Regional Approaches to Energy Investment Bring Efficiency in Pacific Islands

Article | 7 September 2017

New infrastructure financing facilities aim to support the shift to renewable energy sources across the Pacific. #RenewableEnergy

Energy sector development in the Pacific requires a different investment approach. The region’s small economies and geographically dispersed populations typically necessitate a higher volume of relatively small investments, when compared with the lower volume of large projects being implemented in other developing member countries across Asia.

From the development perspective, working with small communities allows donor partners to provide rapid impact: Installing a 1 megawatt solar photovoltaic system can bring a rural town from 0% to 100% electrification in several months—immediately providing new opportunities for income generation, food storage, better health and education facilities, and other tangible improvements to quality of life.

But meeting the energy needs of thousands of isolated island communities—spread across millions of kilometers of ocean and hundreds of subnational jurisdictions and economies—provides a distinct set of challenges.

A regional approach to project financing

“ A regional approach to project financing can help capitalize on economies of scale and lower transaction costs.”

The process for administering finance remains similar across projects of varying sizes, making it more time consuming to invest in a series of small unbundled projects than it is to finance a single, large-scale initiative.

A regional approach to project financing can help capitalize on economies of scale and lower transaction costs.

The Asian Development Bank (ADB) is collaborating with donor partners, the Secretariat of the Pacific Community, and national and subnational governments to pioneer swift and flexible financing approaches that will meet unique regional needs. Doing so will reduce the processing time for investments and deliver more impact faster.

Deeper collaboration, greater private sector engagement

The Pacific Region Infrastructure Facility and the Pacific Renewable Energy Investment Facility are designed to improve development effectiveness across the Pacific region; they support deeper collaboration, greater private sector engagement, and more efficient project management.

The Pacific Region Infrastructure Facility (PRIF) was launched in 2008. It aims to improve development effectiveness and the sustainability of infrastructure investments by strengthening coordination among development partners; improving policies and regulations; improving infrastructure cofinancing; and improving the capacity of Pacific island countries to prioritize, plan, develop, and maintain infrastructure investments.

The facility covers 12 Pacific island countries and supports 5 infrastructure subsectors—energy; information and communication technology; road, aviation, and maritime transport; urban development; and water and sanitation.

The Pacific Renewable Energy Investment Facility, created in 2017, will streamline ADB and donor partner investments in the smallest 11 Pacific island countries consisting of the Cook Islands, the Federated States of Micronesia, Kiribati, Nauru, Palau, the Republic of Marshall Islands, Samoa, the Solomon Islands, Tonga, Tuvalu, and Vanuatu.

The target countries face similar development challenges including small populations, limited resources, remoteness, and vulnerability to natural disasters.

“ADB is rapidly expanding our financing for renewable energy in the Pacific. We have a strong portfolio of 13 renewable energy projects in 9 of the targeted 11 small Pacific economies over the next 3 years,” said Anthony Maxwell, Principal Energy Specialist from ADB’s Pacific Department.

“The facility was developed to respond to the growing demand from the region and will provide innovative financing mechanisms and upscale support for the countries' sector reform programs. This is the first time ADB has developed such a facility in the Pacific”.

The facility will support the target countries as they transform their diesel-based power systems to sustainable renewable energy generation sources. It includes cumulative ADB financing of up to $200 million. ADB will also be sourcing additional cofinancing to support the facility which will streamline ADB internal procedures to enhance its ability to process small-value projects faster with lower transaction costs.

The projects will include solar power, wind power, hydropower, and grid rehabilitation. The first three projects to be supported under the facility will be in the Cook Islands, Tonga, and Vanuatu. It will also support regional approaches for energy sector reform, private sector development, and capacity building.