Managing the Power Sector Transition to Renewable Energy
And good evening everyone. Depending on where you are in the world. My name is Edward Hoyt, and on behalf of Chemonics Energy Group and the Water, Energy and Sustainable Cities Practice area at Chemonics, it's my pleasure to welcome you to this webinar on managing the power sector's transition to renewable energy. This session does double duty as the second in Chemonics series on critical issues in the global effort to address climate change and at the same time it is the capstone session for an internal training program for Chemonics staff on the energy transition that we have called the energy transition dialogues. The objective of today's session is to focus on the challenges associated with achieving the decarbonization of the power sector and some proposed solutions and strategies to meet those challenges.
We have a terrific keynote to provide the global climate policy context in the wake of the recent Glasgow climate Summit, followed by a panel of experts who will offer a detailed look at how the power sector can accelerate progress towards achieving the overall decarbonization goals the global community has set for itself. So Glasgow was the 26 conference of the Parties to the UN Framework Convention on Climate Change, the Forum in which negotiators from wealthy and poor countries alike have wrestled with the challenge of how to adapt to the inevitable impacts of global climate change while averting the most catastrophic damage. As well here in a minute. Glasgow resulted in some notable commitments on salient issues, but there are myriad thorny issues still to address. Meanwhile, the global power sector is evolving and has been for years rapidly in some countries more slowly and others with significant additions of renewable energy capacity and the appearance of electric vehicles in many markets.
How do these changes in the energy transition fit into the larger challenge of addressing climate change? What needs to happen to accelerate this process? What are the obstacles, and how might they be overcome? My colleague Ambereen Shaffie coordinated organization of the of today's session which will help us arrive at some answers to those questions. And with this goal in mind, I'm pleased that my colleague Tara Sabre Collier from Chemonics offices in London will serve as moderator moderator for today's session. Tara is a sustainable finance advisor to governments and development finance institutions here at Chemonics where she leads the mobilizing institutional capital through listed product structures or MOBILIST policy platform. MOBILIST is the flagship program of the UK's Foreign and Commonwealth Development Office to mobilize large scale investment flow flows through public listed markets and establish the UK as a global global development finance hub. She brings over 15 years experience to impact investing, international development and corporate strategy to this role. In addition to advising other impact investors and funds, she is also a visiting fellow at Oxford University Said Business School.
And previously she was the gender lead at Shell Foundation and worked with major major development institutions such as the World Bank, the International Finance Corporation, and the United Nations. Before I hand it over to Tara to introduce our keynote speaker and to get us started, I'd like to request everyone to go off video unless they're speaking and to remind everyone that this session will be recorded for those who could not attend today. And that you are welcome to post questions in the Q&A chat on zoom. And with that I turn it over to you Tara. Thank you for the introduction Ned. The
format of our session today will be simple. Our keynote speaker will lead for 25 minutes and then each of our panelists who have significant experience and technical expertise in their respective areas will share prepared remarks for 8 minutes each. After the panel, we will have time for Q&A which listeners can submit through the chat function on Zoom and if you have any issues, please message us using the chat and we will assist with that. I'd like to introduce our keynote speaker, Amy Myers Jaffe. Amy is a research professor and managing director of the Climate Policy Lab at Tufts University. She was formerly the David M Rubenstein Senior Fellow for Energy and the Environment and Director of the Program on Energy Security and Climate Change at the Council on Foreign Relations.
A leading expert on global energy policy and sustainability, Amy previously served as senior advisors through sustainability at the Office of the Chief Investment Officer at the University of California Regents and is executive Director for Energy and Sustainability at the University of California, Davis, where she led research on low or zero carbon fuels and transportation policy. Amy has taught energy policy business and sustainability courses at Rice University, University of California, Davis, and Yale. She is widely published. Her
book Energy's Digital Future: Harnessing Innovation for American Resilience and National Security was published by Columbia University Press this year. Her other work includes Oil, Dollars, Debt and Crises - The Global Curse of Black Gold which she Co. Authored with Mahmoud El-Gamal.
