How can we promote investment in the Caribbean, a region which has long experienced some of the highest energy costs in the world? There are significant barriers to obtaining financing to develop energy efficiency projects in the region. If Latin American and Caribbean countries want to achieve the IEA’s proposed 2 degree Celsius scenario by 2035–then primary energy demand will need to be reduced by approximately 18% through energy efficiency. This would require hundreds of millions of dollars – at least three times the current rate of investment in energy efficiency. It is a daunting challenge when you consider that over the past 40 years, there has only been a 17% decrease in energy intensity in the region, a pace that is still three times slower than the rest of the world.
So how can we invest better and work together to build a stronger energy efficiency sector? Often times, the best way to manage resources is to use the ones that already exist in a more creative way. The IDB is working to leverage resources and expertise to bring different partners to the table to create innovative financing structures.
In 2010, for example, in collaboration with the Government of Barbados and the Enterprise Growth Fund Limited, the IDB established a US$10 million Energy Smart Fund with the main objective of promoting viable renewable energy and energy efficiency technologies in Barbados. With the Smart Fund, households and businesses can use more efficient air conditioning units and efficient lighting systems and install renewable energy technologies such as solar panels for power generation that will be connected to the grid .The Fund is also helping small entrepreneurs in Barbados become “Smart Fund Partners” so that these businesses build expertise in conducting energy audits and other related technical areas.
Another example of an innovative structure is the IDB’s Energy Efficiency Green Bond Facility where the IDB is facilitating up to $450 million in financing to underwrite energy efficiency projects in several Latin American and Caribbean countries. Building on the recent expansion of the green bond market, the Facility accumulates a pool of “green” (e.g. energy efficiency) projects which are packaged, issued, and backed by the energy savings generated by the underlying projects. This allows private sector companies to tap capital markets with the aim of accessing more adequate financing terms and conditions for their energy efficiency projects. Jamaica, Mexico, the Dominican Republic, and Colombia have already expressed interested in participating and support is underway to help countries scope out the measures necessary for them to access the Facility.
In order to promote more creative financing to build an energy efficient sector, there needs to be a concerted effort from both the public and private sector to carry out a common vision, to build expertise, to understand contract terms, and to improve access to finance. For example, the Jamaica Productivity Centre (JPC) is pushing for individual Energy Service Companies (ESCOs) to join forces to form an industry that will effectively cater to the needs of a growing clientele. As we support Jamaica and other Caribbean countries’ efforts on energy efficiency, we welcome your ideas and experiences to help us create a more sustainable future.