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1、May 2024Empowering Small Island Developing States:Scaling Up Renewable Energy for Resilient Economic GrowthA product ofPublic Disclosure AuthorizedPublic Disclosure AuthorizedPublic Disclosure AuthorizedPublic Disclosure AuthorizedThis report was researched and prepared by the World Bank with the co

2、ntributions of the Sustainable Renewables Risk Mitigation Initiative(SRMI)Partners,namely,the Asian Development Bank(ADB),Agence Franaise de Dveloppement(AFD),African Development Bank(AfDB),the European Bank for Reconstruction and Development(EBRD),Deutsche Gesellschaft fr Internationale Zusammenarb

3、eit(GIZ)via GET.transform program,the International Renewable Energy Agency(IRENA),the International Solar Alliance(ISA),and Sustainable Energy for All(SEforAll).The work was funded by the Energy Sector Management Assistance Program(ESMAP),a multi-donor trust funded program administered by the World

4、 Bank.Authors:World Bank(Megan Meyer,Claire Nicolas,Rebeca Doctors,Pauline Ravillard,George Matthew),with the contributions from World Bank Group staff and consultants(Shamini Selvaratnam,Frederic Verdol,Chong Suk Song,Elin Hallgrimsdottir,Sabine Cornieti,Christophe de Gouvello and Zuzana Dobrotkova

5、)and SRMI partners(Diala Hawila,IRENA,Bertrand Poche et Juliette Rose,AFD).Design:Justin Stayshyn Cover Image:Pacific Center for Renewable Energy and Energy Efficiency 2024 International Bank for Reconstruction and Development/The World Bank1818 H Street NW|Washington DC 20433202-473-1000|www.worldb

6、ank.orgThis work is a product of the staff of the World Bank with external contributions.The findings,interpretations,and conclusions expressed in this work do not necessarily reflect the views of the World Bank,its Board of Executive Directors,or the governments they represent.The World Bank does n

7、ot guarantee the accuracy of the data included in this work.The boundaries,colors,denominations,and other information shown on any map in this work do not imply any judgment on the part of the World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries

8、.Rights and PermissionsThe material in this work is subject to copyright.Because the World Bank encourages dissemination of its knowledge,this work may be reproduced,in whole or in part,for noncommercial purposes as long as full attribution to this work is given.Any queries on rights and licenses,in

9、cluding subsidiary rights,should be addressed to:World Bank Publications,World Bank Group,1818 H Street NW,Washington,DC 20433,USA;pubrightsworldbank.org.ESMAP would appreciate a copy of or link to any publication that uses this publication as a source,addressed to ESMAP Manager,World Bank,1818 H St

10、reet NW,Washington,DC,20433 USA;esmapworldbank.org.All images remain the sole property of their source and may not be used for any purpose without written permission from the source.AttributionPlease cite the work as follows:“ESMAP,2024,Empowering Small Island Developing States:Scaling Up Renewable

11、Energy for Resilient Economic Growth”3|Scaling Up Renewable Energy for Resilient Economic GrowthTABLE OF CONTENTSABBREVIATIONS 4EXECUTIVE SUMMARY 501INTRODUCTION 802SIDS:A HETEROGENEOUS GROUP OF COUNTRIES 9 03CHALLENGES IN SIDS 123.1 The Scale Challenge 133.2 Climate Change Risks 14 3.3 Development

12、Risks 143.4 Operational and Financing Risks 1504RECOMMENDATIONS 184.1 Solving the scale challenge through innovative project and local financial intermediary empowerment 184.2 Building Resilient Renewable Energy Futures:mainstreaming resilience from the planning to the construction stage 194.3 Mitig

13、ating development risks in SIDS 204.4 Mitigating operational and financing risks in SIDS 23 TABLE OF CONTENTS4|Scaling Up Renewable Energy for Resilient Economic GrowthABBREVIATIONSADB:Asian Development BankAFD:Agence Franaise de DveloppementAfDB:African Development BankAOSIS:Alliance for Small Isla

14、nd StatesCARICOM:Caribbean CommunityDFI:Development Finance InstitutionDRE:Distributed Renewable EnergyEBRD:European Bank for Reconstruction and DevelopmentEMDC:Emerging Markets and Developing Countries EPC:Engineering,Procurement and ConstructionFIT:Feed-in-TariffFX:Foreign ExchangeGHG:Greenhouse G

15、as GIZ:Deutsche Gesellschaft fr Internationale ZusammenarbeitIEA:International Energy Agency IFI:International Financial InstitutionIOC:Indian Ocean CommissionIPP:Independent Power ProducersIRENA:International Renewable Energy AgencyIRP:Integrated Resource PlanISA:International Solar AllianceKfW:Kre

16、ditanstalt fr WiederaufbauMDB:Multilateral Development BankOECD:Organisation for Economic Co-operation and DevelopmentOECS:Organisation of EasternCaribbeanStatesPPA:Power Purchase Agreement PV:PhotovoltaicRE:Renewable EnergySIDS:Small Island Developing State SIDSDOCK:Small Island Developing States D

17、OCK SE4All:Sustainable Energy for AllSRMI:Sustainable Renewables Risk Mitigation InitiativeUN:United NationsVRE:Variable Renewable EnergyACRONYMS5|Scaling Up Renewable Energy for Resilient Economic GrowthEXECUTIVE SUMMARYSmall Island Developing States(SIDS)are a heterogeneous group of 39 countries s

18、pread around the globe,yet they share common challenges in their power sectors.These challenges often stem from their geographical limitations and remoteness,limited natural resources,vulnerability to climate change impacts,small size of the power system(around half of the SIDS have power systems sm

19、aller than 60MW)and the high cost of imported goods and fossil fuels.As a result,many SIDS face energy insecurity and high electricity prices at an average of USD 31 c/kWh(compared to an average USD 16 c/kWh in Sub-Saharan African countries),which reduces economic competitiveness(e.g.,on tourism)and

20、 hampers environmental resilience,two key factors of islands sustainable development.However,amidst these challenges lie significant opportunities for transitioning to renewable energy(RE)sources and scaling up their deployment.SIDS dependence on fossil fuels for power generation was the norm for th

21、e development of these economies.The dramatic decrease of renewable energy technology costs and emergence of smartgrid solutions now present a compelling case for accelerating the SIDS transition to renewable energy.With abundant solar,wind,and in some cases,biomass,hydro,geothermal,and marine energ

22、y resources,SIDS possess an enormous untapped potential for producing cleaner,cheaper,more resilient electricity.In most SIDS,solar power,even when coupled with storage,is nowadays the least cost option for power generation expansion.Recent experience in several OECD islands shows that,with the adeq

23、uate grid investments,high level of variable renewable energy(VRE)penetration in island power systems is achievable while maintaining grid stability and reliability.Moreover,transitioning to renewables not only mitigates the environmental impact of fossil fuel use and lowers power generation costs,i

24、t also enhances energy security and resilience to climate change,while improving the competitiveness of the tourism industry,a critical sector for economic growth in many SIDS.Given the fiscal limitations faced by many SIDS,mobilizing private sector investment for the energy transition will be criti

25、cal.Despite these opportunities and the ambitious targets for renewable energy deployment set by most SIDS governments,renewable energy deployment has been limited to date.On average,renewable energy represents less than 20 percent of the generation while solar and wind represent less than 3 percent

26、 of the energy mix.Based on a market sounding with renewable energy developers and financiers and an analysis of economic and energy sector data,this report seeks to identify the reasons why renewable energy scale-up in SIDS is lagging behind the rest of the world,and to identify strategies to mobil

27、ize private sector investment,despite the inherent challenges involved.Cross-cutting challenges of scale and climate vulnerability hinder the uptake of renewable energy energy in SIDS,despite their exceptional renewable resources.A market sounding performed for this report identified that the small

28、scale of renewable energy projects in most SIDS creates significant barriers to scaling-up,including reduced access to financing,higher cost of capital,supply chain challenges,among others.Climate risks need to be accounted for in the planning stages,yet assessment of the costs and benefits of addit