Frequent media commentator, Amy serves on the Leadership Council of US Association of Energy Economics and holds a Senior Fellow award from that organization for her career contributions to the field of energy economics. She's also a member of the Global Future Council, net zero transition at the World Economic Forum Davos, and she's also the chair of the Steering Committee of the Women and Energy Initiative at Columbia University Center on Global Energy Policy. So I can't think of a person better positioned to open with some broad takeaways from COP 26 that are relevant to framing our understanding of the energy transition, the key country announcements and specific deals from COP 26 as well as broader thoughts on technology policy barriers are barriers, best practices and climate finance more broadly. So with that welcome Amy and thank you for joining us as our keynote speaker today. You're on mute, Amy. I was just giving such an elegant thank you to Chemonics and Tara for this wonderful opportunity to talk to your team and to your guests.
It's an important time post Glasgow and You know the media covered Glasgow in a variety of ways. Certain parties were disappointed with certain outcomes. And of course there needs to be a lot more ambition from the national side. But I liked focus on the part of the glass that's half full. And also I think that focus is very important for companies because there was a major change. vis-à-vis what We were thinking about and how we were pitching strategy vis-à-vis Paris and those points need to be made.
So many companies after Paris pledged, Undertook TCFD, you know Task Force on Climate Risk Commitment to do scenario analysis and understand their trajectory versus a two degree scenario and and many companies pledged carbon neutrality. But you know, five years later at Glasgow we are firmly aiming for 1.5 degrees, which was more aspirational than Paris? So there's no question about the 1.5 degrees now as a target; and and and then also UM. We've moved, sort of.
Most companies have not 100% adjusted, but you've got these sort of front leading companies and countries. One of the things that was a big diplomatic outcome in the runup to Glasgow, and as we met at Glasgow was the pledges to net zero and You know, people say, well, you know with those pledges really significant to the companies and countries really have a plan to get to net zero. And there's some justification to having that cynicism. But, you know, you can't move towards the target unless you have a target.
And changing the target to net zero is extremely significant. And I think it's very significant in ways that people have not commented on or understood and so. I mention it because it really affects what the business outlook is going to be. What companies will be expected to do by their stakeholders, and what governments are going to need to do for policy and aspirations. So first of all, Last year, oh, I guess it was this year, The International Energy Agency, which had been criticized for not doing a 1.5 degrees scenario,
conducted one using the same methodology that they use for their sustainable development pathway. And the reason that's significant is that many companies when they look at their strategy in energy and renewables and so forth and and if you're a fossil fuel company, you know justifying when you think you have to pivot your business. Many companies were using the sustainable development forecast of the IEA as sort of a guide path.
Uhm, touchdown. And of course, when they went to do the net zero scenario, which now aligns with Glasgow, it had big changes compared to the previous sustainability. pathway, and it included much greater electrification and a huge increase in electric demand globally. It was the first scenario that the IEA has done where hydrogen was a major tool or pathway across the globe for energy transmission and and, and it really pinned down that, you know, past the certain point. In time that, uh, any production of coal would need to be done in in conjunction with carbon sequestration.
And it even had a lot more of the natural gas in the system in its projections came in the form of aided by carbon sequestration. And indeed there was a sort of a rosier outlook for nuclear energy. But I want to talk to you for a minute about the difference between net zero and carbon neutral. Because I don't think it's understood well. I mean people throw around the terms and they think they understand it.
But then when you get down into the weeds, sometimes people's understanding it was it was fuzzier than they believed so. When we talk about carbon neutrality, a lot of companies are talking about you know, emissions targets to reduce, especially their scope, one and two emissions that they're highly in control of and and and and bringing them down as close to zero as possible. So that is not different in your carbon neutral pledge and your net zero pledge. Probably if you're a company that's really taking your emissions very seriously.
