How ADB became Asia’s top clean energy lender

How ADB became Asia’s top clean energy lender

Beijing birds nest lights, Asia clean energy finance
ShutterstockLU JINRONG
A view of the illuminated "Bird's Nest" Olympic stadium in Beijing.

In recent years, Asian Development Bank (ADB) has emerged as a major player in the region’s clean-energy sector. The bank’s investments (PDF) in renewables and energy efficiency have risen dramatically.

ADB has increased its clean-energy investments from about $230 million in 2003 to more than $2.4 billion annually, making it the largest single clean-energy lender in the region.

These investments have translated into real impacts. Between 2009 and 2014, for example, ADB reports its projects resulted in 21.2 terawatt-hours per year in electricity savings, 8.9 gigawatts of installed renewable energy capacity, and 68 million tons of carbon dioxide abated annually.

This sharp increase in clean-energy finance was not a natural outgrowth of ADB’s business-as-usual activities. Rather, it was driven by the bank’s concerted efforts to position itself as a leader in the Asian clean-energy sector.

Laying the groundwork for clean energy growth

Neither ADB nor Asia was thinking much about renewables in the early 2000s, said Samuel Tumiwa, the current deputy representative for ADB’s North American Representative Office.

In fact, it was only after leaders at the 2005 G8 Summit called upon multilateral development banks to do more to respond to climate change that ADB’s clean energy program revved into gear. In 2008, for instance, ADB set a clean-energy investment goal of $1 billion annually.

However, it soon became clear that demand in Asia for clean-energy lending was low.

“We had to convince countries to borrow for renewables,” Tumiwa said. Interest picked up once ADB switched from talking about climate change to focusing on clean energy’s potential to enhance nations’ energy security.

Education and capacity building also were critical early on. Before large clean-energy investments could be made, borrowing countries needed to create the policies and protocols for attracting clean-energy projects and developers.

Therefore, much of ADB’s initial work was geared towards educating ministries of energy on renewables, helping nations write and pass renewable-energy laws, and working to translate those laws into regulation.

Once the necessary capacity building was completed, the ADB began funding “proof-of-concept” renewable-energy projects.

Many governments and local banks were wary of investing in wind and solar, as they were largely unproven technologies in the Asian context. The ADB was able to reduce some of this risk by conducting demonstration projects that showcased the financial viability of clean-energy investments.

After completing four or five pilot projects, Tumiwa said, the hope was that local banks would take ADB’s position as the primary clean-energy investors in the area.

Aggregating markets to accelerate clean energy deployment

In some regions, however, proof-of-concept did not necessarily result in robust clean-energy markets.

“We started asking: Why is wind not being developed in central Asia or the Philippines, even though there’s viability?” Tumiwa said.

To address this problem, the ADB clean-energy program began focusing on “market aggregation.” This tactic — which Tumiwa said was inspired by the Clinton Health Access Initiative’s work on reducing HIV/AIDS treatment costs in Africa — involves harnessing economies of scale to reduce the costs of clean energy.

For example, if left to their own devices, multiple wind developers who worked in the same region might pursue their projects independently. However, if they were to coordinate a collective deal with a single wind-turbine manufacturer (as opposed to relying on different manufacturers), they likely would receive a better deal on turbines because they would be buying in bulk.

“Aggregating markets was a model that we really liked,” Tumiwa said, noting that ADB has employed this strategy in parts of Sri Lanka and the Philippines.

Navigating the potential and pitfalls of energy efficiency

In recent years, the ADB increasingly has focused its efforts on boosting energy efficiency in Asia. Energy efficiency initiatives constituted a little more than a third of ADB’s clean-energy investment portfolio for 2009-2014.

Historically, however, energy-efficiency initiatives have generated less interest than renewables among borrower countries.

“There’s no glory in changing light bulbs,” Tumiwa said, referring to a 2005 ADB-led campaign to replace millions of incandescent light bulbs in Pakistan with more energy-efficient CFLs. Instead, he said politicians and technocrats tended to prefer renewable-energy projects that easily could be showcased to the public.

Several of ADB’s energy-efficiency initiatives also have come under attack for their connection to coal production. For example, there was an outcry among many environmentalists when ADB decided to count as a “clean-energy investment” the efficiency improvements that it made to the Jamshoro coal-fired power plant in Pakistan.

71 NGOs from around the globe called upon the ADB to end its investments in coal, saying such support is “out of step with [ADB’s] stated intention of rapidly increasing investment in clean energy.”

Tumiwa, however, said ADB’s clean energy standards are based on detailed methodologies collectively developed by all the multilateral development banks following Rio+20. Moreover, he said, only ADB projects that improved energy efficiency by at least 20 percent were counted as clean-energy investments.

Anticipating the challenges ahead

The tension between the ADB’s coal investments and its clean-energy activities highlights the challenges facing Asia as a whole.

According to a recent ADB report (PDF), more than 800 million people in Asia and the Pacific have no access to electricity, while nearly 1.9 billion still rely on traditional biomass such as wood and charcoal for cooking and heating. At the same time, demand for electricity is skyrocketing as incomes in the region rise.

Meeting these major development challenges sustainably is no small task.

What will be ADB’s role in this transformation? Tumiwa predicts the development bank increasingly will focus its portfolio on energy efficiency and technology transfer, especially as renewables become more mainstream in Asia.

“We won’t need to finance solar and wind in the future,” Tumiwa said. “The local banks will do it.” Instead, he said the ADB has a productive role to play in expanding energy efficiency and accelerating the adoption of new, proven, clean energy technologies in Asia.

The themes of technology and energy efficiency also appear to be on the mind of ADB Vice President Bindu Lohani, who said during the most recent Asia Clean Energy Forum: “Technologies for better energy efficiencies are commercially available and the low-hanging fruit of energy efficiency is not being picked — at least not enough — in Asia.”

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