29、ional resilience measures is complex in the context of high levels of uncertainty.In the operational phase,the risks of catastrophic damage to electricity systems are higher in many SIDS given the exposure and lack of climate resilience of most SIDS power systems,while mitigation measures can be exp

30、ensive.EXECUTIVE SUMMARY6|Scaling Up Renewable Energy for Resilient Economic GrowthEXECUTIVE SUMMARYProject development risks,with a particular emphasis on procurement risks,stakeholder capacity,and grid risks are also perceived as high by developers.Many SIDS face a lack of local capacity for procu

31、rement,which can lead to unsolicited proposals with high tariffs burdening the sector for years.Lack of efficient management and regulation of the electricity sector in many SIDS often results in an inadequate framework for Independent Power Producers(IPP)entry.VRE integration can pose a significant

32、 risk to grid stability due to small grid sizes lacking flexibility options,a lack of adequate power system planning,and insufficient forecasting and dispatching tools and capabilities.Project operational and financing risks are also prominent in SIDS,in particular risks related to local financing,q

33、ualified workforce,and infrastructure.The structural lack of financial and technical capacity of local banks impedes renewable energy projects in SIDS,as the transaction sizes typically fall well below the minimum ticket size for international investors.Off-taker liquidity and bankability risks are

34、also relevant for SIDS,particularly in the Asia and Africa regions.SIDS also struggle with a lack of qualified workforce,meaning that labor needs to be imported,which can be costly and even impractical,in some cases.Due to limited fiscal space and lack of diversified economies,many SIDS have poor as

35、sociated infrastructure needed for renewable energy development,including roads and ports,creating supply chain risks and increasing costs of new renewable energy projects.The solutions to overcome these challenges will have to be both financial and technological,with a strong need for more modern u

36、tilities,systems and decision-making tools.Concessional finance and community engagement will also be key to drive change and enable private sector investments.Innovation will be required both in terms of technologies to allow for higher levels of VRE deployment and integration in small island syste

37、ms,as well as in the structuring of risk mitigation instruments.The use of financial intermediaries can help reduce transaction costs and the risks that larger financiers perceive with small-scale projects in SIDS.Capacity building and technical assistance can support SIDS to increase local labor sk

38、ills,improve power system planning,including the incorporation of resilience considerations,and to increase local capacity for sector oversight and procurement.Climate and concessional financing,as well as grants,will be required to help SIDS overcome the market failures and close the viability gap

39、for renewable energy investments and should be prioritized by development banks and donor countries.Table 1 below presents a summary of recommended actions to scale-up renewable energy financing in SIDS.7|Scaling Up Renewable Energy for Resilient Economic GrowthEXECUTIVE SUMMARYTable 1:Summary of re

40、commended actions to scale-up renewable energy investment in SIDSMITIGATION MEASURES XDevelopment of hybrid projects to increase project CAPEX (e.g.solar+storage),attract more investors,and improve grid resilience.XDevelopment and marketing of flagship projects can attract financiers and developers

41、who otherwise may not be interested due to smaller scale.XPreparing financial intermediary operations(combined with capacity building)to channel higher volume of funding(e.g.,from DFIs)to local lenders who can on-lend to smaller projects.XPreparation of standardized procurement and PPA transaction d

42、ocuments at a regional or sub-regional level to reduce transaction costs.CHALLENGESCALE OF PROJECTSCLIMATECHANGE XAdoption of a“least-regret”approach to power system planning to include climate resilience considerations.XResilience specifications included in all renewable energy procurement.XClimate

43、 finance should be made readily available to SIDS to cover the incremental costs of incorporating the resilience measures.XExplore potential to develop other resilient and flexible renewable energy technologies to complement VRE integration,when possible(e.g.,hydro,geothermal or biomass).XIncrease o

44、f local capacity expertise for renewable energy deployment across the value chain from the development of entrepreneurship programs(e.g.,rooftop solar PV installers)to procurement through advisory services combined with on-the-job training.XImprove grid through comprehensive sector planning and grid

45、 upgrade investment;active network management and weather forecasting tools;grid codes with dispatch priorities;provision of grid data to potential developers;selection of projects that improve grid stability(e.g.,hybrids).XMitigate land risks through locational studies when needed explore alternati

46、ve/innovative renewable energy approaches (e.g.floating solar and agrivoltaics).XEngage stakeholders by identifying opportunities to maximize the socio-economic benefits of renewable energy projects and support a just transition,including local job creation.XReduce financing risk through financial i

47、ntermediary operations to support on-lending by local or regional banks(plus capacity building);deploy concessional finance to cover due diligence costs,fund CAPEX buy-down mechanisms,and reduce Foreign Exchange(FX)risk,when necessary.XImprove offtaker bankability when needed through liquidity instr

48、uments.XIncrease local workforce skills and support countries with market outreach to increase interest of EPCs.DEVELOPMENT RISKSOPERATIONAL AND FINANCING RISKSInternational support for SIDS should focus on leveraging clean energy investments that can drive green,resilient and inclusive development.

49、This approach involves prioritizing renewable energy investments that not only contribute to climate adaptation and energy security but also enhance competitiveness,socio-economic development,including the growth of green jobs,and bolster power system resilience.Given the significant risks that clim

50、ate change poses to the development of SIDS,developed countries and the international community should substantially increase the provision of resources to crowd-in private sector investment for a rapid scale-up of renewable energy in SIDS.This entails reducing perceived risks and covering the addit

51、ional costs associated with implementing resilience measures required during the energy transition in SIDS.8|Scaling Up Renewable Energy for Resilient Economic GrowthWhile SIDS contribution to the causes of climate change is insignificant,with less than 1 percent of global greenhouse gas(GHG)emissio

52、n contributions coming from SIDS,they disproportionately bear the impacts of climate change,with some countries facing an existential threat.Despite their low emissions,SIDS can reap many important benefits from transitioning to clean energy,including increased socio-economic development outcomes,en

53、ergy security,reduced cost of electricity,and increased electricity system resiliency.The objective of this paper is to characterize the unique circumstances that SIDS face,outline opportunities and challenges stemming from these circumstances,and propose tailored solutions to accelerate the clean e

54、nergy transition,thereby fostering economic growth and resilient development.In particular,it aims to understand how the World Banks Sustainable Renewables Risk Mitigation Initiative(SRMI)methodology could be adapted to the SIDS context2.Because of the heterogeneity among SIDS and the significant ob

55、stacles some face in attracting private sector finance,it is imperative to explore customized approaches that leverage both public and private resources,although in some cases leveraging private sector finance may not be feasible.This study delves into the distinctive features of SIDS countries conc

56、erning their transition to renewable energy with a focus on utility scale projects.Due to data constraints,the analysis in this report centers on 20 out of the 38 SIDS spanning four regions:the Caribbean(Antigua and Barbuda,Barbados,Belize,Dominica,Grenada,Jamaica,St Lucia,St Vincent and the Grenadi

57、nes),the Pacific(Papua New Guinea,Timor-Leste,Tonga,Tuvalu,Vanuatu),Africa(Cape Verde,Comoros,Guinea-Bissau,Sao Tome and Principe),and the Indian Ocean(Maldives,Mauritius,Seychelles).To inform this study,primary energy sector data was collected for the aforementioned SIDS further referred to as“the

58、SIDS”to identify overarching patterns and notable distinctions among the 20 SIDS across diverse geographical regions.Additionally,a market sounding activity was conducted with renewable energy developers already engaged in SIDS projects,along with other pertinent stakeholders,utilizing an online que

59、stionnaire.Subsequently,interviews were conducted with a subset of renewable energy developers and Development Finance Institutions(DFIs)to refine the understanding of key obstacles and to propose recommendations,as outlined in this report.INTRODUCTION11 as defined by the United Nations(UN):see here

60、.2 In“A Sure Path to Sustainable Solar,Wind and Geothermal,”SRMI outlines a step-by-step process for countries to undertake at the planning,strategy and implementation phases of developing a robust national renewable energy program that can attract private sector capitalSmall Island Developing State

61、s(SIDS)are a distinct group of 39 UN Member States and 18 Non-UN Member States that can be found across the globe1.SIDS make up slightly less than 1 percent of the worlds population with an aggregate population of 65 million people.They face unique social,economic,and environmental challenges,and ar