What's different is that in a carbon neutral scenario, you might be planning and a lot of companies already do, to be buying uhm carbon avoidance offsets or credits in the informal voluntary market, or maybe someday in a regulated market and and the reality is, an avoidance credit is very different than the kinds of offsets we need in net zero because in net zero we are talking about carbon removals and that's a big difference. So in avoidance, If a group builds a utility scale solar plant or offers clean cooking fuel, in in the global South. They can claim that there was a certain amount of carbon that was avoided versus traditional energy, and that creates an offset that is different than a removal where we're talking about taking the carbon that's already cumulatively accrued in the atmosphere and taking some of it out of the atmosphere. And what do I mean by that? That could be, umm, I'm going to sequester through agricultural technology using improved soil methods or I'm going to do a biofuels or clean up a landfill using carbon sequestration. And so I get to negative emissions. Or it could really be I'm literally taking carbon out of the sky and I am mineralizing it and buring it or some other way that I'm going to dispose of it that that keeps it long lasting permanently, not emitted and and when companies that have pledged to do this like Microsoft have gone out and tried to buy actual removals.
The cost of a verified removal is still pretty high even when we talk about reforestation or or new new plantings. So it's we're talking about. A verified costs which overtime is going to go up I think as more and more companies commit and more and more governments move towards these policies.
And and and it's going to create some political problems that came up at Glasgow as we were arguing about Article 6, which is the sort of framework for global accounting for carbon trading and and and these offsets, and that is in today's market. Uhm, you might be planning to buy a carbon avoidance credit from a solar developer or wind developer somewhere, and uhm. If that country where that solar or wind is going to be put in place was also planning to count that avoided emission in their nationally determined commitment. Uhm, then you have this double counting effect that needs to be now accommodated, so you're starting to get negotiations where the developer is going to take some percentage of the credits and the government is going to take some percentage of the credits or you have the government saying they want all of the credits and that needs to be worked out.
Now moving forward and the question is going to be what's the clearing house mechanism? Is it going to be private clearinghouse? Are we going to use all these verification companies that have sprout out? And were you know out in force at Glasgow and then? How will that run? Will it be the UN? Will it be a governments consortium? You know? How is that going to look like? Is that going to be part of the climate club? You know, the the EU is now talking about next year, starting to set the framework for a carbon removals market that would be part of their carbon trading system. So so we really see a lot of movement in that, and that is really going to change. I think. How companies comply over time to meet the pledges and commitments they've made to Net zero, Uhm, I also want to talk a little bit about some of the other big achievements at Glasgow before I move on to just deep dive into renewables.
We had the methane pledge, which is very important. key agreement, UM, approach wise the United States and Chinese delegations got together and hammered out a writing. about that showed the synergies that they could both agree to for the US policy and Chinese policy, things that were really going to be done, and that joint statement that was composed, and language that could be agreed on, was then brought to the more general discussions and was able to serve as some sort of baseline from which, uh, other countries could contribute and/or disagree. And the other big I think outcome from Glasgow, which you know remains to be seen, how it will move forward. Was this really interesting framework deal between South Africa and the United States, UK, France, Germany and a few others where the western economies would forward 8.4 billion in grants and
long concessional loans to help South Africa fund its transition away from coal and and the interesting thing about that agreement was not just that it was going to help South Africa move to renewables, but that some of the money is going to be targeted to adaptation and also to the just transition for coal communities in South Africa. And the question, really, I think before us will be, could be at landmark agreement and if the money flows to South Africa. And they implement based on these commitments. It could set a really fantastic platform for how we would move forward in another major regions, but the devil is in the details, you know, will that funding come forward to South Africa? You know, there have been difficulties with getting these sort of climate assistance funds paid up, and so I think that's sort of a TBD.
How how will it turn out? Now, One of the challenges, going forward, as I mentioned, one of the big challenges is where is the finance going to come from? From the global South? Especially if we're going to have this emerging problem about carbon credits and offsets and what what is attested to the government and what is attested to commercial players? That's something that that. Might slow slow things down. One would hope not, but pot.. potentially. The other thing we're seeing with the difficulties this year with electricity markets in Europe. We have tools we know work, obviously balancing cross border trade in renewables could be very very useful.
