How to Finance Clean Tech and Green Fuels for the globe’s 3 billion biomass dependent

OPINION

Creating a new asset class for investments in energy efficiency solutions for the world’s biomass dependent.

We know that about half of the world’s population depends on wood, charcoal and other solid biomass for their daily cooking and heating needs.

We also know the other half of the planet depends on fossil fuels to meet the same needs (and others, like transportation, etc.).

According to a blog post by Jake Schmidt, Policy director for the US environmental non-profit Natural Resources Defense Council (NRDC), the global clean energy market generated $243 billion in investments in 2010. This represents a 30% increase from 2009. “If it were a country,” Jake writes,” clean energy investments would be the 35th largest economy in the world and growing way faster than anyone else.”

Jake goes on to tell us that “according to the BP Energy Outlook 2030, this upward trajectory is expected to continue.  They (the BPEO 2030) project that non-fossil fuel sources (e.g., renewables) will account for the largest area of energy growth for the first time ever in any two-decade period. Renewable energy is a large portion of that growth, tripling its share over the next two decades.”

Behind these statistics are real projects that are creating real jobs and industries. This is great news if you’re lucky enough to have been born in an industrialized or emerging society.

The problem is that if you’re sitting at the base of the pyramid along with the poorest of the poor, there’s very little chance you will see any of the fruits of last year’s $243 billion clean energy investment. (The one exception might be China which, at $51 billion, saw by far the largest investment in clean energy last year. We also know they are the largest producers of solar panels, but that’s another matter.)

And while we don’t have figures for clean energy investment in developing countries for 2010, it’s likely that any investment went to increase the percentage of renewable energy in the total energy balance of countries, and not to providing sustainable alternatives to those who are disconnected from the grid and still depend on solid biomass fuels.

As urgent as it is for industrialized and emerging societies to reduce the carbon intensity of their economies, there are equally compelling reasons to help provide energy efficient solutions to those who must still prepare their meals and warm themselves by gathering woodfuel from roadsides, chopping down trees for charcoal, burning coal-dust briquettes, and breathing the indoor fumes from the burning of animal dung in a three stone fires. Grave health risks, impaired local environments, the perpetuation of poverty, and the impact on climate change are just some of those reasons.

Fortunately, the solutions to reducing energy poverty are real, inexpensive, and can be immediately implemented. We’re talking about basic technologies like efficient cookstoves, improved charcoal kilns, sustainable alternative solid biomass fuels, improved charcoal kilns, and managed “energy forests” used to supply biomass fuel.

What’s lacking is a global framework and funding.

Fast start money from the international development community will be important to delivering clean tech and green fuels to the energy poor. Maybe we’ll see some of that funding coming out of the pledges made in Copenhagen and ratified in Cancun.

Ultimately, however, the real difference will come from large-scale private capital investments attracted by the profit opportunities that await the financing of green technologies for the biomass dependent. This is not pie in the sky or the pot of gold at the end of the rainbow. This is already happening.

Call it Impact Investment or Patient Capital, the fact is that major global financial institutions are estimating that impact investment opportunities will range between $400 billion and $1 trillion over the next decade. In a 96-page report released late last year by J.P.Morgan and the Rockefeller Foundation, researchers concluded that “investments intended to create positive social or environmental impact beyond financial return offers a new alternative for channeling large-scale private capital for social benefit.”

Impact investing constitutes an emerging new asset class. And this, my friends, should be music to the ears of global investors.

According to the report, an increasing number of investors are rejecting the notion that they face a either/or choice between investing for maximum risk-adjusted returns or donating for social purpose.

We know already of one social investment fund that is right now raising tens of millions of dollars to invest in clean biomass solutions in several geographies. I won’t quote what they’re offering investors, all I can say is that it’s a very attractive proposition for any investor anywhere. What’s more, they’re all about scale. We’ll be writing about this fund in greater detail over the next few weeks.

For now, however, the challenge to the NGO community and the many practitioners of clean tech and green fuels for the biomass dependent is to move away from the traditional institutional development model where the donor community provides funding for non-commoditized  benefits, to designing their business models in a way that attract a portion of the $400 billion to $1 trillion of impact investment and social investment funding expected to flow southward over the next decade.

NGO’s that choose to walk down this path will first have to overcome their queeziness about knowing that there might be a fat cat investor on Wall Street reaping 18 or 22 percent on their investment to bring clean cookstoves, better fuels, and overall energy efficiency to people making $1 or $2 each day.

The Editors