62、e typically geographically remote.SIDS economies tend to have a strong dependence on tourism with over 80 percent of SIDS having more than 40 percent of GDP directly linked to tourism.Most SIDS lack diversification in their economies which further exacerbates their exposure to economic shocks relate

63、d to tourism.Their small population size and an isolation from international markets,implying high transportation costs,make them vulnerable to exogenous economic shocks while their fragile land and marine ecosystems make SIDS particularly vulnerable to the impacts of climate change.These challenges

64、 are compounded by limited institutional capacity and scarce public resources,which have become even scarcer in the aftermath of the COVID-19 pandemic.NAME9|Scaling Up Renewable Energy for Resilient Economic GrowthSIDS share many characteristics that are critical for renewable energy scale-up;howeve

65、r,important divergences exist and must be considered when developing solutions for this diverse group of island nations.SIDS:A HETEROGENEOUS GROUP OF COUNTRIES PRESENTING ABUNDANT OPPORTUNITIES FOR RENEWABLE ENERGY SCALE-UP23 Note that this does not consider the impact of regional integration in the

66、 case of Guinea Bissau and Belize.4 About 37%of Belizes electricity comes from imported energy straight from Mexico,with which the country shares a common border(Martin Rivero et al.,2021).SIDS POWER SECTORMost SIDS have small and isolated grids,with limited land availability,although there is a wid

67、e range.Among the SIDS,the average grid capacity stands at 236 MW,spanning from 3 to 1,200 MW.Notably,45 percent of the SIDS possess power systems with capacities below 60MW3(see Figure 1).Of the SIDS,Belize and Guinea Bissau are the only countries with interconnection for electricity imports4.The m

68、edian geographic size of the SIDS is 876 km2,around the same size as the City of Berlin,creating competition for the use of scarce land resources.Renewable evergy deployment in SIDS has been limited to date,with particularly low development of wind and solar.Average renewable energy penetration,incl

69、uding hydropower and geothermal power projects,is 20 percent across the SIDS,dominated by hydropower.Average VRE share is 3 percent across the SIDS,and more than half have zero utility scale VRE generation installed.Barbados is the SIDS that has the highest penetration of VRE,at 16 percent.Nearly ha

70、lf of the 20 SIDS studied have attracted utility-scale Independent Power Producers(IPPs)for electricity generation.Private investment often occurs without competitive processes,through bilateral agreements,which,in many cases,have not resulted in tariff reductions.For example,among the 20 SIDS analy

71、zed,SIDS with private investment have an average retail tariff of USD 31c/kWh compared to those without at USD 29c/kWh.The SIDS having implemented competitive procurement of power generation(3 of the SIDS),including VRE,have an average retail tariff of 27c/kWh.While the sample size is small,this fin

72、ding is aligned with the SRMI approach to developing renewables through competitive auctions to transparently drive down costs.10|Scaling Up Renewable Energy for Resilient Economic GrowthOPPORTUNITIES IN SIDS45 Notably,financially unsustainable utilities face even higher losses,averaging at 21 perce

73、nt,in contrast to 11 percent for financial-ly viable counterparts.6 World Bank Open Data,2014.7 https:/fossilfuelsubsidytracker.org/SIDS:A HETEROGENEOUS GROUP OF COUNTRIES2Figure 1 SIDS power system capacity,mix and land size(Source:authors)RE SCALE-UP TO IMPROVE POWER AFFORDABILITY AND ENERGY SECUR

74、ITYInvesting in renewable energy presents a promising avenue for reducing reliance on fossil fuels in SIDS,thereby enhancing both power affordability and energy security and unburdening public finances.Furthermore,scaling up renewable energy can lead to tariff reduction which holds the key to allevi

75、ating energy poverty,releasing vital fiscal resources,fostering economic growth,and enhancing the competitiveness of commercial and industrial sectors.The heavy reliance on fossil fuels for power generation in SIDS,constituting approximately 84 percent of the power mix on average,underscores the urg

76、ency of transitioning to renewable energy sources.With 60 percent of selected SIDS importing over 90 percent of their fossil fuel supply for electricity generation,the resultant high and volatile generation costs pose significant challenges.In addition to improving energy security,renewable energy s

77、cale-up also presents an opportunity for public finances burdened by fossil fuel subsidies.Additionally,the substantial subsidies explicitly allocated to fossil fuels in 60 percent of the SIDS,averaging 0.6 percent of GDP and peaking at nearly 3 percent for some SIDS like So Tom and Prncipe,further

78、strain public finances.Furthermore,SIDS grapple with high electricity losses contributing to the high electricity tariffs,with T&D losses around 18 percent5,higher than the global average of 8 percent6.The reason for these high losses is mostly the centralization of power generation in a few power h

79、ouses and the fact that the transmission sector is outdated.Renewable energy deployment would necessitate an infrastructure upgrade and would enable the decentralization of the generation.By addressing these issues holistically and promoting the adoption of renewable energy sources,SIDS can pave the

80、 way for a more sustainable and resilient energy future.Renewable energy integration becomes more feasible in SIDS due to the prevailing 11|Scaling Up Renewable Energy for Resilient Economic Growthhigh generation costs,leading to elevated electricity tariffs averaging 0.31 USD/kWhmore than double th

81、e global average for 2022(0.14 USD/kWh7).These tariffs impede economic competitiveness,exacerbate energy poverty,and hinder growth.However,they also enhance the viability of renewable energy investments,offsetting development and financing challenges faced by many projects.For instance,the Maldives

82、successfully implemented an 11 MW solar project in 2022,supported by the World Bank ASPIRE project,at a tariff of 9.8 USDc/kWh.Furthermore,innovative solutions like hybrid projects(solar PV plus energy storage)and green hydrogen,as seen in Barbados,hold promise for economic and financial viability i

83、n SIDS,potentially attracting concessional resources for piloting new technologies that would not be economically attractive in other developing countries and contexts.SIDS ASSETS TO ATTRACT RENEWABLE ENERGY DEVELOPERSMany SIDS have set out ambitious decarbonization targets,creating momentum and a s

84、trong enabling environment for the energy transition.Over 90 percent of selected SIDS have committed to 100 percent renewables between 2030 and 2050 as part of their national energy plans as well as in their pledges under the UNFCCC framework(NDCs,Long-term Low Emissions Development Strategies(LT-LE

85、DS).The other 10 percent also have lofty renewables goals no lower than 50 percent by 2030.These ambitious targets not only demonstrate SIDS commitment to mitigating climate change but also signal their recognition of the economic and environmental benefits associated with renewable energy adoption.

86、Given that most utilities are publicly owned(85 percent of the sample),governments have significant leverage to steer the energy transition by implementing coordinated adjustments to energy policy and regulation,with a focus on promoting renewable energy development.This includes initiatives such as

87、 establishing the necessary legal and regulatory framework for IPPs and providing government backed de-risking instruments to incentivize private sector investment.It also means that when utilities are not able to recover costs,public ownership can further strain the countrys already limited fiscal

88、capacity.One third of the SIDS have cost reflective tariffs,contributing to the creditworthiness of utilities and therefore reducing the off-taker risk.This can increase private sector willingness to invest and/or reduce the need for risk mitigation mechanisms,which can drive up the project cost.Mor

89、eover,creditworthy utilities are better positioned to undertake essential infrastructure investments to facilitate VRE integration,such as grid improvements that can reduce curtailment risks.Many SIDS have a strong tourism sector which can generate significant demand for clean energy within the comm

90、ercial sector.Evidence suggests that tourists are increasingly willing to pay a premium for eco-friendly hotels8,incentivizing the hotel industry in SIDS countries to install their own DRE(Distributed Renewable Energy)system.When regulation is not yet adequate to scale-up DRE investments,governments

91、 should prioritize improvement of regulations to allow for sustainable DRE integration.This could create,for example,an opportunity for private investment in distributed solar through local Renewable Energy Service Companies(RESCOs)which can offer tailored solutions to hotels and resorts looking to

92、transition to clean energy.By capitalizing on the demand for eco-friendly tourism experiences,SIDS can not only enhance their sustainability credentials but also stimulate economic growth and job creation in the renewable energy sector.SIDS have strong incentives to innovate and to be the first move

