Renewable energy needs equal partnership between public and private
Nicholas Anderson argues about secure channels of public finance for renewable energy and clean technology development in India.
Nicholas Anderson, Independent Financial Advisor and Former Senior Vice President at Swedish Export Corporation, Sweden and Former CEO and President of Finland’s Municipality Finance Plc. Mr Anderson worked to develop municipal banks for structured regional development.
Innovations’ Accelerator (IA): You have had an extensive history in finance and infrastructure. What are some of the key lessons you feel stand the test of time, with regard to developing sustainable infrastructure solutions?
Nicholas Anderson (NA): Infrastructure in the meaning I give it is basic infrastructure that is a public good that relates to basic public services as defined by the politicians of that country. This means that there are laws saying that the government or local/regional government must provide minimum basic services to residents and that these basic services are paid for by taxation and fees. In the Nordic countries basic services means, kinder gardens, school education, tertiary education, healthcare, care of elderly, public transport including roads, law enforcement, security, town planning, waste management and water. Energy, heat, heating and cooling are also included but their position is waning as a public service. In all of these areas the investment in this infrastructure is paid for by long term debt, taxation and user fees. The debt is borrowed by the state and local/regional government that enjoys the highest credit rating (AAA/Aaa) and lowest cost of long term funding. The planning, building, maintenance and operating costs are borne mainly by a skilled and competent public sector with assistance from private sector actors. However, the public sector is ultimately responsible to residents to ensure the correct provision of these services even when the private sector has been commissioned to be a service provider. Experience over the long term shows the following key matters:
The public sector can be an efficient provider of these services. It is a myth that the private sector has a monopoly on efficiency. The public sector must be on an equal footing with regard to competence when outsourcing to the private sector. The latter will always take advantage of public sector weakness resulting in inferior and more costly basic services.
IA: In your previous positions, you have worked to leverage finance for large scale infrastructure projects. How do you think the market is different for perhaps traditional infrastructure projects, and the new world of renewable energy?
NA: Some parts of renewable energy are still a sector that is more costly and more risky than traditional energy sources. Solar, wind and ocean power technologies are still evolving. Parts of energy from biomass and sewage/waste are now part of traditional infrastructure investments and represent little risk and are cost effective for fuels, heat and cooling. It takes time and resources to create the necessary infrastructure but it is all available in a cost efficient manner with assistance from professional engineering and financial consultants.
It is also worth remembering that traditional energy infrastructure is also turning out to be very risky. Nuclear power stations can breakdown and pollute. Coal-fired station pollute the air and cause huge health problems and we are just beginning to face the high costs of climate change with more volatile weather bring on floods, draught and devastating winds.
IA: The articles you have written, and the work you have done, relies heavily on the role of municipal authorities as core actors in the ability to develop robust and sustainable infrastructure solutions. Tax and the ability to tax is a key part of the muscle municipalities can exercise in their development. How do you see this translating to the current situation in India, where there isn’t that ease of accessing public finances?
NA: As I mentioned above it is the public sector that has to “carry the can”. The municipal banks did not appear from outer space – they were created by the statutory action and by voluntary action by local government. Each of the 4 municipal banks have different histories. I created the Finnish “Municipality Finance Plc.” www.munifin.fi in 1989 and that was based on a voluntary action by all the municipalities. Later we had legislation passed to secure a joint guarantee system for funding on the domestic and international bond markets. Sweden’s Kommuninvest was based on voluntary action in 1986, Norway’s Kommunalbank had legislation in 1926 and like Denmark’s KommunKredit in 1889! All of them work closely with their central governments. There is nothing to stop the Indian authorities doing the same… It is never too late because the private sector banks will never lend a helping hand – they only take advantage of the public sector’s inertia and groundless willingness to pay too much for funding!
IA: You have worked in India looking at waste to energy potential in the urban context. What would you say, from your specific work in India, is the optimal role and division of responsibilities for public and private actors to make the potential of waste to energy in India a stronger reality?
NA: Waste to energy from solid waste and from sewage needs to be championed by public sector players working with the best engineering advisors. I know India has them – the stumbling block is the lack of efficient municipal/regional banks that can issue highly rated long term bonds on the domestic and international markets. Central government should not be the source of all the funding through the central government budget. Regional and local government should be weaned off handouts and grants from central government and take responsibility for ensuring that they have the necessary revenues and funding for sustainable investments in such infrastructure. Energy and clean water are essential to development and locals must pay for what they need.