GET FiT – Effectively coping with the challenges of climate change and the fight against poverty
GET FiT supports one of Deutsche Bank's core activities: financing renewable sources of energy. We are also an internationally recognized partner for the public sector regarding strategic initiatives that address the global challenges of climate change and poverty.
GET FiT — Global Energy Transfer Feed-in Tariffs Program
GET FiT was developed in January 2010 by experts of Deutsche Bank Climate Change Advisors. The Advisory Group on Energy and Climate Change (AGECC) of the Secretary General of the United Nations had asked Deutsche Bank’s experts to present new concepts for promoting renewable energy investments in developing regions.
The objective of GET FiT is to combat climate change and the lack of available energy by supporting investment in capital intensive renewable energy sources in emerging and developing countries.
In light of budget constraints as well as a lack of investor confidence in the governments of developing countries, GET FiT accepts that international support will be required to scale up renewable energy generation capacities. The concept combines mechanisms and structures of the public and the private sector and creates an innovative public-private partnership:
The developing country government and/or electricity regulator (the public sector of the developing world) supports renewable energy projects by implementing appropriate regulatory schemes for renewable energy generation. Fixed payments for generated electricity as well as priority treatment of renewable energy are crucial for facilitating private sector investments.
The public sector of the developed world “upgrades” the existing regulatory environment in the developing world. It creates transparency, longevity and long-term security for private sector investors and consequently mitigates actual and perceived risks, which the developing country's government alone could not accomplish. In order to achieve this, the public sector should absorb the credit risk in relation to the single offtaker of electricity (counterparty risk guarantee). Bilateral and multilateral development partners might also offer financial support for feed-in tariff payments (burden sharing with the developing country).
Building on the improved risk profile and economic viability of renewable energy investments, the private sector is expected to deploy capital in the devloping country. The private sector absorbs all manageable risks, particularly technological and operational risk.
GET FiT: minimizing perceived risks
These public sector financing mechanisms address key issues that generally inhibit more private investment in renewable energy in developing countries — in particular the lack of creditworthy off-taker structures, significant (perceived) political risk as well as a lack of financial viability of investments due to low feed-in tariffs. GET FiT targets a fair risk allocation between the public and the private sector and allocates risks to the party which is best positioned to manage it. This also makes GET FiT a cost efficient support mechanism.
The GET FiT fund concept is unique and innovative in its philosophy and approach. By offering a comprehensive support package, it goes well beyond the conventional wisdom of how to promote private investment in renewable energy.
Building up a stable regulatory environment
The creation of a stable regulatory environment in developing countries (“enabling environment“) rather than project-based support for individual developers increases transparency and visibility for the private sector and reduces opportunity costs in new markets.
GET FiT continues to attract interest from public sector stakeholders in the developed and developing world, and influences international negotiations on financing for international climate change projects. In cooperation with KfW, Deutsche Bank has developed a feasibility study for a GET FiT pilot in Uganda. The pilot is close to implementation, with support from various bilateral and multilateral development partners and the Ugandan government, as well as the electricity regulator.
First financial contributions have been announced by the governments of the United Kingdom and Norway. By supporting the GET FiT concept, Deutsche Bank is committed to advancing renewable energy supplies and helping to combat climate change.
“The pioneering Get Fit program is providing the key elements for bankable mini hydro projects in Uganda, thus enabling a true PPP. Without the Get Fit program a number of projects which can deliver much needed power would not be financed.”
15 clean power stations
8 mn tons
possible reduction of CO2 emissions in Uganda
“GET FiT can increase electricity generating capacities in Uganda by 20% – with clean energy.”
Interview with GET FiT Lead Analyst Silvia Kreibiehl
In very simple terms, what is GET FiT?
GET FiT is the abbreviation for Global Energy Transfer – Feed-in Tariffs for developing countries: it is a concept for facilitating private sector investments in renewable energies in developing countries. It describes a combination of existing as well as innovative instruments and mechanisms which makes it possible to create a strong enabling environment in an efficient manner.
Why is GET FiT necessary?