93、rs.Given their small size and competing resources,innovative solutions have been developed in SIDS,in particular targeting the agriculture and energy nexus.These solutions can take the form of agrivoltaics(a combination of solar plants with farming or fishing see Box 4 in the last section)and the us

94、e of e.g.geothermal directly in the tourism industry(spas),food production and preservation but also byproducts from crops,such as sugar cane,for cogeneration.Other innovations,such as using colder deep waters or the sea as cooling solutions,are also being explored9.In addition,because of land const

95、raints in some SIDS exploring nearshore and offshore technologies is a necessity.7 2022 data,8 Sanghoon Kang,Sarah Nicholls.“Determinants of willingness to pay to stay at a green lodging facility”(2021).https:/ For example,the Sea Water Air Conditioning project for an hospital in Tahiti(https:/www.s

96、ervice-public.pf/sde/2022/07/27/swac/)SIDS:A HETEROGENEOUS GROUP OF COUNTRIES2NAME12|Scaling Up Renewable Energy for Resilient Economic GrowthTo better understand the key challenges to scaling up renewable energy in SIDS,a market sounding was conducted with key public and private sector stakeholders

97、10.Participants were tasked with assessing the importance of different risks associated with renewable energy projects,including the two overarching categories,development and operational and financing risks:CHALLENGES IN SIDS310 There were 18 respondents in total(14 developers and 4 from public ins

98、titutions,including government agencies and regula-tors).60 percent of respondents answered for the Pacific and Indian Ocean regions,with 22 percent for Africa and 17 percent for the Caribbean.To confirm answers and explore further solutions to increase the share of renewable energy and VRE in SIDS,

99、the team organized 7 follow-up interviews,both with developers and other DFIs.Additionally,respondents were also asked to identify the most effective mitigants for these risks.Two thematic challenges emerged from the analysis,transcending the various risk categories:scale and climate change vulnerab

100、ility.By examining each of these risks and challenges,we aim to identify the critical barriers hindering the successful implementation and expansion of renewable energy projects in SIDS.Subsequently,the following section will provide targeted recommendations for effectively mitigating these risks to

101、 foster the advancement of renewable energy adoption within these regions.XProject development risks:risks encountered during the development phase,which occur prior to construction and operation,that encompass(i)grid risk,including connection risks;(ii)land risk,including ownership,availability,per

102、mitting,and environmental and social aspects;(iii)resource risk,for wind and geothermal in particular;(iv)legal risk,including the applicable regulatory,arbitration,and judicial frameworks;(v)procurement risk,including risk to have failed tenders,poor capacity of the offtaker and no generation plans

103、 where that given project would be stated;and(vi)integrity and corruption risk.XProject operational and financing risks:risks that surface once the project is operational and would impact the financing,that encompass(i)offtaker credit risk including the offtakers record of performance and timely pay

104、ment,and risk of contract termination;(ii)the countrys power sector risk,including sector financial sustainability risk,reform risk,regulatory risk,and delay in the governments construction work for grid reinforcements leading to curtailment risks;(iii)market risk,including currency risk and financi

105、ng risk;(iv)country and macroeconomic risks;and(v)political risk,including breach of contract,expropriation,transfer restriction,currency inconvertibility,and war and civil disturbance.13|Scaling Up Renewable Energy for Resilient Economic GrowthScale is a cross-cutting theme that underlies many of t

106、he challenges to developing renewable energy projects in SIDS.While some renewable energy developers express willingness to develop small renewable energy projects,most view the small scale of projects to be a deal-breaker.As described further below,small scale of renewable energy projects in SIDS h

107、as,among other things,the following impacts:limited interest from investors and lenders whose fixed costs for developing the project or processing the loans will be too high compared with the potential project revenues,high cost of capital,insufficient supply chain readiness,lack of qualified EPCs a

108、nd lack of associated infrastructure(such as ports and roads).These factors collectively contribute to higher tariffs.Figure 2 below shows the negative trend between scale and tariffs in the selected SIDS.The issue of scale impacts SIDS to different degrees,given the wide range in country size;small

109、er SIDS(e.g.,Tuvalu,Tonga)are expected to face additional hurdles to attracting private sector capital compared to larger ones(such as Jamaica and Mauritius).THE SCALE CHALLENGEFigure 2 Tariff as a function of selected SIDS national grid size(source:own analysis)Regional bundling11 is often consider

110、ed as a potentially promising approach.However,interdependencies amongst the projects in various countries could increase complexity and therefore risks,making the approach unattractive.For example,delays or cancellation of one project could jeopardize the entire portfolio.Another option considered

111、was the interest in exploring opportunities to develop larger projects on a single island by increasing the countrys grid expansion needs for example,through plans to export electricity or through green hydrogen production(and/or export of its derivatives).Yet,electricity exports are not likely to b

112、e viable in most contexts due to the long distances between most islands and the high seabed depths around many of the volcanic islands.Even when this could be viable,developers may be wary of taking on additional complexity,such as needing to consider the credit risk of additional off-takers.3.111

113、For example,small islands in a sub-region(i.e.,the OECS in the Caribbean)could use a central agency(e.g.,a regional associ-ation,regional development bank)to procure several smaller renewable energy projects,allowing the total to reach a scale that would attract more developers and reduce costs(tran

114、saction costs,financing costs,etc.)jointly competitively.OPPORTUNITIES IN SIDS303006001200MW installedAverage retail electricity tariff(US$cts/kWh)90001530456014|Scaling Up Renewable Energy for Resilient Economic GrowthSIDS are uniquely vulnerable to the impacts of climate change,including rising se

115、a levels,storm surge,flooding,and high winds.SIDS such as Tuvalu,the Maldives,Solomon Islands and the Seychelles are among several SIDS facing an existential threat due to sea level rise.SIDS also face a wide-range of exposure to natural disasters that are expected to increase in their intensity and

116、 frequency,including tropical cyclones(e.g.,Pacific and Caribbean islands)and monsoons(Pacific and Indian Ocean islands).Energy sector infrastructure is commonly vulnerable to these events,at times resulting in major economic losses,in addition to possible loss of life if key government services are

117、 unable to function.While climate risks occur at all stages of project development,they are most prominent during the operational phase,as huge losses can occur for the country and private sector if electricity systems(including specific renewable energy projects)are compromised or otherwise rendere

118、d non-operational due to a lack of proper functioning of the power infrastructure.For example,Hurricane Maria in 2017,a category 5 storm that devastated the electricity sector in Dominica(as well as Puerto Rico),caused a complete system blackout which lasted for months for many communities.Developin

119、g a resilient infrastructure and a resilient grid is expensive particularly when it means retrofitting existing assets.Resilience measures need to be accounted for in the planning stages,and assessment of the costs and benefits of additional resilience measures is challenging in the context of high

120、levels of uncertainty in the estimation for future climate change.Project development risks emerged as the most critical risks,with over 70 percent of respondents indicating it as a critical or highly critical risk12.Within this risk category,lack of expertise in local counterparts,corruption and gr

121、id connection risks(including permitting and data availability)were most frequently flagged as critical or highly critical.Lack of local expertise in SIDS,in particular for procurement,is a key constraint to developing renewable energy projects.Many SIDS,especially the smaller ones,encounter challen

122、ges related to the capacity of their ministries and regulatory bodies,stemming from manpower and/or skill shortages.This is due to the fact that these entities have very little staff that each have to manage a very diverse workload and to procure innovative technologies they are not necessarily fami

123、liar with.This limitation hampers their ability to effectively implement government programs aimed at attracting IPPs.Insufficient skills for conducting successful procurement processes and negotiating with experienced developers contribute to a prevalent reliance on unsolicited proposals,often resu

124、lting in high tariffs.Beyond procurement,given the extensive public involvement in the energy sector in most SIDS(policy,regulation,utility operation),government capacity constraints also lead to challenges in efficiently managing,regulating and modernizing the electricity sector.This often results

125、in inadequate legal and regulatory framework to support IPP entry to the country,increasing project risk and decreasing private sector interest.Integration of variable renewable energy can pose a risk to grid stability if not well planned.For example,in most island systems,weather conditions often a

