Evidence on the political economy constraints and opportunities to investment in clean energy in Asia
Evidence and gaps in evidence on principle political economy constraints and opportunities to successful investment in clean energy in Asia
This rapid desk-based study is commissioned by DFID. DFID is interested to identify evidence of factors that are deterring investment in renewable energy (RE) in most developing countries in Asia. In our understanding, DFID proposes to use this evidence, along with information on the opportunities and risks in this sector, to commission more in-depth studies in the future. These different studies will support the scoping of the potential establishment of one or more investment platforms through which DFID could deploy investment capital in order to catalyse private investment in south and central Asia. It’s been proposed that the platform(s) should focus on clean energy, inclusive agribusiness and financial services.
This rapid study has been conducted based on the review of existing literature and related databases. As mandated, the study adopts a political economy assessment framework. Asia is the general focus. However, examples, wherever applicable, have been drawn only from a selected set of Asian nations. China and India have generally not been considered in this study. It is found that although most countries in developing Asia have RE potentials and plans for mainstreaming renewables in their energy systems, they have mostly under performed with regard to attracting investments and capacity build up in the RE sector. Given the existing scenario, these countries will therefore struggle to realise the seventh Sustainable Development Goal.
On closer scrutiny, it is found that there is evidence that vast, fragmented and complex networks of actors exist in the RE sector in most developing economies in Asia. The networks are characterised by competing priorities and constraints, lack of capacity and coordination, administrative difficulties, etc. which translates to considerable financial risks for potential RE investors. Together, with regard to policies - bias (towards conventional fossil fuels), conflicts, communication gaps, uncertainty, etc.; increase the risk of investment in RE. Additionally, political mandates and political orientation further aggravates this risk.
However, there is gap in evidence with regard to the specificity of risks, as most studies - consulted during the course of research for this work, have concentrated on the whole of Asia and the whole of RE sector. The nature and dimension of risk change with nations and RE technologies. Therefore, future studies, if commissioned, are required to be country specific and RE source specific. Based on the gaps in evidence, it is also recommended that studies be directed towards embedding risk mitigation measures in each of the following stages – project design, implementation, monitoring and evaluation. Scope of technical assistance may then be designed on the basis of such studies.
For harnessing RE potentials, projects are required to be local in context and should take advantage of local resources. Aligning the benefits of RE projects - delivering a global good and various co-benefits with local priorities can ensure acceptance by the local actors. Although internationally a lot of financial instruments are in place for mitigating risks of RE projects, there is evidence that this acceptance - through communication and negotiation, is the most effective risk management mechanism.
This report has been produced by Global Change Research, Kolkata and Department for Economics, The Bhawanipur Education Society College, Kolkata for Evidence on Demand with the assistance of the UK Department for International Development (DFID) contracted through the Climate, Environment, Infrastructure and Livelihoods Professional Evidence and Applied Knowledge Services (CEIL PEAKS) programme, jointly managed by DAI (which incorporates HTSPE Limited) and IMC Worldwide Limited.
Ghosh, D.; Ghosh, A. Evidence and gaps in evidence on the principle political economy constraints and opportunities to successful investment in clean energy in Asia. Evidence on Demand, UK (2016) iii + 32 pp. [DOI: 10.12774/eod_hd.january2016.ghoshdetal]