It's time to flick the switch

With appropriate funding, green energy sources such as geothermal and wind power now have the potential to replace fossil fuel-based means of electricity generation in many emerging countries.

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On a barren lake-bed in central Djibouti, engineers are preparing to drill deep into the earth in search of subterranean heat that could cut the country's power bill by as much as two thirds.

For a total cost of about US$170 million (Dh624.4m), the African country will finally harness a source of energy to produce electricity that it has eyed for decades. It will also swap a decrepit power generation system that burns oil and diesel and charges one of the highest rates for power in the world. International donors have lined up behind the project and the Abu Dhabi Fund for Development is considering a loan of "a few million" dollars to top up the project's financing, says Helene Pelosse, the interim director general of the International Renewable Energy Agency (IRENA), which is based in the emirates' capital.

Renewable energy is sometimes considered a rich country's extravagance, a step that governments take to reduce their impact on the global community after they have first taken care of the needs of their own people. Even with significant technological advances in recent years, most wind farms, geothermal plants and solar arrays still produce electricity at a higher cost than the cheapest fossil fuels.

A growing number of poor, developing states, however, are choosing to invest in renewable energy projects as their primary source of electricity, either because they have an extraordinary natural resource or because they have no other choice. About 22 per cent of the world's population, or 1.5 billion people, now live without access to electricity, according to the International Energy Agency (IEA) based in Paris.

"[Last year], some of the most vibrant wind-power markets were in Latin America and Africa, which saw significant growth rates," the Renewable Energy Policy Action Network for the 21st Century (REN21) reported last month. "Developing countries now make up more than half of all countries with policy targets (45 out of 85 countries) and also make up half of all countries with some type of renewable energy promotion policy (42 out of 83 countries)," it said.

With the right levels of funding, many developing countries that are just starting to build up energy infrastructure could leap-frog the use of fossil fuels to produce electricity, says Ms Pelosse. "I think we should look at the potential much better than we have been doing now," she says. "If that project in Djibouti goes through, for example, it's a revolution. Instead of getting a kilowatt-hour for $0.30, they're going to get it for $0.10, and they're going to move to 100 per cent renewable energy at some point."

IRENA has made a mission of encouraging renewable energy in developing countries, with a special focus on states looking to wean themselves off the most expensive means of producing electricity: diesel or fuel oil. Earlier this year IRENA helped the Pacific island kingdom of Tonga complete a 10-year energy plan that will see it build up wind capacity and turn waste gas from landfills into an energy source.

IRENA can draw on funds donated by the Abu Dhabi Government to help meet those goals, she says, if a project is recommended by IRENA's member states. As part of its bid to host IRENA's headquarters last year, the Government pledged to make up to $50m of "soft loans" available to support renewable energy projects in developing countries. But the need for financing from all sources has outstripped the supply of loans and held up progress, she says. Kenya, for example, could become the first country in the world to depend 100 per cent on renewable energy but had been unable to line up lenders, she says.

Kenya has already built up geothermal plants and hyrdoelectric dams. For years, it has been looking to secure loans to build a $600m wind farm in the country's north west with capacity of 300 megawatts, and has gone from lender to lender. It secured some $150m from the Asian Development Bank and contributions from French and Danish lenders, but is still looking for more loans. Kenyan officials have been remarkably persistent, Ms Pelosse says, but their difficulty has illustrated the patchwork nature of renewable energy financing in developing countries, which carry too much risk for traditional commercial lenders.

"Kenya is a great example because they have the potential, they're a country that wants to go for it and they've got the dedication of the government," she says. "They're just searching for credit." IRENA needs a sister organisation with the resources to fund such large-scale projects, Ms Pelosse says. "We need public money, public credit. The next step for me is to really build up an international bank, then you could really give a bigger amount of credit and you could go for larger projects."

Once you start looking at the potential in the developing world, she says, staggering opportunities abound. Kenya and other east African states could produce 7,000mw of electricity from geothermal, but to date they generate only 200mw. Nepal could generate 200,000mw of electricity by damming the great rivers that flow down from the Himalayas, but to date they have developed only 700mw. "Look at the impact on the country, I'm not talking about 10mw," Ms Pelosse says of Kenya's project. "There's really not much subsidy, it's already competitive. Here it's more a question of how do you get the financing right."