Financing Low Carbon Solutions for Power Sector

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Financing low carbon solutions for the power sector is basically about making resources available in the power sector for projects with minimum carbon emission.

The idea is to prioritize these projects at the expense of projects that emit so much carbon and hurt the environment. There are different financing options that are available to finance these low carbon projects. A very relevant financing option is the recently launched Nigerian Green Bond. The projects that should benefit from the issuance of the Nigerian Green Bond are projects that fit into the low carbon target of energy efficiency, work towards off grid solar energy and work towards ending gas flaring. Such projects should create jobs, be cost effective and make reasonable returns on investment as well as have great climate change mitigation potential.

Any project that does not fit into these criteria should not be funded by the Green Bond. Also, the reporting of the project implementation must show energy savings, carbon emission reductions, renewable energy productions, etc. Clearly, the Green Bond provides good opportunity for funding renewable energy and mainstreaming low carbon budget framework. Also, the Federal Ministry of Power should consider tapping into international climate finance mechanisms. These climate finance mechanisms are strictly for low carbon projects. Capacity building is imperative for building the critical skills needed to access these funds. The financing mechanisms include the Green Climate Fund, Clean Technology Fund, Special Climate Change Fund, International Climate Fund, etc. A combination of Green Bonds, Climate Finance Mechanisms and other funding windows can be used to convert Single Cycle Gas Turbines (SCGT) to Combine Cycle Gas Turbines (CCGT) for greater efficiency and reduction of carbon emissions.

One major financing challenge of the power sector is the fact that the federal government still retains ownership of transmission facilities through the Transmission Company of Nigeria. The government must either invest heavily or let go of its ownership of transmission facilities. The grid collapses after about 5,500 Megawatts which is not up to one-third of the energy demand of Nigerians. The federal government seems not to have the resources to invest for the needed improvement of transmission facilities. It must invite the private sector to invest in transmission or come up with alternative funding sources that still retains transmission in its custody.

Fixing the financial challenges of the power sector will free up some resources which will then be used to address low carbon concerns.

IWIN

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