126、ffect the entire island at the same time,meaning changes to solar and wind availability will impact all the PV and wind farms at the same time which can have a serious impact on the electricity system.Without adequate storage,these issues can make SIDS power systems with high VRE vulnerable to insta

127、bility or outages.However,in recent years,the world has seen island systems successfully operating at high CLIMATE CHANGE RISKS DEVELOPMENT RISKS12 The respondent had to pick between:not critical,less critical,critical and very critical.3.33.2OPPORTUNITIES IN SIDS315|Scaling Up Renewable Energy for

128、Resilient Economic Growthlevels of VRE without issue.The capacity mix of La Runion island for example is 50 percent renewable,with half of the renewable energy being variable(PV and wind).During weekends,VRE often represents between 50 and 60 percent of the generation mix and the utility is now able

129、 to manage the grid without starting dedicated flexible generators as the grid was modernized and forecasting tools upgraded in the recent years.To achieve this,SIDS will need to prioritize investment on modern and automated grids,storage,and forecasting tools.Reinforcing grids will become even more

130、 important as many SIDS aim for a rapid development of electric transportation which will have large impacts on grids.In most of the selected SIDS,land availability is not perceived as a key risk to develop renewable energy13.Nonetheless,it does pose an issue for 25 percent of the selected SIDS,part

131、icularly in some of the volcanic islands of the Caribbean due to mountainous topography,as well as Tuvalu due to the small geographic size of the island14.In those islands,rooftop PV or floating PV are options to overcome the land constraints.Overall,survey respondents assessed risk of land ownershi

132、p to be relatively low.The absence of sufficient medium-and long-term planning,coupled with inadequate communication of those plans,can serve as a bottleneck for renewable energy development in SIDS.Developers flagged that most SIDS lack an up-to-date long-term sector plan(e.g.,Integrated Resource P

133、lans,IRPs),thus failing to provide a clear vision on the expected pipeline for renewable energy projects.Preparing these IRPs in SIDS can be a lengthy process,taking years to publish,creating a risk of outdated data.Consequently,the information becomes less valuable to private sector players interes

134、ted in entering the market.This lack of clear,up-to-date planning and communication undermines investor confidence and hinders the timely implementation of renewable energy projects.Stakeholder risks can have delay or jeopardize the development of new renewable energy projects in SIDS.Local communit

135、ies,the utility company,existing thermal power producers,government entities,among others,can impede the energy transition if their concerns are not adequately heard and addressed.As in other countries,this can run the gamut from communities that would be directly impacted by the construction proces

136、s to NGOs to entities with vested interests in the continued utilization of fossil fuels.However,given the small and often close-knit populations in SIDS,disapproval of a relatively small group can have an outsized impact on the ability of projects to move ahead.OPERATIONAL AND FINANCING RISKSFINANC

137、ING RISKSInsufficient financial and technical capacity of local banks were flagged as the most critical financing risks for renewable energy projects in SIDS,followed by constraints on accessing international sources of financing.As a result of these financing constraints,renewable energy projects i

138、n SIDS often encounter delays or proceed at significantly higher costs compared to projects developed in many other markets.Many banks do not have the expertise needed to properly assess projects(i.e.,do the required due diligence)or do project finance transactions.Many local banks may also face cha

139、llenges with regards to their depth of liquidity,failing to have enough capital for non-recourse lending.Scale presents another significant challenge in financing renewable energy projects in certain SIDS,as the financing requirements may fall below the minimum ticket size preferred by investors par

140、ticularly in the case of international IPPs and financiers.For instance,in the market sounding,one IPP indicated that its minimum threshold for financing renewable energy projects is 50MW.Considering that 45 percent of the selected SIDS have a total installed capacity of less than 60 MW,this 3.413 F

141、or the purposes of this note,this is defined as having sites that would be suitable for solar or wind parks.14 Battery Energy Storage System(BESS)Development in Pacific Island Countries(PICs)(worldbank.org);https:/www.ifc.org/en/insights-reports/2023/caribbean-regional-private-sector-diagnosticOPPOR

142、TUNITIES IN SIDS316|Scaling Up Renewable Energy for Resilient Economic Growth15 OECD.Making Development Co-operation Work for Small Island Developing States.2018.https:/doi.org/10.1787/9789264287648-en16 UNFCCC.Technical Assessment of Climate Finance in Eastern Caribbean States.2022.https:/unfccc.in

143、t/sites/default/files/resource/UNFCCC_NBF_TA_OECS_final.pdfposes a considerable obstacle to accessing financing for renewable energy projects in these jurisdictions.Limited fiscal space of SIDS makes them particularly dependent on bilateral and multilateral development banks to crowd-in private sect

144、or investment.Many SIDS have constrained and fluctuating fiscal space,due to small and dispersed populations leading to high costs of providing public services,combined with a larger share of revenues coming from sectors that are more prone to variability such as tourism15.Moreover,SIDS fiscal balan

145、ces can be dramatically impacted by natural disasters.With limited domestic fiscal space,SIDS face a high reliance on external resources to finance infrastructure investments,including for the clean energy transition.To attract private sector finance to scale-up these investments,SIDS will need to m

146、obilize concessional resources and climate finance will be essential to increase market confidence and reduce the final cost of project development This has historically been the case in many SIDS.For example,Caribbean OECS between 2012 and 2019,over 70 percent of all financial flows came from bilat

147、eral and multilateral sources,with the World Bank providing the largest share of the multilateral flows16.While there has been an increase in new sources of public funding available to SIDS for example,via the SIDS Lighthouse Initiative and the EU Global Gateway the energy transition in SIDS is vuln

148、erable to stalling if the volume of international public support does not increase commensurate to the needs to de-risk private investment.OFF-TAKER AND POLITICAL RISKSWhile Off-taker and Political risks are important in SIDS,they are perceived as less critical than in the global market.For example,

149、approximately half of market survey respondents indicated that offtaker risk is a critical risk in the SIDS context,compared to more than three-quarters of respondents in a global market sounding SRMI conducted in 2019.Within this risk category,off-taker liquidity and bankability were of the highest

150、 concern for survey respondents,especially for SIDS located in Asia and Africa.OPERATIONAL/CONSTRUCTION RISKSConstruction risks are one of the main challenges for developing renewable energy projects in SIDS,primarily due to the shortage of qualified workforce and construction workers.The lack of lo

151、cal expertise but also often of construction workers exacerbates construction risks as projects often rely on locally sourced labor to manage costs.For example,in some cases,local universities do not offer sufficiently robust STEM programs to train the necessary cohort for local skilled labor to sup

152、port the construction of renewable energy projects.Skilled workers are often lured to larger labor markets abroad,attracted by greater opportunities for career advancement and upward mobility.Consequently,the local talent pool diminishes,leaving renewable energy projects in SIDS vulnerable to delays

153、 and increased costs(see Box 1)due to the scarcity of qualified personnel but also of semi-skilled and unskilled workers whose scarcity is due in some case to the small island population.Lack of availability or interest of qualified EPCs is linked with the issue of scale as well as lack of local exp

154、ertise.Indeed,many SIDS are so small that they dont have local EPCs with strong capacity and/or presence of qualified international EPCs.Thus,developers are left with sub-optimal choices,which lead to higher transaction costs and implementation risks.In addition,these smaller companies do not have t

155、he collateral or performance guarantees required by lenders,which can become a deal-breaker to financial close.Bringing an EPC from a larger,neighboring country,comes with a high cost premium,and if local companies are sub-contracted can still saddle the project with substantial implementation risk.

