What’s a trillion or two between friends?

A landmark initiative that could create up to $15 billion in loans for battery storage and climate projects across Asia and the Pacific has been rolled out by the Asian Development Bank (ADB).

The bank says IF-CAP — Innovative Finance Facility for Climate in Asia and the Pacific — announced on May 2, could ramp up support for the region in the battle against climate change.

IF-CAP financing will also contribute to ADB’s ambition of securing $100 billion from its own resources for climate change-related projects for 2019–2030.

A spokesperson for the bank told Energy Storage Journal that financing battery storage was totally in line with existing policies and IF-CAP.

Moreover, IF-CAP is definitely not going to favour one battery chemistry over another, the spokesperson said. (So the approach is unlike, for example, the EU’s propensity to cherry pick lithium over lead.)

The bank is expecting to see increased investments in battery storage by its developing member countries over the next few years, thanks to the “rapid growth in deployment of intermittent renewable energy in their power systems”.

Investment in renewables makes little sense without investment in storage.

Asian battery makers, South Korea in particular, are keen to bolster business in North America, so the ADB is keen to keep out of geopolitical concerns triggered by the tax and other incentives being offered by the US under the Biden administration’s Inflation Reduction Act.

So the bank’s spokesperson declined to say whether ADB’s unveiling of a new financial support instrument had anything to do with fears that the pulling power of US investment prospects would lure business away.

But the US is itself one of the initial partners for IF-CAP, the others being Denmark, Japan, South Korea and the UK — all are now in talks about providing a range of grants for project preparation along with guarantees for parts of ADB’s sovereign loan portfolios.

IF-CAP was unveiled on the opening day of ADB’s annual meeting in South Korea, where bank president Masatsugu Asakawa said the region was on the frontline of the global fight to tackle climate change.

The bank said reduced risk exposure created by the scheme will allow it to free up capital to accelerate new loans for climate projects.

With a model of ‘$1-in, $5-out’, the initial ambition of $3 billion in guarantees could create up to $15 billion in new loans for much-needed climate projects across Asia and the Pacific — which the bank claims to be the first leveraged guarantee mechanism for climate finance ever adopted by a multilateral development bank.

Empowering investments

Battery storage is clearly seen as an invaluable and bankable weapon in the armoury to combat climate change by global financial institutions.

In November, the United Arab Emirates will host the 28th outing of the UN’s Climate Change Conference — where International Monetary Fund president Kristalina Georgieva has said development banks and others will need to agree a step change in their approach to redirect trillions of dollars towards meeting the climate challenge.

Georgieva, a former World Bank CEO, said: “Stronger cooperation and partnerships across the public and private sector are vital, there is no time to waste.”

She joined COP28 president-designate Sultan Al Jaber and the UN’s special envoy for climate action and finance, Mark Carney, at an IMF meeting in Washington on April 11 to call for greater concessional financing to give private investors the confidence they need to fund an expansion of clean energy systems to include energy storage systems.

Al Jaber, who is also the UAE’s industry and advanced technology minister, said: “Only 20% of clean tech investment is going to developing countries that make up over 70% of the global population, and the least developed countries receive less than two cents on every dollar spent.”

He said the UAE wanted to “reignite the relationship between public and private finance to meet development and climate goals”.

However, the scale of the task is staggering, particularly when seen against the backdrop of ongoing economic sluggishness in the wake of the pandemic and a war in Europe.

Greenbacks for green energy

According to a report released in February by the High-Level Advisory Group (HLAG) on Sustainable and Inclusive Growth, whose co-chairs include the IMF and World Bank, even conservative estimates suggest emerging markets and developing economies (EMDEs), other than China, have aggregate investment and development spending needs in the order of at least $1.3 trillion per year by 2025 and $3.5 trillion per year by 2030.

The group, which has met 10 times since it was formed 18 months ago to consider the twin impacts of the pandemic and climate change, said the figures “far exceed existing financing and call for urgent action”.

To support the integration of renewable energy into EMDEs countries’ energy mixes and provide reliable energy supply, electricity networks will need to double in length, and annual deployment of energy storage will need to increase 100 times.

According to the report, if facilitated, investing in the energy transformation at the scale and pace needed for inclusive and sustainable development and climate change mitigation and adaptation goals would represent the biggest investment opportunity ever for the world economy and especially for EMDEs.

Green recovery measures in 21 major EMDEs between 2020 and 2030 could generate $10 trillion in investment opportunities and more than 200 million jobs and reduce greenhouse gas emissions by 4 billion tonnes.

The private sector can undertake the bulk of the additional investment required for energy transition, but the report says this must be complemented by concessional financing as well as up-front public investments in grid development and energy storage and backup capacity.

However, the report warned that private financial flows to low-income countries “pale in comparison” to both their needs for financing for climate change mitigation and adaptation and the trillions of dollars in resources the private sector manages.

The report said total private financial flows (including both those for climate-related and those for non-climate-related activities) have averaged only $12 billion per year for low-income countries and $800 billion for middle-income countries over the past five years.

The report warned: “The current decade will be decisive. The diminishing window of opportunity to act requires that all countries make a concerted push to accelerate a just energy transition and that the international community make a concerted effort to provide the necessary support.” 27-29

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