But the crisis in the UK is partly because the main transmission line, a heavy transition line that brought electricity trading from the UK, from the EU, from France, bringing nuclear power and so forth, caught fire, and it's going to be down for six months and so that through the UK system off. So, the whole question of, you know, security of transmission, UM, reliability of redundant supply. Those things are going to be more and more important as people do post-mortems on on what's happening, what happened this summer and into this fall, and you know? I lived most of my life in Texas and I can tell you when you hear politicians say, well, it's all the fault of the wind not blowing for a few weeks in the UK and they start trying to blame wind in Texas. You know, the disruption in Texas, which was quite severe, more even even more severe than what Europe is experiencing currently. Was really because there was not enough backup for the natural gas system and you had disruptions of natural gas starting with the hurricane and then moving forward with the freeze and it, indeed in the UK, one of the things the UK had decided was that it didn't need as much natural gas storage because it was transitioning, and that was of course a problem now because they don't have enough natural gas in storage and they're not able to trade and borrow electricity from the European continent, in the way they had imagined, because of the technical problems. So
thinking forwardly about deployment of renewable energy, you know, what's the backstop? What are the? What are the technological solutions to backup power and capacity markets? In in in key markets, as as renewables becomes a higher proportion of generation capacity. We still, I don't think have it well, run, whether, you know, are we making capacity market payments in advance so they high enough to make sure that that capacity remains accessible in the heat wave or when we have a unexpected disruption. In some places where they've done very interesting things like Australia, there's still a question of the speed at which the market pays for capacity, is it, are we talking about, hours, minutes? Seconds, you know, with some of this battery storage it can be deployed quite rapidly, and so for the installer of the batteries to really cash in, you want to have a very rapid pace for your auction market to really tap the flexibility of batteries, so that's something that needs to be worked out, and then I think globally one of the big challenges, let me finish, so we can get to the panel, is that, We still have a lot of sectors where the electricity system is dominated by a state entity. You know that could be a a state energy company, could be umm the discoms in India or South Africa. Places like that and a lot of those entities have suffered in recent years. Financial problems have been a lot of bankruptcies and and so you know, how are we going to finance the transition, given the fact that these entities do not have good credit and and so that I think is a really big challenge.
And then in the United States where we're a little more advanced, we still do not have a good regulatory system that rewards distributed energy that rewards virtual power plant, which we can talk about in the discussion. We don't have good solutions for who in the rate base will pay for transmission, and then we have, these new players - Shell, Amazon, Google, Tesla talking about coming into retail electricity and we don't really know what the path forward for that will be. So with that I look forward to hearing the rest of the panel and your questions and comments. Thank you Amy, for your remarks. With all of the fanfare from COP 26 over the past month and I was also there.
And the biggest thing that struck me was the 100 plus trillion commitments from the Global Financial Alliance for Net zero. With all of this fanfare, it's hard to separate the wheat from the chaff, so it was really useful to get your view on the tremendous promise that came out, but also the nuances and challenges. that come with this promise, and of course, our other panelists will also weigh in and add some more layers to this. So with that, I'll introduce our panelists, who will each provide some opening remarks.
And then we'll start our conversation. So first, Daniel Brooks. Daniel Brooks is vice president of integrated grid and energy services at the Electric Power Research Institute.
In this role, he leads teams responsible for EPRI's research, development, and demonstration of integrated energy systems planning, delivery systems, planning, grid and marketing operations, and the integration of renewables, energy storage and distributed energy resources. Daniel first joined EPRI in 2004 as a manager of the Renewables Integration, Research and Power Systems studies teams and subsequently managed the grid operations and Planning Research area as senior program manager and director, Responsible for transmission and distribution systems, operations and planning research before he assumed his current role. Prior to joining EPRI, Daniel was manager of Power System Studies for the consulting company Electrotek Concepts.
So, Daniel will be talking about important technologies in emerging markets relevant to the energy transition. Welcome Daniel. Thanks Tara, thanks Ed, Ambereen. Appreciate the chance to talk with everyone today and good morning, afternoon and evening. I know folks are joining from all over the globe.
