John Morton, Vice President of Investment Policy at OPIC recently spoke at the Asia Clean Energy Forum, where he described the worldwide transition to cleaner forms of energy as “perhaps the most predictable economic transformation in modern history.” Here Morton details the environmental, economic and social benefits of renewable energy and discusses OPIC’s efforts to expand its presence in the renewable resource sector.
What did you mean when you said the transition to cleaner forms of energy was “perhaps the most predictable economic transformation in modern history?
There are a host of reasons why the world is going to transition to a lower carbon economy, including environmental reasons, health reasons, and considerations of social stability and energy independence. But most importantly, the transition is going to be driven by economic opportunism.
The increasingly apparent depletion of the worlds resources coupled with incredible technological advances in just the past five years alone have combined to make this transition extraordinarily apparent to all those following the issue. What has been seen for 20 to 30 years as largely an environmental issue is being recognized by more and more countries and governments as a seismic economic opportunity.
How would you describe the economic opportunity associated with transitioning to renewable power?
When a transition becomes as inevitable as this one, there are costs associated with delayed action. The economic opportunities associated with this transition run easily into the hundreds of billions of dollars. First movers – be they in technology or deployment – stand to lock in significant long-term advantages. If you create what becomes the industry standard for battery storage, for example, or grid switching devices, the long-term benefits can be significant.
OPIC’s 2010 annual report described a flourishing global clean energy industry that “has defied the economic downturn.” Is that still the case?
A recent study from Pew confirmed that the clean tech sector was among the fastest growing sectors over the past decade from a jobs perspective, yet the rate of growth in the U.S. has paled in comparison to the rate of growth in many other countries. And a recent Brookings study, released in July 2011 shows that the clean economy in the U.S. now employs more people than the fossil fuel sector.
Different countries have responded to the global economic downturn in different ways. China and South Korea in particular have used their economic stimulus packages as to support sizable new investments in a low-carbon economy. The United States did that as well but to a lesser extent.
In addition to the environmental benefits, is renewable energy sometimes just the more practical way to deliver power to certain communities, such as those off the electrical grid?
Off-the-grid distributed generation will provide for power distribution in places where electricity grids haven’t yet reached. For example, one OPIC loan recipient, Husk Rice Power Systems Inc, is building a series of mini power plants that generate power from burning discarded rice husks and deliver the electricity to off-grid communities. In the same way that developing countries were able to leapfrog in the telecom space, and go from no phone service in many communities straight to widespread cell phone use even in relatively remote villages, the same will be true with respect to renewable energy in developing countries.
What is OPIC is doing to increase its investments in renewable resources.
We made a significant commitment at the United Nations Climate Change Conference last December in Cancun to support a minimum of $300 million in investments into private equity funds focused on renewable resource sectors. And in June, we announced that we exceeded that target by more than 50 percent. In addition, this year we are likely to nearly double our project finance support product offering for our renewable projects over last year’s numbers. Finally we have been actively developing new financial products such as an insurance product that protects investors against carbon credit regulatory risk, a long-term subordinated debt offering for energy efficiency upgrades, and a renewable energy equipment leasing product.
Finally, OPIC has a very progressive and explicit commitment to lowering greenhouse gas emissions across its portfolio by 50 percent over a fifteen year period ending in 2023. This policy, which many feared would hurt our ability to generate new investments, has not had that feared effect. Indeed, it has propelled us into a significant increase in a low-carbon portfolio, which is in line with US foreign policy priorities and supports the inevitable global transition to a lower carbon economy.