156、Inadequate infrastructure often increases investment costs of RE.Given that many SIDS have extremely small fiscal space,there is often a lack of funding for investments in associated infrastructure needed for renewable energy projects,including roads and port improvements(particularly relevant for w

157、ind,battery and geothermal projects).Delays in public sector implementation of these necessary infrastructure projects can become a major bottleneck to renewable energy projects moving forward efficiently.OPPORTUNITIES IN SIDS317|Scaling Up Renewable Energy for Resilient Economic Growth IMPACT OF HI

158、GH CAPEX COSTS IN SIDSBOX 1 Due to the risks outlined above,CAPEX per MW for renewable energy projects in SIDS tends to be considerably higher compared to larger countries.A majority of respondents indicated a minimum CAPEX increase of 10-20 percent for renewable energy projects in SIDS,with 15 perc

159、ent indicating a premium exceeding 50 percent,as depicted in Figure 4 below.While SIDS already face higher baseline generation costs,these high CAPEX premiums can further inflate PPA prices.This can deter decision-makers in SIDS who expect PPA prices to align with those in other regions.Moreover,in

160、SIDS where utilities struggle to recover their costs(a situation observed in 65 percent of the selected SIDS),higher tariffs can exacerbate the cycle of increased generation costs,further hindering cost recovery,escalating off-taker risk,and diminishing private sector investment interest.Figure 3 CA

161、PEX premium in SDIS by technologyOPPORTUNITIES IN SIDS3What is the CAPEX premium to develop a renewable energy project in the selected SIDS?5-10%10-20%greater than 50%Ground mounted utility-scale solar PVRooftop solar PVOnshore windnumber of respondents01234Supply chain/transport issues(i.e.,remoten

162、ess,constraints at the port/to bring equipment to site)Market size leading to few EPC present in the country Additional technical requirements for climate hazard riskLocal content regulationsPrimary reason for the capex premium for PV,wind or geothermal in SIDSFigure 4 Primary reasons identified by

163、the market sounding respondents for renewable energy capex premium in SIDS0246810121416Ground mounted utility-scale solar PVRooftop solar PVOnshore wind20-50%18|Scaling Up Renewable Energy for Resilient Economic Growth17 Regional associations play an important role in SIDS collaboration,including to

164、 support national and regional efforts for the energy transition.In theCaribbean,key regional organizations include CARICOM,OECS Commission and the Eastern Caribbe-an Central Bank.InthePacific Islands,the Pacific Island Forum and the Pacific Power Association play a key role.IOC and UN Economic Comm

165、ission for Africa are key organizations for SIDS in the Indian Ocean and Africa,respectively.Cross regional organizations such as the Small Island Developing States DOCK(SIDSDOCK),the Alliance for Small Island States(AOSIS)and the Commonwealth Secretariat exist as representatives for the climate and

166、 sustainable energy interest of SIDS.RECOMMENDATIONS4Although there are numerous challenges to attracting private investment for renewable energy development in SIDS,the market sounding identified several solutions that can be deployed to overcome these barriers,including an important role for devel

167、opment banks,concessional climate funding,and grant-funded de-risking initiatives,such as SRMI.While some recommendations presented below apply at the country level,others apply at the regional level and regional associations17 could be leveraged to accelerate renewable energy scale-up(for example o

168、n capacity building,knowledge sharing,creation of STEM and Vocational Education and Training programs).SOLVING THE SCALE CHALLENGE THROUGH INNOVATIVE PROJECTS AND LOCAL FINANCIAL INTERMEDIARY EMPOWERMENT4.1Solutions identified to overcome lack of private sector in small-scale renewable energy projec

169、ts in SIDS include development of hybrid projects.As many SIDS face very high generation costs,hybridization of technologies may be part of a least-cost expansion plan in the context of achieving high levels of renewable energy integration.Hybrid projects,e.g.solar plus battery storage,solar powered

170、 desalination plant and water pump or solar powered mobile phone towers,can help islands tender a relatively small renewable energy project with a more attractive ticket size,given that battery storage is also CAPEX intensive.Flagship projects can also help attracting lenders and developers.While ma

171、ny DFIs have standard transaction size thresholds that are typically well above the size of an average renewable energy project in SIDS,some may be willing to lend below these thresholds for projects that offer outsized development benefits(e.g.,demonstration projects,or projects with high socio-eco

172、nomic benefits,including closing a gender gap).Such projects can be beneficial for branding or meeting commitments for socially responsible investing.When developing flagship projects like these,SIDS should put extra efforts for communication and marketing to showcase the expected impact of their pl

173、anned renewable energy projects.Empowering local financial intermediaries could lower transaction costs and facilitate small projects.The interviewed international financiers feel that lending through a financial intermediary either an experienced regional/national development bank or regional or lo

174、cal commercial banks could allow them to direct more financing to SIDS without the transaction costs associated with project-by-project assessments.This should be combined 19|Scaling Up Renewable Energy for Resilient Economic Growthwith capacity building when needed,as regional or local banks may no

175、t have experience with financing utility-scale renewable energy projects18.Additionally,they see potential in lending to blended finance funds with a mandate to support smaller scale projects,thus requiring a smaller ticket-size;this is discussed further in the mitigation of financing risks section.

176、Green hydrogen could be a long-term solution and a good way to increase the investment ticket size but,in the near-term,the costs are likely to outweigh the benefits for most islands.While domestic use for energy storage may be viable as costs decline,alternatives storage technologies should be cons

177、idered.Due to scale,it is unlikely that SIDS can produce green hydrogen or its derivatives at a price that would be competitive for international export;however,each case will need to be analyzed individually.Green hydrogen for international export,if viable,would bring additional off-takers into th

178、e equation and add the uncertainties linked to the nascent green hydrogen market.As the market for green hydrogen matures,this may be a more viable option in some SIDS.On the medium term,the economy decarbonization could create opportunities.SIDS should ensure that future expectations for electrific

179、ation of the economy are incorporated into their medium to long-term decarbonization planning(e.g.,e-mobility and industrial decarbonization),as this may create an opportunity to develop a larger pipeline of renewables.For example,in the Maldives,a recent World Bank study shows great potential for e

180、lectric buses and ferries,with a cumulative potential of rooftop PV generation at the charging operations of approximately 1.25 million kWh19.Finally,new business models such as portfolio financing were explored,where a developer creates a portfolio of clean investments in one country to gain in sca

181、le,e.g.,working with the government to bundle together a utility scale renewable energy plant,rooftop solar investments and energy efficiency solutions.This approach is unlikely to be attractive to traditional renewable energy IPP developers.However,it could be an opportunity for smaller IPPs to dev

182、elop long-term plays in niche markets.In the Maldives,the World Bank financed projects where multiple investments are bundled(e.g.rooftop and floating PV,batteries,e-mobility chargers)and the government is bringing private sector in to implement this.DFI support of these bundled projects could give

183、the private sector visibility on the multiple smaller parts of the bundle happening and improve their confidence.Resilience is key for the power sector durability and must be prominent in all phases of the development of renewable energy projects in SIDS.SIDS governments should consider moving away

184、from a traditional least-cost power system planning approach to a least-regret approach.If the focus in SIDS remains solely on the explicit least-cost approach,then the resilience co-benefits of renewables deployment may be overlooked to the detriment of the country.For example,it is estimated that

185、investing in resilience in CARICOM could result in net economic benefits worth 4.3 billion USD between 2020 and 204020.Around 15 percent of the selected SIDS have started incorporating resilience measures in their energy sector planning through Integrated and Resilient Resource Plans,and this should

186、 be incorporated as a standard practice across all SIDS.BUILDING RESILIENT RENEWABLE ENERGY FUTURES:MAINSTREAMING RESILIENCE FROM THE PLANNING TO THE CONSTRUCTION STAGE4.218 TIDES is an example of a blended finance fund that provides debt and equity solutions to pacific islands.19 Potential for elec

187、tric bus and ferries in Greater Male region.World Bank Group,December 2022.20 Masson et al.,2020RECOMMENDATIONS420|Scaling Up Renewable Energy for Resilient Economic GrowthIn addition,renewable energy projects in SIDS should incorporate additional technical specifications to withstand the impacts of

188、 climate change,to the extent possible.Governments,supported by qualified transaction advisors,need to ensure these standards are clearly communicated in the procurement documentation.Depending on the technology chosen to meet renewable energy targets and on the countrys vulnerability to climate cha

189、nge(and exposure to natural disaster and its type),certain resiliency measures will need to be accounted for in the design of the relevant technology21.During the construction and operation phases,its key that all parties adhere to these standards.Concessional financing solutions need to be offered