Hopefully we will make it worth your time if you're up right as Tara introduced, that's awfully long bio probably didn't need to say that much, but I am more of a a grid guy so my expertise and experience over the years the research that I lead here at the Electric Power Research Institute is really around how do we operate ? How do we plan and operate, make decisions on investments and actually operating the electricity system as we go through this transition. And that one thing is clear and I appreciated Amy's comments as we're looking at the objectives that we have, whether it's net zero, whether it's carbon free, whether we're talking about interim steps along the way of certain percentage, reductions to 2030, 2035, or whether we're talking about the goal of where we want to be by 2045, 2050. The electricity sector is foundational to achieving the decarbonization goals that we have for the entire economy. Obviously the electricity sector is a contributor to emissions and has to clean its own supply and make sure that we are net zero or carbon free in the electricity sector. But the electricity sector is also critical to decarbonizing the rest of the energy economy- the most economic way, the most efficient way, the most timely way to get to these reductions is going to be the use of electricity grid to decarbonize transport, to decarbonize portions of buildings industry.
So the electricity sector is going to be critical as we go forward, and then from a technology perspective which is sort of where I'm supposed to jump in and contribute to the discussion and remarks that I have. From a technology perspective, we have pretty clear line of sight to the technologies that are needed on both the supply side as well as only in end use side to getting most of the way to that net zero that we want to reach. You know, when you think about getting to 80% - 90% we know what those technologies are. It's the renewables that we have for cleaning the electricity supply, electric vehicles, cleaner transport, electric space heating for being able to contribute to clean in in buildings.
In those space we know what those technologies look like, and that's not to say that it's easy enough to get there. There's a significant transition and I'll talk more about that in a moment, but we know they'll be additional investments that are required. There's significant investment that's going to be required in the the delivery infrastructure, transmission, and distribution, modernization, sensors, artificial intelligence for advanced analytics automation. All of those things are going to be required Uh, and requires. We have with. Those technologies are, most of those are, commercially available or near commercially available at this point. There are a few
things that need to be developed further demonstrated and deployed at scale, new approaches for controlling a grid. That's much more inverter based. That's much more distributed, grid enhancing technologies.
Things like power electronics to be able to control the flow of power across the grid and more. Or surgical types of wave, dynamic line ratings, other things like that. So there are some innovations, but for the most part, getting to that 80-90%, We know with those technologies are. Getting beyond that, that last 10 to 20% will require development of new technologies and those technologies to be developed and deployed at scale. It's talking about things like what Amy mentioned - carbon capture utilization and storage.
Direct air capture will actually trying to pull carbon directly from the air, not at point sources like we do with with carbon capture. Uh, well, hydrogen obviously gets a lot of talk and a lot of visibility, ammonia, bioenergy, low carbon energy carriers, that we would need in order to be able to get to that last 10 to 20%. Bottom line is though If we're going to achieve that and we have to achieve those things, we're all committed to achieving those reduction.
It's gonna require a significant transition in the electricity sector. Obviously out to the 2045 2050 time frame, getting to net zero across the entire party. But even to get to the near term targets that we have 2030 - 2035 to get to those 80% type of economy wide. Which means getting to significant reductions in the electricity sector. A significant transition that's going to have to occur across all aspects of the electricity sector, the supply side.
We already mentioned it means a much more predominant system of inverter based variable renewables in the system that look at the models, everybody has models. Amy mentioned some of the models from from Hawaii. We do our own models as well. In the United States just to get to the targets that we have for 2030 - 2035, you're looking at two to three times the amount of wind and solar photovoltaics being installed on an annual basis each year out to that 2030 time frame.
To be able to get there versus what we installed in the last decade. So it's a significant transition in terms of what the surprise supply side and that's happening. while coal is being retired You know? Models differ on what you say about gas only sort of mentioned that there are levels.
Basically shale gas is going to be an important bridge technology to provide capacity as we're retiring coal. And as we're bringing those additional renewables. Obviously carbon capture will be imported in the out years in terms of making sure that we're able to do any sort of carbon producing resource in a net zero type of way, but a significant change on the supply side on the delivery side through transmission and distribution. The amount of renewables that we are talking about A lot of those would be into the distribution system, and obviously behind the meter on the customer side.
This significant investment that's going to be required in both transmission and distribution infrastructure in order to support that. Those renewables coming into the system as well as to support what's going to happen at the end use side. You saw its electrification I mentioned earlier, you know, electrifying transport is going to be significant as we go through this. Just looking at those models again, that we've run and and I'm flipping through them from the US because I have those models, data results, and we've not done those in all the emerging markets in the world. But just to give you a sense, in 2020, in the US, 2% of light duty vehicle sales were electric vehicles. In order to to get to the 2030 targets that we have in the US, those numbers have to increase to 45 to 75% of all sales being light duty sales by 2030.
