first-last mechanism
it creates
a risk and return profile that also fits
a commercial and traditional pension
fund
like klp for kelp blended finance has
been a blessing
it lowers risk and we have found the
operational partners
that we need to do it in short it has
given us the chance
to get involved in these markets and
directly in projects
it has created a win-win situation where
we can ensure a responsible and
sustainable
management of pensions while at the same
time fighting climate change and having
a positive
impact on society institutional
investors manage a vast sum
of money the asset owners that have
signed
the pri which is a network of investors
and the world’s
leading proponent of responsible
investing control
90 trillion us dollars if these pri
asset owners were to direct one percent
of their assets under management
to renewable energy this would mobilize
financing
around a thousand and three hundred
gigawatt of new capacity
that is over seven times more than what
what was installed
last year a recent article in the
economist shows that blended finance
struggle has struggled to grow despite
its attractive merits
in order to reduce the barriers for more
blended finance
public and private sectors need more
dialogue
on how structures can be developed to
suit both parties
needs and objectives so my call to
action is
stop financing coal public and private
investors
partner up in blended finance solutions
and finally
steer capital to renewable energy
we can make this happen and in the
meantime
we in klp we are committed to continue
increasing the green investments year by
year
for the benefit of the financial returns
and the climate