190、to SIDS to help cover the additional upfront costs of incorporating resilience measures,including dedicated,substantial grant funding complemented by concessional loans.Additional high-level political attention to this issue is needed to increase the volume of concessional funding flowing to SIDS.Th

191、is is discussed further in the financing recommendations.SIDS governments can complement VRE deployment with other more climate-resilient technologies,such as geothermal.For SIDS located on volcanic islands,exploration of geothermal energy potential can be pursued.While there are high upfront costs

192、and relatively long timelines to develop geothermal power,if found,it can serve as a foundation to a decarbonized energy system by providing reliable,resilient and clean baseload energy both for electricity as well as heat.Several SIDS are already pursing geothermal energy,including Dominica,Saint L

193、ucia,Grenada,Saint Vincent and the Grenadines.Dominica is leading the Caribbean,having signed a PPA for 10 MW of geothermal energy,equivalent to two thirds of their peak demand.SIDS with biomass resources(e.g.,bagasse from the sugar cane industry,agricultural waste)can explore the potential to devel

194、op biomass energy,including for electricity generation22.Mauritius is a leader amongst SIDS in the use of biomass,with approximately 100MW of installed capacity supplying 12 percent of total electricity generation in 202123.This Section proposes some possible mitigants to the key development risks f

195、or renewable energy projects in SIDS as discussed in Section 3.3 above.MITIGATING LOCAL CAPACITY,GRID,LAND AND STAKEHOLDER RISKSTo mitigate lack of local expertise for procurement and transaction negotiations,SIDS can seek technical assistance from the World Bank/SRMI other MDBs/DFIs and institution

196、s like IRENA to acquire transaction advisory services.Having a trusted transaction advisor can ensure that any procurement process(unsolicited,feed-in-tariffs,auctions)include the necessary technical standards based on robust energy sector planning.To ensure local capacity is maintained beyond trans

197、action advisory support,these services should mandatorily include capacity building of relevant government staff via on-the-job training in the preparation of tender documents.As the most critical development risk in the selected SIDS,SRMI has prioritized opportunities to secure grant funding to sup

198、port these efforts in SIDS and beyond.The preferred mechanism to reduce grid risks is a take-or-pay clause in the PPA.MITIGATING DEVELOPMENT RISKS IN SIDS 4.3RECOMMENDATIONS421 Generic measures include:1)dikes,2)stronger transmission towers,3)replace transmission towers in poor condition,4)protect s

199、ubstations from flooding,5)fiberglass poles for primary distribution feeders,6)replace weak poles,7)increase guying for secondary distribution feeders,8)underground distribution lines(if flooding not a risk).Source:resiliency studies carried out by the World Bank and the consulting firm Hatch in bot

200、h Antigua and Barbuda,and Saint Vincent and the Grenadines,in August and July 2022,respectively.22 The carbon footprint of biomass energy must be evaluated on a case-by-case basis.For example,biomass generated on newly deforested land would not be considered carbon neutral.23 IEA.https:/www.iea.org/

201、countries/mauritius/electricity21|Scaling Up Renewable Energy for Resilient Economic GrowthHowever,off-takers may not be willing to include this clause,thus additional mitigants may also be considered.Such a mitigant can be a clear,and regularly updated,sector plan including a VRE integration analys

202、is from the relevant authority(government,utility,TSO,etc.)to ensure that the capacity of VRE planned will be able to be absorbed by the system and that the necessary grid upgrades have been identified.The subsequent implementation of the grid upgrades is the next necessary step to enable VRE integr

203、ation.This planning must be complemented with more active network management tools.Finally,grid data availability,and grid codes that include priority of dispatch are also key.Integrated Resource Plans or other sector planning documents should be prepared expediently;of particular importance in SIDS

204、 is that the IRPs preparation be coupled with a strong public awareness and a sound communication strategy,so that developers become aware of updated information in a timely fashion.In addition,it is worth highlighting that this can also help small islands overcome the issue of scale,as some develop

205、ers indicated that they will be more willing to engage in small renewable energy projects in SIDS if they can see a clear pipeline of future projects in the coming years.Where there is not sufficient flexibility in the grid,tenders of variable renewable energy with battery storage can also mitigate

206、grid risk by allowing storage during periods of excess generation and by improving the system flexibility and ability to cope with VRE variability.For SIDS with land constraints,governments can undertake studies to assess the space available for utility scale plants and distributed renewable resourc

207、es and deploy innovative solutions.When land availability is uncertain,the first step is to carry out a locational study to identify how much land is available.For example,locational studies have been carried out in Dominica,Cape Verde,Guinea-Bissau and Sao Tome and Principe.In Dominica,specific geo

208、graphical clusters for solar and wind projects were identified.Figure 4 below presents these in detail.In addition to assessment of sites for wind or solar parks,it is recommended that these studies also include an assessment of rooftop solar PV Figure 5 Locational study in Dominica(top)and Rooftop

209、PV potential assessment in Grenada(bottom)RECOMMENDATIONS422|Scaling Up Renewable Energy for Resilient Economic Growthpotential.In Antigua and Barbuda,Grenada,Papua New Guinea,Vanuatu,Guinea-Bissau and the Maldives,rooftop solar potential assessments were carried out.In Grenada,for a defined area of

210、 interest of 205 km2,the estimated installed capacity of rooftop solar PV was found to be 619 MW,compared to a current grid size of 54MW24.Figure 4 shows a brief illustration of the distribution of the yearly potential generation of rooftop solar PV for a selected zone.Of course,not all buildings ha

211、ve sufficient structural integrity to support solar PV,particularly when considering climate vulnerability.Existing satellite mapping tools allow to assess the quality of the roof,yet building audits are required to confirm their suitability.When resources are available,geothermal and biomass should

212、 be explored but where those resources are unavailable or limited and where land is scarce for VRE parks and/or rooftop potential is limited,SIDS can consider innovative approaches and alternative technologies.For example,offshore wind and floating solar can be explored e.g.the Maldives have a very

213、high floating PV potential at 730 MW25.Countries can also explore innovative solutions,including agrivoltaics,which can bring multiple benefits including improved agricultural yields and increased resilience to the impacts of climate change(See Box 4).To mitigate stakeholder risks,SIDS governments c

214、an engage affected communities early in the development process to allow for a greater opportunity to shape decision-making.In many SIDS,the skills required to undertake the renewable energy transition are very limited.The SRMI methodology points to the importance of local development projects in vi

215、cinity of renewable energy installations26,which can decrease stakeholder risk and increase the socio-economic benefits of a project to support a just transition.Building on the recommendations to mitigate the risk of local expertise,building local business capacity can support the energy transition

216、 and raise the acceptability and local investment capital and provide long-term economic benefits with ongoing provision of goods and services by the SIDS local businesses and companies.For example,Barbados has a requirement for at least 30%of locals involved in the execution of projects to ensuring

217、 local capacity and buy-in.If there are skills gaps in the local labor market,such an approach should be coupled with measure to building local capacity,as described further below.BOX 2:AGRIVOLTAICS TO OPTIMIZE THE USE OF LAND,PROMOTE ADAPTATION AND IMPROVE LIVELIHOODSOnshore solar is typically the

218、most cost-effective renewable energy option.However,it requires large areas for building solar PV farms:a 10 MW utility-scale solar PV farm requires around 12 ha of land,generating constraints and opportunity costs in SIDS due to the competition of land for housing,commerce,and agriculture.Agrivolta

219、ics is the use of land for both agriculture and solar PV energy generation(sometimes referred to as agrisolar,dual use solar,low impact solar).In addition to conserving land through the dual-purpose use of space,adding solar modules on top of agriculture activities can help manage the solar radiatio

220、n,especially if semi-transparent and orientable,thereby reducing evapotranspiration and soil temperature.This approach can also facilitate water collection management and irrigation,in addition to creating an additional source of revenue for farmers from electricity sales,which can also increase the

221、ir resilience to variations in crop yields and provide shade for herds27.In some cases,floating PV can be combined with fish farming.Agrivoltaics can thus help address land availability for PV as well as respond to climate change impact,especially during hot and dry periods,and contribute to rural e

