Earlier Daryo reported that, the International Energy Agency's projection is that achieving the net-zero emissions goal by 2030 will demand a substantial increase in annual funding, estimated at $2 trillion, a significant rise from the current $400bn earmarked for climate investments in the next seven years.
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Regarding the private sector's role, it is clear that addressing this substantial financial challenge cannot rely solely on the public sector. Thus, the private sector must assume a central position. According to the International Monetary Fund (IMF), it is anticipated that the private sector will need to contribute around 80% of the required climate investments, and this percentage increases to 90% when China is not included in the calculation.
Kevin Ross, IMF Resident Representative in Uzbekistan commented for Daryo, on how the situation remains in private finacing for climate transitions.
Q1: How does private capital work in Uzbekistan's climate transition?
Uzbekistan is embarking on a significant climate transition that demands substantial energy sector investments, approximately $4bn annually throughout this decade. Although the public sector will contribute, a substantial portion is expected to come from the private sector. Private-public partnerships (PPPs) are instrumental, focusing on renewable energy projects, such as wind and solar power. Notably, Uzbekistan is pursuing 8.8 GW of wind and solar power projects, with international investors like Saudi Arabia's ACWA Power and the Emirates' Masdar getting involved.
Q2: What are the main challenges associated with phasing out coal power plants, and how can private investment and public support address them?
Uzbekistan relies on coal for around 4-5% of electricity and heating generation, considering it a cost-effective energy source. The challenge is to phase out coal while ensuring affordability for affected communities and maintaining energy supply reliability. Market incentives through carbon taxes and environmental regulations, along with financial support for stakeholders, are crucial.
Private sector investment has a key role to play by funding greener energy alternatives like wind and solar that gradually replace coal-based energy production. The private sector investment can also be used to retire and repurpose coal plants—allowing some to be shifted toward a reserve energy role used only during periods of high demand.
Q3: How can climate policies and commitments at major banks be better aligned with net-zero climate targets in Uzbekistan?
Public policies can encourage banks to align with net-zero climate targets. This includes introducing capital requirement norms that promote environmentally sound projects, mandating climate risk disclosure and the environmental impact of portfolios, and promoting green banking through tailored financial instruments and incentives. Banks are increasingly offering green finance instruments, such as green bonds and green energy sustainability funds. International collaborations and training programs for banking professionals are essential for achieving net-zero targets.
Moreover, investors and governments are becoming increasingly environmentally conscious and are looking for banks to provide green finance instruments. This has motivated an increase in the issuance of green bonds and participation in green energy sustainability funds (ESF). For example, in 2021 Uzbekistan issued a SDG bond for green finance. Also, Hamkor Bank offers green loans jointly with the Netherlands Development Bank to finance green technologies.
Q4: How can Uzbekistan, as a lower-middle-income country, be rewarded for its environmental and climate policies despite credit rating agencies' assessments?
Improving climate preparedness assessments involves providing better climate-related data to the public and effective communication of climate policies. Uzbekistan's publication of the SDG Bond Allocation and Impact report and the Ministry of Ecology, Environmental Protection, and Climate Change's establishment demonstrate commitment to environmental issues.
A mix of policies, like implementing a broad mix of policies would help to create an attractive investment environment and unlock the necessary private climate finance. Carbon pricing can provide an important pricing signal for investors.
Q5: How can innovative financing solutions like blended finance and securitization instruments be employed in Uzbekistan to phase out coal power production?
Blended finance combines public, private, and development bank investments to fund projects that might not receive adequate funding. While securitization requires comprehensive legislation, it's a potential avenue for future use. Blended finance mitigates investment risks, making projects more attractive for the private sector.
Successful projects based on blended finance can pave the way to broader market acceptance and more private investments flowing into the sector.
Q6: How would Uzbekistan benefit from private financing for climate transition?
Private financing would help Uzbekistan achieve its energy transition goals and ensure energy sustainability. It could diversify funding sources, reducing dependence on state budgets and debt. Private investments could position Uzbekistan as an attractive destination for Foreign Direct Investment in green initiatives, driving economic growth and job creation.
Society overall would stand to benefit. This influx of capital and expertise can lead to the introduction of advanced technologies and practices, vital for the modernization of the country's infrastructure and industries, ultimately leading to job creation and boosting economic growth. Investments directed towards sustainable projects result in tangible improvements in everyday living, such as cleaner air, efficient transportation systems, and improved water quality.
Private financing is set to play a pivotal role in Uzbekistan's climate transition, supporting the country's efforts to modernize its energy sector, reduce coal dependency, and advance environmental sustainability. As Uzbekistan adapts to the challenges and opportunities of this transition, private investments will be instrumental in driving progress toward a more sustainable and greener future.
Written by Khadicha Abdurashidova
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