So talking about a significant change in with that looks like not to mention what happens has to happen with space heating in buildings and industry. What has to happen? It means a significant increase in demand. Our models basically predict two to three times the amount of end use energy is going to be supplied from the electricity sector, than what's applied today, and so they're talking about the electricity sector becoming such a more critical aspect to society, because so much more society is going to depend on the electricity sector as we go forward.
And that has some implications for liability and resilience before I talk about that. I just also wanna say and Amy talked about it this morning. Markets are going to be key changing markets to be able to incentivize all of the grid services. The electricity sector services that are required, but that's obviously energy and capacity as Amy was talking about.
But but all of those have similar services that are needed to ensure resilient for reliability. Those are going to have to be there. Things like providing access to those markets for distributed resources, for behind the meter, all gonna become much more critical, require a lot of development as we go forward, but that reliability and resiliency the grid is going to be key for all the technology discussions that we may want to have.
I think we'll be able to figure out those technologies. Figure out assuming that we get the resources to be able to provide those other other speakers will speak to to the financial considerations in the market considerations there, but where the huge potential barriers for us. If we have another set of events like what happened in Texas and Amy mentioned in February of this year where you have significant portions of the population that don't have access to electricity, think about that.
We have two to three times more of the economy dependent on the electricity sector. Lack of confidence because not showing the right reliability and resiliency capabilities of electric grid could be a significant barrier if we don't ensure that as we go forward. So I'll just wrap up my comments and say there are significant investments in additional investments that will be required in order to ensure that, particularly with all of the variable renewables coming into the system. And Amy mentioned Texas, 2000, February 2001, it wasn’t because of wind and solar, it was a contribution of many different factors.
All of the technologies actually underperformed in in terms of what they were able to provide during those critical days, where the biggest impacts were felt, but renewables because they are inverter based on because they are variable and uncertain. They have implications for good stability for resource adequacy for investment in the transmission and distribution system for balancing and flexibility that require innovations and investments that we have to look at as we go forward. And all of that has to happen in the context of a changing climate that even with our best. Efforts were still going to have a very different environment that we have to operate reliably and resilient leader, so look forward to your questions and being able to talk about it more as we go forward. I hold back to you too. Thank you, Daniel.
Next I'm going to turn it over to my colleague Matthew Mendez from Chemonics. Uh, Matthew Mendez is a managing director of Chemonics Energy Group, where he leads business development and operations for the energy sector at large, including two USAID programs, One in Sri Lanka and another in Serbia. He's got more than 35 years of experience in the areas of energy and climate change, including past experience at the World Bank, where he pioneered innovative financing mechanisms for small scale.
energy efficiency and renewable energy initiatives. Also, as a founder of an Alternative Energy Development Inc., which then merged with International Resources Group and then he was also managing director at Sequest Capital, which is a carbon finance and clean energy investment group where he was managing investments in clean energy globally. He was also senior vice president for Nexant's government service business unit until its acquisition by CHEMONICS in 2020, when He joined us, so Matthew will address policy barriers and best practices, drawing on all of these overarching experience on the finance side, operational side policy barriers and best practices to ensure a healthy energy transition with some specific country examples.
Welcome Matthew. Thank you Tara. Appreciate it. Good morning, good afternoon, good evening to all of you. Uhm, I'm pleased to be here today and hopefully will be able to give you some food for thought on this very important subject.
There's no question that we are at the dawn of a profound transformation in the power and transport sectors. That is being driven by technology advances, economics, and most importantly global and local environmental concerns. I mean, the recent conference at Glasgow focuses on the need for us to get to net zero and to control climate change and the power sector and transport sectors are the primary sources of greenhouse gas emissions globally. Pressure to decarbonize our economies are accelerating the transformation of the power generation from fossil fuels to clean and renewable energy sources. Coincidentally, technology advances and market forces are also transforming the transport sector, which is fueled primarily by fossil fuels to convert to E-mobility solutions and other clean fuels like green hydrogen. And these transformations are also being fueled by technological advances and that Daniel talked about.
and market forces are transformed. Sorry, that are emerging and currently experiencing dramatic decreases in cost. Both of these are causing the power sector to see increasing demand for energy and transport services to feel their growing economies and increasing standards of living.
