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Financial Barriers for Green Energy

In many part of the world, growth has been deeply skewed in favor of the rich and it has been environmentally destructive. Given the current trajectory of global fossil-fuel use, the temperature is likely to rise by 4 oC to 6 oC above pre-industrial levels (Sachs, 2019). However,  the global investment in renewable energy has declined 3% in 2017 and there is a risk that it will slow further. Albeit the government has put a great endeavor to campaign on green energy, the global finance economy system along with the investors still have no interest embarking it. The following essay will cover some reasons behind this lack of awareness in low carbon energy.

Renewable energy is a long-term investment which cannot be fulfilled by the public sector in most countries, while on the other hand the private sector does not show enough interest. The main reason is the low rate of return and the associated risks (Yoshino and Taghizadeh H, 2018). In Asia, the financial system is dominated by Bank with its underdeveloped capital market, which leaves Asian Banks as the major source of funding for green renewable energy projects (Peimani, 2019). Furthermore, there is no sufficient fund to steer the investment toward the low-carbon energy transition due to the resources of banks which come from deposits with have short to medium term. Allocating bank resources to green infrastructure projects require long-term finance that will make maturity mismatch for banks.

Secondly, Developing Asia relies heavily on coal for power generation. A World Bank Data Indicator 2013 shows that 66% of electricity was generated from coal-fired power plant. Large economies in Asia explain most of the high percentage such as China (75%), India (73%), Indonesia (51%), Korea (41%), and Malaysia (39%). Based on the aforementioned fact, the green energy transition absolutely needs a large budget since the Asian Development Bank Institute found that the Developing Asia need to invest $26 trillion from 2016-2030 if the region want to maintain its growth momentum, eradicate poverty, and respond to climate change.

The investors and scientists believe that the intermittent nature of green energy increases the risk, given that their energy input is not secured due to their natural behavior which makes them beyond human control. Even this shortcoming makes them unsuitable for initial power generator, which requires the 24 hours availability of electricity. It is useless for the economist to invest on an expensive technology without certain power stock.

To conclude, it is clear that Asia need a new financial source which supports a long term investment since relying on banking finance is not a solution for financing green projects. A deep assessment is needed for community-based funds and village funds. This is due to their basic objective which connects local investors with projects in their own locality, where they have personal knowledge and interest. It will probably a suitable solution for the successful of green energy in Asia.

The 24 hours unavailability of renewable power source can be mitigated by combining the current power plants. Albeit at a cost it is not environmentally friendly, it will reduce the oil consumption and add another energy source. Moreover, diverse energy power plants increase energy resilience and reduce the dependence on one kind of energy source. A crisis on fossil-fuel source will put a great risk on the price of other commodities which have relatable connection especially on logistic management. The expense on basic needs will surely jump higher regarding to the expensive cost of transportation fuel. This leads to an unreachable food price for the less fortunate and increases the poverty rate.

Cost of not switching

The scientists has warned the economists as well as the politicians to pull over their nation individual interest for the good of humanity. The Intergovernmental Panel of Climate Change had released the Assessment Report 5 to prove the evidence of climate change. As an example, the global warming is damaging agriculture as our basic food resource in many ways. The depleting of fresh water through rapid evaporation will cause scarcity and push up the cost of irrigation, as well as triggering and worsening the drought and destroy the farms.

For an agriculture country like Indonesia, it is a compulsory to mitigate such a drawback. This local circumstance of status quo is worsen by the sea level rise which is threatening the coastal-laid metropolitan cities of Indonesia. A statistic report by BPS in 2017 shows that 34,96 million of Indonesian are living under poverty, 63,47% of them are on the coastal area.

 Bibliography :

Sachs, J.D, W.T. Woo, N. Yoshino, and F. Taghizadeh-Hesary. 2019. Importance of Green Finance for Achieving Sustainable Development Goals and Energy Security. Handbook of Green Finance

Peimani, Hooman. 2019. Financial Barriers for Development of Renewable and Green Energy Projects in Asia. Handbook of Green Finance
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