In a move to kick-start the energy transition globally, the IKEA Foundation and the Rockefeller Foundation yesterday announced that they would each donate US$500 million to support distributed renewable generation projects in developing nations.
About 2.8 billion people worldwide do not have access to reliable power, according to the UN, but the two philanthropies estimate that these funds would bring energy to 1 billion of them over the next decade.
Further, since the partnership would target communities that might otherwise rely on fossil fuels for power generation either now or in the future, they expect that the combined gift to reduce carbon emissions by 1 billion tonnes.
“Really nothing has ever been attempted even close to this kind of scale when it comes to bringing renewable energy to the world’s poor,” Rockefeller Foundation president Rajiv Shah said.
The two foundations said their money would be used to “de-risk” the kind of projects private capital has tended to shy away from and would be shared through a new third public charity.
This would help increase their leverage through private corporations and international development agencies, Shah said.
The announcement comes as rich countries are under growing pressure to deliver on a decade-old climate finance pledge. In 2009, wealthy nations promised to mobilize US$100 billion a year by last year to help developing countries deal with the worst effects of climate change and invest in green technologies.
However, last week’s meeting of G7 leaders merely reiterated a promise to reach the milestone, even though it was supposed to have been achieved last year.
They reached US$78.9 billion in 2018, far short of the US$100 billion agreed, Organization for Economic Co-operation and Development data showed.
The question of who pays to tackle climate change is essential to ramping up efforts to rein in temperatures.
Poor countries say they need funding if they are to step up their carbon-cutting ambitions and invest in the technologies needed to wean themselves off fossil fuels.
The investment divide is particularly stark in the wake of the COVID-19 pandemic, with rich countries investing trillions in recovery, while poor nations struggle to recover.
China has been investing heavily in energy generation in developing nations for well over a decade. In 2019 and last year alone — an anemic period due to the pandemic — China pumped more than US$20 billion into energy projects in developing nations, according to information gathered by the American Enterprise Institute, a Washington-based think tank.
This included coal projects, as well as renewable projects in solar, hydro and nuclear power, as well as grid investments.
“We need to be honest and recognize that the current approach is not delivering the impact the world needs in the time that we have,” IKEA Foundation chief executive officer Per Heggenes said. “This is all about acceleration.”
If wealthy nations are to fulfill their US$100 billion promise, it would likely be through a mix of public funding and private finance, World Resources Institute global director of energy Jennifer Layke said.
“Some of the persistent challenges with getting markets to change and getting investment to flow into the developing world have remained really sticky problems,” she said.
Layke also said that philanthropies could play an important role in unsticking the market by supplying seed capital to model projects that demonstrate their viability — exactly what the Rockefeller and IKEA partnership was designed to do.
“This is absolutely seed capital,” Shah said. “It’s risk capital, so that we can motivate others to provide more commercially oriented investment capital to take these to scale.”
He pointed to India, where Rockefeller spent a decade funding 200 micro-solar grids to serve remote villages.
Once the kinks were worked out, India’s own Tata Power Co agreed to expand the project to 10,000 grids.
IKEA has made similar investments, but the two hope that by combining forces, they will be able to leverage billions more dollars and move at a new scale.
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