Challenge for emerging economies is that they are having to transform power and transport sectors that were designed and built from models that emerged in the 1900s to adapt challenges and needs of the 21st century, we talked about a decentralized power generation, variable renewable energy, electric cars. All of these technologies are new and emerging and don't necessarily fit the models that we built our economies on it. that came out of the 1900s. From heavy reliance on fossils to net zero carbon in 30 to 50 years, which is what most people are trying to get at is a daunting challenge for these emerging markets. To meet this daunting challenge, we need to answer the question what are the major barriers and constraints in emerging markets to the transition to renewable energy in power and transport sectors? There are numerous barriers and constraints, but I will highlight what I believe are the top five challenges.
Number one, many emerging markets are predominant vertically integrated state owned utilities with significant debt and aging infrastructure that are generally generally monopolies not subjected to competition or open markets or strong effective regulators are hampering new investments that need to come in and are hampering the transformation that we need to see happening in that sector. #2. In some cases non cost reflective tariffs with mandated subsidies for poor consumers are are an issue. This is a critical problem.
Specially for state owned utilities that are used as political assets to gain favor with the electorate mandated below cost tariffs. Another key problem is non payment of electricity. In many cases this is is primarily from government entities compounding the financial stress on utilities. So these are facing tremendous financial stress.
Number three in some countries, labor unions and other vested interests work to maintain the status quo, including reliance on centralized power from fossil fields to ensure job security. And in some cases other vested interests work to keep lucrative fossil fuel supply chains in place because of benefits to that. Number four, a major constraint that all of these emerging economies are facing is the high capital cost and foreign exchange requirements.
Many cases in excess of 50% of total costs for most renewable energy options. when building a renewable energy plant like solar, wind, or hydro, they're essentially paying upfront and capital costs for the benefits for 20 to 30 years of no fuel costs. Overcoming these significant capital requirements is a major barrier for most emerging markets that have unlimited capital resources and strong competition from other sectors for infrastructure investment. Five, finally, a lack of human technical capacity to manage the power sector transformation is not to be underestimated in many of these emerging markets and has to be addressed if we're going to overcome them. So what are some of the policy options to address these principal barriers? The objective of the policy should be to create enabling environment for investments in the sector both from the private sector and from public sector. My top five recommendations for policy to address these constraints are - first, For economies where you have vertically integrated utilities, consider unbundling these vertically integrated utilities into profit Centers for generation, transmission, and distribution.
And open up generation and possibly distribution to private or public, private investments. Where politically feasible, consider privatization, especially for generation and distribution, while simultaneously establishing a strong independent regulator and transmission system operator to govern and control costs. Set renewable energy standards and goals and help accelerate the transition to renewable energy while instituting open, transparent, and competitive procurements and auctions for new generation and infrastructure.
Encourage prosumers third party sales and wheeling and banking options and microgrids and a number of other emerging opportunities that will catalyze competition in the market. Number 2, establish a policy for a tariff system that is cost reflective while recognizing the need for cross subsidies to support needed social and economic welfare. Having a strong and independent regulator to ensure fair and equitable tariffs is essential for financial sustainability. Simultaneously, institute policies and goals to encourage and in some cases mandate energy efficiency and demand side energy management to reduce the growth rate of energy consumption.
Number three, support sector investments that emphasize maximizing local content and creation of local employment while simultaneously supporting local training and capacity building to support the emerging local clean energy, transport and transport industries. I think this is a huge opportunity for emerging economies to create these these new industries that will support the transformation that ultimately sustain that transportation, that transformation. Four, institute competitive and transparent procurement practices to ensure at least cost quality options while providing fiscal incentives to attract foreign and local investments to the sector, simultaneously practicing in fiscal macroeconomic policies to minimize currency depreciation. Foreign exchange risks associated with many of these investments is one of the biggest barriers that we see and if you don't address that, it will be a major constraint. Finally, invest in human capacity and technical training to manage and support the transition and integration to renewable energy for the power and transport sectors. Provide tax incentives for employment and training of local technical personnel and development of supporting and local industries and services.
