The New Development Bank (NDB) was set up in 2014 by the BRICS forum to help fund infrastructure in the BRICS countries of Brazil, Russia, India, China and South Africa. A key aspect of the NDB’s job is to set energy targets for the BRICS states, and provide sustainable and reliable investment to allow the countries to build their renewable energy capacity.
In October last year, a new strategic report was produced by the Institute for Energy Economics and Financial Analysis (IEEFA), reviewing how successful the NDB has been so far. The report looked both at the increased renewable capacity of all five BRICS countries, but also the economic strain of such an ambitious project, a strain that is clear from the funding gap already present.
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By GlobalDataThe NDB set targets tailored to each of the BRICS countries, taking into account their plans and their existing renewable capacity. The bank is designed to offer loans quickly and flexibly to the BRICS countries to make achieving these possible. “They had financed about $911m and that they had declared intent to finance or increase their loan by about $1.2bn every year,” says IEEFA consultant and the report’s author Jai Sharda. “So [the NDB is providing] about 11% of the public capital required.”
The report uses the concept of blended finance to work out the progress made and the progress required by the BRICS countries. “The concept of blended finance is basically built on the idea that when there is public money going into a sector it draws private money into that sector,” Sharda explains. “For every one dollar of public finance – the sort of finance being provided by the New Development Bank – it is estimated that it will make four dollars more of private money. So we built our estimations on that basis.”
What are the targets?
Developing countries are some of the biggest consumers of energy in the world, as expanding a country’s infrastructure is energy-intensive. Economic development often requires large-scale industrialisation, such as we have seen in China, which has led to a more prosperous economy but also meant that China is the largest producer of CO2 in the world. All five of the BRICS countries rank in the top 20 polluters.
As such, the NDB has set goals to reduce the BRICS environmental impact while increasing the amount of energy they produce through renewable energy sources. Brazil is arguably in the best position to do this, as in 2015, 74% of its energy came from renewable sources. According to the IEEFA’s report, “Brazil’s 2024 Energy Plan envisages an increase in total installed renewable capacity, including large hydropower, from 106.4GW in 2014 to 173.6GW in 2024.”
India, China and South Africa have all set impressive targets, and have begun work to reach them. India intends to increase its renewable energy production by 40% by 2030, as well as reducing emissions intensity by 33%-35% over 2005 levels. China’s targets are even greater, as it plans “to reduce emission intensity by 60%-65% over 2005 levels”, the IEEFA report says. “China is estimated to increase its solar capacity to 127GW by 2020 from 43GW at the end of 2015, and wind capacity from 145GW in 2015 to 250GW by 2020.” South Africa has the furthest to go of the BRICS, as at present it gets 94% of its energy from fossil fuels but has plans to install a further 17.8GW of renewable energy capacity by 2020.
Russia is slightly different to the other BRICS countries as it has technically already met its target. Russia’s target was to reduce emissions by 25%-30% over 1990 levels, and emissions are currently around 40% lower than 1990 levels. However, the country is planning a 4.5% increase in the amount of renewable energy it produces by 2020.
Are the targets being achieved?
All five BRICS countries have made progress, although to different extents. Brazil currently produces the most renewable energy, with 74% of its energy coming from renewable sources, the vast majority coming from large hydroelectric plants.
Sharda suggests that Brazil’s current success is, in part, due to its long-standing history of renewable projects, necessitated by a lack of coal: “I think Brazil has been better off than especially China and India in implementing more renewable energy because they lacked fossil fuel alternatives.”
Despite their fast-growing economies, India and China have historically been slower to develop their renewables sectors. “India and China have massive amounts of coal deposits, similarly Russia has large amounts of oil and gas deposits, and South Africa is one of the biggest exporters of coal,” Sharda says. “All of these countries have had a traditional, natural advantage.”
But things are beginning to change for both China and India, and they are expected to see the biggest boom in renewable energy of any of the BRICS countries in the next few years. “China led the coal and thermal power boom, they didn't have an issue with dealing with worsening environmental conditions at a national level then,” Sharda says. “But the government and policy makers have actually become very sensitive to environmental issues which are why they are focusing a lot on renewable energy now.”
There is a massive trend moving towards renewable energy sources in China so, despite the fact that 74% of its energy came from fossil fuels in 2015, the IEEFA report estimated that China would increase its solar capacity to 127GW and increase its wind capacity to 250GW by 2020. However, in January, China increased its targets and its spending on renewable energy, and now plans to invest at least $360bn by the end of 2020, solidifying its position as a global leader on clean energy. Meanwhile, India increased its renewable capacity to 225GW by August 2016, a huge leap from 97GW in 2005. This is predominantly from using hydro.
Russia and South Africa are making slower progress. South Africa still relies on fossil fuels, increasing its renewable capacity to just 2.1GW in March 2016 from 1.8GW the previous year. Russia is making small progress predominantly due to a lack of investment from the country itself, only allocating $1bn for renewable technologies in all 17 Russian states in 2014.
Filling the funding gap
Despite rapid development in the BRICS countries, for Brazil, China, India and South Africa there is a long way to go for any country to meet its targets. There is a funding gap which the NDB, among others, need to fill to help stimulate the development of the renewable energy industries in each country. The IEEFA estimates that “meeting these targets would require an annual investment of around $177bn. In comparison, the investment in the renewable sector in BRICS countries in 2015 was $126bn, leaving an average shortfall of $51bn”.
It is clear, therefore, that a vast increase in investment is needed. “Brazil’s renewable capacity expansion plans would require an investment of $86bn, or 85.2% of overall electricity generation capacity investment,” the IEEFA report states. This is despite Brazil’s impressive hydroelectric infrastructure. Meanwhile Russia would require an investment of $44bn, India will require $128bn, China $254bn and South Africa $30bn.
Whilst these figures are for varying timescales and some countries, China in particular, are likely to be able to channel enough money to meet their targets, it is clear that a much greater and more sustained investment will be needed if the BRICS countries as a whole are to achieve their goals. Furthermore, these figures do not include the knock-on infrastructure upgrade costs that renewable energy generation will create. India alone will need a further $26bn over the next ten years to update its grid.
But more is going to be done, starting with an announced increase in the loans available from the NDB. “The development bank has actually declared that they were targeting to expand and increase their support of energy development this year,” Sharda says. “Their target is actually about 35% percent of the overall public capital required.” This large increase could make all the difference.
At present, despite impressive advances in renewable capacity in the BRICS countries, some look set to miss their targets. If the NDB and other multilateral development banks and financial institutions manage to increase investment, the BRICS could have a massive effect on the environmental damage currently being created by their energy systems. Their success will be evident across the next ten years and beyond, and will be keenly anticipated around the world.