222、conomic development.However,agricultural yields and water management benefits can be impacted either positively or negatively by a variety of non-energy factors,including the type of crop,soil,and climate,etc.Thus,the use of agrivoltaics must be considered as a multi-sectoral approach rather than an

223、 energy-only centered solution.RECOMMENDATIONS424 These results come from an assessment of technical rooftop solar energy potential which can be found at https:/rooftopsolar.energydata.info/.25 Least Cost Generation Capacity Expansion in Maldives Scenarios and inputs for PLEXOS Simulation.World Bank

224、,2022.26 The SRMI Guidelines on“Maximizing Socioeconomic Benefits Triggered by Renewables”published by the World Bank in Octo-ber 2022 provide advice on how to promote local development along the renewable energy project value chain.Accessible from:https:/www.esmap.org/Maximizing_Socioeconomic_Benef

225、its_Triggered_by_Renewables.27 An agrivoltaics project example in La Reunion island:https:/www.afd.fr/fr/carte-des-projets/des-serres-photovoltaiques23|Scaling Up Renewable Energy for Resilient Economic Growth28 http:/documents.worldbank.org/curated/en/0995006/P1742020cf52b60e6096b8085498

226、4124388MITIGATING OPERATIONAL AND FINANCING RISKS IN SIDS 4.4MITIGATING FINANCING RISKSUse of financial intermediaries and concessional funding can mitigate financing risks by increasing the availability of local financing,building local capacity,and improving project bankability.International finan

227、ciers,including DFIs,can lend to regional,local banks(development and/or commercial)or blended finance funds,which then on-lend to smaller projects.This can be coupled with capacity building to support local financial institutions knowledge of financing utility-scale renewable energy projects.In add

228、ition to project-financing for IPPs,this could also be done through a growing market for renewable energy from the Commercial and Industrial sector,including hotels for islands with a large tourism industry.The wholesaling approach will facilitate flows of funds from larger financiers to smaller pro

229、jects in SIDS by reducing transaction costs.The local lending institutions are often more willing to lend to smaller projects,and they also better understand local risks.Finally,the allocation of FX risk must still be addressed;in some cases,innovative risk mechanisms for FX can be considered,as des

230、cribed in the SRMI position paper“How to Unlock a Pipeline of Bankable Renewable Energy Projects in Emerging Markets and Developing Countries?”28.Significant concessional funding is critical to reduce the impact of high CAPEX and risk premiums in many SIDS projects,including the additional costs ass

231、ociated with building in resilience to climate change.Blending concessional finance with DFIs or commercial lenders can reduce financing risk by providing a new source of capital that offers benefits to co-lenders(reducing their exposure,reducing repayment risk),developers(improved returns)and proje

232、ct beneficiaries(lower tariffs).Provision of concessional climate lending can also create a crowding-in effect,as these funds can increase the visibility of projects and increase interest of co-lenders.In the recent years,SRMI has successfully leveraged climate funds for SIDS,including US$25 million

233、 from the Green Climate Fund(to Guinea Bissau and Seychelles)and US$48.5 million from the Clean Technology Fund(to Dominica,Maldives and St.Lucia).However,the current concessional finance available for SIDS is far from reaching the level needed and is often supply driven and not coordinated with SID

234、S agendas.A regional approach,or even one at the UN-SIDS levels,should be advanced to scale-up and coordinate the funding sources.Deploying grant-funded CAPEX buy-down mechanisms can be key when the offtaker cannot afford a high tariff and the renewable energy project could have large development im

235、pact.This is particularly relevant in SIDS,which have a high percentage of utilities that are not recovering costs(70 percent of the selected SIDS),and that also face higher CAPEX due to the need to build in additional resilience measures given their high vulnerability to climate change.SRMI has suc

236、cessfully piloted this mechanism in Maldives and is currently designing a similar instrument with Sao Tome and Principe,which would allow for an overall cost reduction of the generation cost of 8 percent and a 20 percent reduction in the countrys fuel bill.SRMI is now looking to scale-up these tools

237、 through a new Financial Innovation Window(see position paper for more details).Reducing upfront costs and transaction costs for developing renewable energy projects in SIDS can increase financing flows.One solution can be the provision of grant funding by DFIs and/or donors to support due diligence

238、 costs for renewable energy projects in SIDS,to increase the willingness of developers to explore entry into these markets.To complement this,SIDS governments could publish clear criteria that will be used to qualify bidders and DFIs could publish their list of criteria to finance projects,thereby h

239、elping developers focus their due diligence and project preparation efforts on what matters most.In addition,standardization was identified as an important strategy,which could include templates for project preparation documents(e.g.,E&S assessments)and financing documents(PPAs,government support ag

240、reements,etc.).To increase efficiency and impact,regional organizations could play an important role in working with countries to adapt international RECOMMENDATIONS424|Scaling Up Renewable Energy for Resilient Economic Growthtemplates of such documents to fit the context of SIDS in their region or

241、sub-region.These templates would not need to come with“stapled financing,”thus allowing room for adjustments to fit the requirements of each sovereign state and the project;nonetheless,they would still offer the potential to reduce transaction costs by creating a common starting point for government

242、s,developers and financiers to negotiate projects.Alternative procurement options can help to secure financing.As described above,experience around the world and in the selected SIDS countries has demonstrated the benefits of competitive procurement of renewable energy using auctions.However,in case

243、s where market sounding reveals that an auction is unlikely to be successful due to a lack of market interest,countries can consider publicly funded renewable energy projects.This is particularly true for countries where fuel costs are burdening the utility and/or the government finance and where re

244、newable energy deployment would significantly improve generation costs.MITIGATING OFFTAKER RISKSSovereign guarantees are preferred by IPPs to mitigate offtaker risks,but this instrument is rarely available.Based on the market sounding,the most effective mitigant is unsurprisingly the provision of so

245、vereign guarantees.However,many governments are moving away from this approach,so alternatives need to be considered.The next most effective mitigant is liquidity instruments(cash collateral,escrow,letter of credit)established by the offtaker.Partial Risk Guarantees issued by DFIs were also listed a

246、s effective,although discussions with developers and financiers indicated a reluctance due to the transaction costs involved in processing these instruments,particularly in the context of SIDS,where the transaction costs could represent a high share of the financing.To overcome this challenge,SRMI i

247、s seeking to develop grant-funded liquidity guarantees to support small transactions,including in SIDS,as part of a new Financial Innovation Window.MITIGATING CONSTRUCTION/OPERATING RISKSMarket sounding results indicated that construction and operational risks are more challenging than other risks t

248、o mitigate in SIDS.Survey results suggested that incorporation of climate resilience through clear technical standards is an important mitigant,as well as using a CAPEX buy-down mechanism to reduce the burden of resilience costs on the projects viability.Follow up discussions with developers and fin

249、anciers highlighted two other important mitigants for the SIDS context:increasing the skills of the local workforce for construction and operation of renewable energy projects,as well as support to overcome lack of availability or interest of EPCs.The lack of workforce for construction works can be

250、mitigated through efforts to increase the prevalence of Technical and Vocational Education and training programs in schools,technical colleges,communities and universities.Outreach at the junior high-school level through job fairs and internships can increase interest in these areas,while outreach a

251、t the community level can attract people looking for a new career.Promoting regional exchanges could also support the creation of a pool of qualified workers to supply the region.Special efforts should be made to close the gender gap in these jobs in the energy sector,through e.g.dedicated scholarsh

252、ips and outreach efforts.Development banks could play a role to help overcome the risks associated with lack of qualified EPCs operating in SIDS.For example,development banks could offer support to local EPCs to avoid the higher costs associated with bringing in international EPCs.If local EPCs dont

253、 exist,public support can be offered to establish companies that can play this role by managing several small companies that,bundled together,provide services of a traditional EPC.In addition,development banks could offer grant-funded EPC guarantees in cases where local EPCs(including sub-contractor

254、s)are not able to provide the guarantees required by financiers(e.g.,balance sheets are too small).To mitigate supply chain risk,SIDS can invest in road and port improvements;given fiscal constraints,concessional and/or grant funding may be required.If this is not feasible,in some cases,these costs can be covered by IPPs,although this will result in higher electricity tariffs with potential negative distributional impacts.RECOMMENDATIONS4