ADB investing on clean energy projects

MANILA, Philippines - The Asian Development Bank (ADB) is investing heavily on clean energy projects, expecting to pour in up to $2 billion on these projects by 2013.

In 2008, the multinational lender spent around $1.7 billion on clean energy projects, significantlyup from $230 million in 2003.

Over the next few months, the ADB is looking to channel $700 million from countries to combat climate change. Some of the countries are Australia, France, Germany, Japan, the Netherlands, Norway, Spain, Sweden, Switzerland, the United Kingdom and the United States.

These donors pledged over $6.1 billion in 2008 for the Clean Technology Fund (CTF) and Strategic Climate Fund (SCF). The climate investment funds (CIF) are being made available to multilateral development banks, including ADB, for climate change-related investments.

According to the ADB, money released by the SCF will be in the form of grants. The CTF will issue concessional loans with interest on the loans as low at 0.25 percent for up to 40 years. Risk mitigation instruments such as guarantees and equity will also be available. The money can be tapped for both public and private sector initiatives.

The ADB will use the proceeds of the recently issued Panda bonds worth one billion Chinese renminbi to fund private sector clean energy and energy efficiency projects in mainland China.

The idea is to help reduce currency mismatches for borrowers that have no foreign exchange earnings.

Meanwhile, ADB vice president for finance and administration Bindu N. Lohani said Asia must continue to develop a robust local capital market to diversify funding sources for long-term investments.

“Developing Asia’s bond markets must overcome low liquidity, a narrow investor base, and limited borrower access,” Lohani said.

Emerging East Asia’s bond market has grown since the start of the 21st century, reaching up to $4.2 trillion at the end of the third quarter of 2009.

He said an inactive bond market makes it hard to gauge whether prices are reasonable or not, often leading borrowers to overpay for essential funds while a narrow range of investors leaves markets vulnerable to sudden inflows or outflows of capital.

Emerging East Asia has witnessed impressive corporate bond market growth this year, but lower-rated issuers still have limited or no access to the debt markets.

“This will be particularly useful in helping finance large infrastructure projects with long gestation periods,” Lohani added.