Final project : Financing solution that will unlock financial opportunitiesEDX COURSE 03-04/2017 INGE JANSSENS

Summary

Motivation choice of project Context analysis West Bank Main obstacles Proposed solutions

Motivation choice of project

Business and trade cannot succeed without reliable power, roads, and modern means of transportation to get their goods to market. So, investing in energy resources is considered crucial by developing countries and donors

Infrastructure is the backbone of every economy. It delivers basic services critical to sustainable economic growth, improved living standards, and shared prosperity

It can enable local economy, trade and further development of the private sector, which is an indispensable force for economic growth

Amongst energy sources, solar power has enormous potential as an energy source in emerging markets. The cost of solar photovoltaic technology has fallen dramatically—solar PV can now deliver power less expensively and with more long-term price certainty, than coal-fired power.

Context analysis West Bank

As of 2015, Israel and thus West Bank only gets less than 2 % of its electricity from renewable sources

Context analysis

In this context, in complement to energy efficiency measures and solar water heating (SWH are already used by 70% of Palestinian households), using a source of decentralized renewable power such as photovoltaic panels would obviously contribute to reduce both the environmental and financial burden.

Main obstacles

In West Bank difficult market conditions drive up the costs of establishing and running businesses.

Most of local enterprises are located in areas around bigger cities : Hebron, Jerusalem,… they are not located inside the country. Companies often find it more attractive to concentrate on the “easier” market segments, represented by high- and middle-income people in cities.

low literacy levels of beneficiaries (esp. individuals) Utility-scale : it is not interesting for companies if only small amount of solar

technology and grids are needed. Political instability : Risks in fragile markets are significant and different from those in

non-fragile markets. Especially the Israel West Bank bariier

Proposed solutions

Reduce the first loss risk of pioneer investors. Pioneer investors in FCS face a number of risks— including lack of market information, political uncertainty and poor infrastructure. Also, they often see their first-mover advantage disappear as soon as new entrants appear in the market with significantly lower costs and risks. Helping pioneer investors hedge against these risks needs to be an important component in redesigning the use of ODA and the support of MDBs in fragile situations.

In the absence of solid domestic finance in FCS, donor can recommend that public development finance has to be used to support pioneer investors, for instance by

(i) helping to finance better connectedness— digital- and hard infrastructure; (ii) helping to cover part of feasibility study costs for pioneering businesses; (iii) providing capital at below market rates to reduce capital risks; (iv) insuring against political, default and currency risks; and (v) active participation of publicly owned development finance institutions in investment partnerships.

Proposed solutions

scaling-up the use of guarantees by donor’s or international financial institutions. Because of their ownership structures and mandates national or multilateral development banks are well-positioned to insure these risks, and to mediate disputes before they turn into losses. The Government of the donor could decide to open up services of its Investment Guarantee Agency to local SME’s, so that they also can benefice of risk mitigation measures provides normally only to foreign enterprises.

Given the project, to scale-up the amount of panels to get it more interesting for investors, use of funds of Green Climate Fund can be considered

Political risk insurance (PRI) in FCS is traditionally concentrated in the natural resource sectors but is expanding in other sectors such as infrastructure and financial services.

Proposed solutions

Palestinian autohority has to create an environment that provides a better guidance and incentives to investors and SME : Enhance general anticorruption and transparancy efforts; Public procurement reform with standardization contracts and focus on

transparancy, with also focus on SME ; Reform subsidy regulation : give subsidies to sustainable forms of energy

instead of diesel, kerosene and wood; Create a SME-friendly environment, including domestic resource

mobilization adapted to SME, establishing rules on businesses, tax regulation reform.

Proposed solutions

Further, donor’s agency can :

Advice Palestinian Authority to assess the right size and location PV power plants in the country’s grid;

Help to simple ans rapid tendering Assist Palestinian Authority to create bankable project documents that can

speed up financing by private banks, provide blending