A problem can sometimes be an impetus for development, but only when looked at from the correct perspective. This is the approach taken by the International Finance Corporation (IFC), a member of the World Bank Group. Recently, participants at the Kyiv International Economic Forum discussed how climate change can lead to Ukraine reaching new levels of economic and infrastructure development. To understand how this would work, Kosatka Media met with IFC’s Climate Business Director Alzbeta Klein and head of IFC’s regional office in Ukraine, Belarus, and Moldova, Jason Brett Pellmar, who were panelists at the Forum.
Ms. Klein, in your podcast Here's how innovation will power the green revolution, you say that business leaders will have to change their way of thinking to reconcile profits with the best interests of the planet and reduce our dependence on fossil fuels. In your opinion, is Ukrainian business ready for such a change? What out-of-date beliefs will it have to abandon in the near future?
Alzbeta: As we said at the Forum, the business of climate is a business for everyone in the world, not just for certain countries. Particularly, it’s a business for emerging markets because they are still constructing new buildings, affordable housing, new transport corridors, and new factories. You have the opportunity to build them climate-smart and green, rather than in an old way and refurbish them later. I worked in Eastern Europe and I’ve seen how many buildings in this part of the world had to be refurbished because they were leaking energy due to badly insulated windows. This costs the economy a lot of money. So, Ukraine has the unique opportunity to do everything that you’re doing now, but to just build it climate-smart rather than restructuring it later.
Jason: I think this is a tremendous opportunity for Ukraine to do a lot of things that Alzbeta mentioned. In fact, many of our clients are already doing these things. For example, we helped our advisory client IMC to increase yields by reducing water and energy use and also to adopt innovative technology—like drones—to become more productive and more efficient.
We do the same for clients in other sectors of the economy like in infrastructure and our Cities program. The mayor of Mariupol approached us to help come up with green urban transport. With our advisory and financing, he recently procured environmentally-friendly buses that will replace marshchrutkas and reduce emissions. That is the first of many projects that are already in the pipeline.
We just signed an agreement with the mayor of Zaporizhzhia to help develop a smart city. And another last week with OTP Leasing to enable green leasing for agro companies and transportation. It is the first green-leasing project in Ukraine, which is a great testing ground for such projects. I'm very proud that our advisory programs on improving business regulations and food safety was born in the Kyiv office and then went global. So, following up on the main topic of the Kyiv International Economic Forum, Ukraine can become a leader in many areas.
IFC will help find ways to stimulate private sector investments in energy-storage projects under the terms of an agreement signed with Ukrainian authorities in October, Are there any precedents in other countries where private investors came forward for such projects?
Alzbeta: Energy storage is key to the growth of renewable energy worldwide. Two years ago, the World Bank Group announced an initiative to grow energy storage, both through advisory to governments and through investments in battery storage. We, at IFC, have already invested in several companies that are in energy storage. Some are successful, some are in a start-up mode, but the point is that these investments are already happening.
We're also observing that in some countries, for example India, when governments conduct auctions for renewable energy projects, they don't ask for just solar, they ask for solar plus storage; when they ask for wind, they ask for wind plus storage. And that stimulates growth in the business because companies will have to come up with solutions that incorporate both renewable energy and storage and bid at a price that combines the two.
Five years ago the prices of energy storage were quite high, but they are coming down very fast because of innovation and technology. I’m not going to make any loud statements about the future, but I will tell you that in a very short timeframe, we will be able to invest profitably in storage.
Jason: It is really an exciting technology and, in Ukraine, it's arguably necessary. There are very few sources of balancing power in Ukraine. With all of the new renewables coming, storage is essential. The work that IFC has undertaken, based on the agreement we signed, is to look at commercial and technical models that will work in Ukraine. We already have started engaging consultants for this and I am personally looking forward to seeing the results of what we come up with. It’s essential that we get this right for Ukraine to support the renewable energy market, which is growing very rapidly.
IFC is actively implementing projects to modernize Ukrainian urban and transport infrastructure. Are there previous examples of successful improvement of inefficient systems?
Alzbeta: Here are a few highlights of what we have done in transportation, both with new transport models and current ones. For example, we funded a subway in Turkey and high-speed routes for energy-efficient buses in several countries. We also invested in high-speed bus lanes and bicycle lanes in Buenos Aires. We have helped convert existing bus fleets into more efficient CNG and natural gas buses, like we are doing in Mariupol. We’ve done it in many middle-income countries that are at the same level as Ukraine and we have done it successfully.
Jason: In Mariupol, we are getting a comprehensive idea of what's necessary to improve in urban infrastructure. Once we complete this initial phase, there are a number of engagements that we can do together with the city to develop its urban infrastructure. There are also projects in waste management and water treatment that we can assist with.
Are similar projects planned in the energy sector? For example, in the field of power-grid upgrading?
Alzbeta: Basically, when we look at a city, we take a comprehensive approach. Every city has more than one problem and those problems are very often similar to the problems of other cities. It is always related to transport and how to get people from where they stay to where they work, it’s about connecting poor areas to the center, it’s about waste management and recycling. We start with advisory to the city to map out what needs to be done, look at the priorities that the mayor of the city has, and then develop an investment program to help make the city more climate-smart.
Jason: Both the World Bank and IFC are active in the energy sector. The World Bank is taking the lead in funding priority areas and that opens up opportunities for the private sector and for IFC. In the case of Ukrzaliznytsia, once we have private locomotives, once we have the ability to concession out certain parts of the road, IFC can engage and mobilize private sector investment.
Back to the energy sector, a few sub-sectors of the energy sector are of particular interest to IFC. We talked earlier about energy grids, which belong to distribution companies. There is an opportunity to privatize those distribution companies if the state makes them commercially attractive and we can work together with the World Bank to do so.
Also in the energy sector, in addition to battery storage, we are working with the EBRD to implement auctions. Our latest success was in Uzbekistan, where we achieved one of the lowest tariffs seen in emerging markets—2.7 cents per kilowatt hour, which compares to 15 cents per kWh in Ukraine.
Ukraine needs to move with auctions very quickly and IFC has the expertise and track record to help with that.
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