Renewable energies can play an important role in combating climate change as well as energy scarcity in developing countries. However, many technologies are very capital intensive and require significant investments – in particular from the private sector. However, the investment climate in developing countries is often much less attractive than in Germany, for example. In Germany investors benefit from a strong and stable regulatory environment as well as the excellent creditworthiness of the utilities, which are obliged to pay the feed-in tariff. This means that investors can be very sure that they will achieve their targeted returns – and due to the low risk the required risk margins in financing costs are low. This in turn results in lower generation costs for renewable energies and stronger competitiveness with traditional energy sources. The support mechanisms provided by GET FiT will help to stabilize the regulatory framework for renewable energy in developing countries and will create an enabling environment to attract the private sector.
What is Deutsche Bank’s motivation for driving strategic initiatives like GET FiT?
Besides its leadership in the core business areas of renewable energy financing, in its role as “climate ambassador” Deutsche Bank is a trailblazer in strategic initiatives addressing the global challenges of climate change and poverty as well as a well-respected sparring partner of the international public sector. We strongly believe that we - as a good corporate citizen - have a responsibility to explain why we do things and why we cannot do others and what needs to be done to allow us to overcome barriers. That is what we have done in our GET FiT research. Following Deutsche Bank’s extensive work on the GET FiT concept we have decided to also support preparation of the pilot as well and to “walk the talk”. Deutsche Bank is a reliable and resilient partner and we remain committed to complex and long term projects.
Following more than one year of lobbying work for the GET FiT concept among public sector players, Deutsche Bank has entered into a “joint venture” with KfW to develop a GET FiT pilot in Uganda. Why Uganda?
Uganda has been a leader regarding reforms in their energy sector and had already implemented a feed-in tariff regulation for renewable energies in 2007. Right from the very beginning of GET FiT, the CEO of the Electricity Regulatory Authority as well as the ambassador of Uganda in Germany have showed great interest in GET FiT and have been valuable partners. In addition, the German development cooperation with Uganda has a longstanding track record in the energy sector. All in all, we were convinced that Uganda would take on strong ownership of the project and be a reliable and motivated partner. The Ugandan government, the Electricity Regulatory Authority as well as the other Ugandan stakeholders have not disappointed us!
The UK government recently announced its financial support for the GET FiT pilot in Uganda. Is the job done now?
The first financial commitment of a donor marks a very important milestone for us and we are very proud and optimistic. Following more than a year of preparatory work we are nearly there. We are confident that additional donors as well as a guarantee provider will come on board soon. At that point the “enabling environment” will be created and in place.
However, GET FiT requires more than that – driven by the improved investment climate the private sector has to develop, finance and realize projects. We already see a good pipeline and are confident that initial projects will start construction in the course of 2013 and will be connected to the grid in 2014.
What will happen next? Will Deutsche Bank clients have an opportunity to participate in GET FiT projects?
As mentioned above, that work for the private sector has just started. The GET FiT public sector facility will call for project proposals, which means that project developers will have the chance to apply for the GET FiT support mechanisms. Following acceptance of the projects, structuring of project financing will be a crucial process. Deutsche Bank is working closely with local banks to put together financing packages that reflect the significantly improved risk profile of the investments.
Deutsche Bank will consider investment opportunities for our clients once the projects have completed the construction phase and once a decent portfolio has been built up.
What will be the impact of the GET FiT pilot in Uganda?
GET FiT will help cover the strongly increasing demand for energy in Uganda in a clean and reliable manner. Load shedding as well as the massive use of dirty and expensive emergency power based on fossil fuels will be avoided.
The GET FiT pilot for Uganda has an initial volume of approximately 125 MW, i.e. based on current assumptions and the financial commitments of the donors as well as the guarantees, which are sufficient to support projects with total volume of 125 MW. Compared to the current installed electricity generation capacity in Uganda that represents an increase of 20%. Assuming that electricity will replace fossil fuel-based emergency power, GET FiT will abate approximately 8m tons of carbon over the span of the projects.
In addition to these direct impacts, we are confident that GET FiT will achieve much more: sustainable reduction of renewable energy generation costs and massive development of the financing sector. Based on the strong track record of the GET FiT pilot, we hope that medium-scale renewable energy projects will become an integral part of a least-cost development path for the energy sector.