Catalyzing A Renewable Energy Transformation: Lessons learned from Multilateral Development Banks

Tuesday, September 25, 2018

A clean energy transformation is urgently needed to mitigate worst impacts of climate change and deliver power to the millions who currently lack it. Development finance institutions have an important role to play in delivering this transformation and helping developing countries meet their energy, climate, and poverty alleviation goals.

Traditional development banks like the World Bank and Asian Development Bank (ADB) can help fill the gaps but lack the resources on their own. A new suite of actors has recently emerged with the potential to scale up development finance, including the China-led Asian Infrastructure Investment Bank (AIIB), the New Development Bank (NDB) established by the BRICS countries, and the UN-established Green Climate Fund (GCF). These emerging actors can play a potentially catalytic role in ushering in this energy transformation.

The year 2012 has been described as the “inflection point” for renewable energy, at which point more renewable energy capacity has been installed each year than from conventional sources. Solar and wind have made up most of this new capacity, while new hydropower capacity has declined steadily since 2015 as energy planners have come to acknowledge the economic, environmental, social, and climate change risks and impacts that large dams pose.

The World Bank and other traditional donors have likewise begun to shift their lending portfolios away from destructive dams in favor of new renewables such as wind and solar power. This is a significant development given that the World Bank was once the world’s principal funder of large dams. The new development financiers, meanwhile, have indicated their openness to finance hydropower within their respective energy portfolios. 

This paper outlines the experience of traditional financiers like the World Bank in financing hydropower to demonstrated some of the key lessons from their approach. As the Asian Infrastructure Investment Bank, New Development Bank, and Green Climate Fund consider opportunities to support energy provision, it is important that they benefit from the experiences of their peers by internalizing the lessons learned from decades of development bank financing for large dams.

Analysis and production of this report was made possible with support of the Transboundary Rivers of South Asia (TROSA) Program