In summary it is essential for emerging markets to face head on major barriers and constraints. They repeating the transformation of clean energy and their power transport sectors. You can't beat around the bush, if you want to really solve this problem. We are working in Sri Lanka where the government that it's committed to a 70% renewable energy target by 2030, and 100% renewable energy target by 2050 and the government at the highest levels has has decided that we can't solve this problem by piece meal solutions.
By doing so, we can create an enabling environment to track the needed investments, especially from the private sector, to address the challenges of sector transformation. Most of the private, sector capital and concessional green funds that are available for clean energy investments will go to those who get their energy house in order. With that, I'd like to say thank you and turn it over back to you, Tara. Thank you so much Matthew. Illuminating commentary you got straight to the heart of the matter in regards to those policy changes you didn't waste anytime.
And now Sabin Basnyat is who is the senior energy efficiency specialist and transport sector lead. Uh, hello. There's light. there is. There's slight technical disruption.
Apologies for that. Sabin Basnyat who's the senior energy efficiency specialist and transport sector lead for energy efficiency and low emission transport in the division of mitigation and adaptation at the Green Climate Fund, or GCF. Sabine has 22 years of experience in project and business development, climate financing policy and regulations. He's worked across multiple regions, and institutions such as GCF, The International Finance Corporation, UNEP, and the United Nations Development Program, which is UNDP. So, as Matthew already alluded to climate finance, is essential to the achievement of the international community's goals and it's an area where results have fallen short, especially in regards to industrialized countries commitments.
So Sabine will speak about accelerating and deploying climate finance using its specific examples from the clean, Green Climate Fund and complementary policies to unlock financial flows. Welcome Sabin. I'll turn it over to you. Thank you so much, Tara, and thank you, Chemonics, uh, for this invitation and good morning. Good evening and good afternoon to everybody.
I mean following Daniel, Matthew, and Amy I'm, I think. I'm trying to be the linchpin that kind of ties everything together. A tough job.
So yeah, I mean I think just to build upon what Matthew and Daniel were saying in terms of you know what's out there and what's needed in terms of renewable energy transition globally. You know the the technology is out there? I mean most of the technology that's it, it's about deployment that I think that's one issue. The second problem, is quite frankly, as Matthew pointed out, is that there are a lot of policy gaps.
UM and then addressing those policy gaps with technologies, you know it helps to really kind of move things forward and then the final part is really kind of building that finance piece together. So having said that I mean in in the last I would say about 10-15 years, globally, I think there's no shortage of money. Uh, quite, frankly, uhm, uh. I think there.
There are a lot we've seen, uhm, you know, a lot of, UM. Institutional investor or other types of investors from the north moving to the developing world to you know finance different sorts of energy projects, be it distributed energy projects or UM. From or or any other demand side projects as well and and having said that, I would and and this is where our role in the Green Climate Fund is, you know, as the largest climate fund set up through the UNFCCC, we are mandated and and and are are committed to actually really kind of, you know, transitioning our countries the developing countries towards a green climate carbon free pathways. So we do this both in terms of a you know, a mitigation efforts, which is the energy trans part as well as adaptation and and and and and I'm gonna mention adaptation, finance a little bit here as well, because that that's the other angle that I think we were a little bit missing is, you know, when you're looking at, you know small island states, for instance, setting up a solar solar farm is great, but you know the the moment you set it up.
And then if a hurricane comes, and if that goes away, then you know that's about you. Know a couple $100 million down the drain or into the Pacific. Of the Caribbean. So so building resilience.
Infrastructure resilience as part of the application for the UM systems is critical as well, so so so we basically try to see. I mean what can be done and how can we really kind of, you know, make sure that the financial flows really happen. So on that front I mean I think there there are a couple of things that we need to kind of take note of is, you know, having an enabling environment place as Matthew said. I mean, I think that that's critical just to give you an example. I mean, you need to understand what type of money is needed.