Digital Energy Islands
Small Island Developing States (SIDS) are one of the most vulnerable regions in the world. SIDS are recognized as a distinct group as they tend to share similar sustainable development challenges (UN-OHRLLS). They are dispersed around the globe, but categorized into three geographic regions: the Caribbean; the Pacific; and the Atlantic, Indian Ocean, Mediterranean and South China Sea (AIMS). To facilitate international collaboration, each of these regions established a regional cooperation body: the Caribbean Community, the Pacific Islands Forum and the Indian Ocean Commission respectively.
Although SIDS are among the least responsible for the anthropogenic climate change, they are likely to suffer most from its adverse effects. Besides their exposure to higher frequency and severity of temperature anomalies, one of their greatest threats is the progressive rise of sea levels. It is projected that the mean global sea level will rise by at least 0.26 m to 0.82 m by the late-21st century (IPCC). The sea level rise poses a major threat to the inhabitants of SIDS. A large part of the population may be forced to abandon their homes. To give you a glimpse about what is happening: in the Maldives and Tuvalu, 100 % of the total land area is less than 5 meters above sea level. A large amount of this terrestrial area will likely become uninhabitable. However, not only will the land area for residents be reduced, but so too will the availability of an even more valuable & scarce resource: freshwater volumes will shrink significantly due to saltwater intrusion into aquifers.
Electricity generation is the main contributor to global warming. The anthropogenic acceleration of climate change is not a threat to our way of living someday in the future, but it is already a threat today. Annual global emissions are approx. 38 Gt CO2, whereas energy related emissions alone account for 30 Gt CO2 (IPCC, 2010). These include emissions that originate from different energy sectors such as transport or heating, although nearly half of it was caused by the conversion to electricity alone (12 Gt CO2). Thus, increasing energy efficiency and replacing carbon intensive sources for electricity, such as coal & oil, with solar & wind power, seems to be a decent strategy to slow down our contributions to global warming. CO2 emissions could be cut down is significant. These potential reductions have been known for some time, so why is the decarbonisation of our energy system taking so long?
“Social dilemmas occur when incentives for individuals are misaligned with group interests. According to the ‘tragedy of the commons’, these misalignments can lead to over-exploitation and collapse of public resources.” (Hilbe et al.)
It seems obvious that we need well-coordinated global collaboration to tackle climate change. Who could be better suited than the United Nations to strengthen such international alignments? As a successor to the Millenium Goals, the UN 17 Sustainable Development Goals are meant to be achieved between 2015–2030. Let’s have a look at the current status of one particular goal, Sustainable Development Goal 7 “Affordable and Clean Energy” (SDG 7) :
Access to electricity. About 13% of the world’s population still lives without electricity. Being connected to some form of electricity source alone is not sufficient — one must also be able to afford to use it. Among SIDS, the Caribbean region is the most advanced with an electrification rate of 87 %, followed by the AIMS with 42% and the Pacific with 37%.
Access to clean cooking. More than 40 % of the world’s population does not yet have access to clean fuels and technologies for cooking. Regarding access to clean cooking on SIDS, most of them are rather well advanced. The Caribbean leads again (93%), followed by the Pacific (83%) and the AIMS (61%).
Share of renewable energy. As of 2015, the world obtained 1/5 of its total final energy consumption from renewable sources, including biomass, hydropower, wind, solar, and others. Currently, AIMS SIDS are having the highest share of renewables (24%), somewhat more than the Pacific SIDS (20%), with the Caribbean SIDS the the least advanced (15%).
Reducing the high oil dependency of SIDS. Nearly all SIDS are net importers of fossil fuels (Trinidad & Tobago being one of the rare exceptions). On average, more than 90 per cent of the energy used by SIDS comes from oil imports. The main uses of fossil oil-based products include fuel for electricity generators to power industrial machinery, refrigeration, air conditioning, lighting, and household appliances. This results in SIDS having one of the most expensive electricity costs in the world:
The use of other fossil sources such as coal or gas is limited, thus largely exposing the economies of SIDS to changes in the international price of oil. This excessive dependency on oil leaves SIDS susceptible to external economic shocks. Given the adverse economic impacts of high oil prices, the majority of SIDS have actively sought to mitigate associated financial risks through promoting investments in renewable energy systems. Some of the most ambitious renewable energy targets have been set by the Cook Islands, Cabo Verde, Fiji, Saint Vincent and the Grenadines, Vanuatu, and Samoa. Each of them aim to increase their share of renewable energy in the electricity mix by up to 60% and even 100%. And it makes sense, not only from a “planet saving perspective”, but also from a pure “business perspective”. Renewable energy (RE) is already the cheapest source of electricity.
The key barrier for the large-scale deployment of RE is that compared to conventional power plants, RE cannot draw on an entire global infrastructure that has specifically been designed to accommodate its use. RE can be either squeezed into the existing infrastructure or it can develop its own. Due to the modular nature & low operational expenses, RE systems are favored where economies of scale do not justify grid extension, for example in regions where demand is low, or which are far from electrified centres. The dispersed nature of SIDS thus seems to offer an ideal fit.
However, among the challenges with off-grid systems on SIDS are a dearth of trained personnel, a lack of funds (and parts) for maintenance and reparation works on these systems. Project developers face a chronic shortfall of technical, financial and business development skills in SIDS, which increases the perceived risk of investment.
The need for suitable financial mechanism. The vulnerabilities of SIDS, stemming from their geophysical and economic features, often lead to narrow tax bases, limited cash surpluses, low levels of international reserves, inadequate capital formation, and insufficient levels of domestic credit. Combined, these factors constrain the ability of SIDS to mobilise greater public and private domestic resources or international private finance. Foreign direct investments and other private finance flows are highly volatile and on average contribute little to SIDS external sources of financing: only 12% in 2012–2015. Owing to large diasporas, remittance represent the largest flow of external finance for SIDS: 52% in 2012–15. Concessional finance, usually from international development banks, is the second largest flow of external finance on aggregate. (OECD, 2018)
Owing to their specific circumstances and development challenges, breaking dependence on international official assistance will not be easy for some SIDS; for others, it will remain a critical resource to meet specific development needs. However, global climate change funds typically involve significant transaction costs — in the case of the Clean Development Mechanism, $200,000 is common — which limits their ability to fund small-scale projects.
The high financial risk is already complicating the growth of investment in SIDS, investment that is urgently needed to enable local sustainable development efforts. With the growing severity of global warming, these risks will increase even further. Being well-aware of this downward spiral, novel financial instruments to counter this risk must be introduced. Climate finance commonly is categorized in two types of investments: for climate mitigation and for adaptation. While mitigation represents the actions taken to reduce the our contributions (e.g. using solar energy to replace fossil power), adaptation is the responsive adjustment to an environmental condition (e.g. desalination system). In other words, adaptation measures are needed in regions where climate change is no longer politely knocking on the door but already stepped into the house. SIDS are among the very first regions in the world that must actively adapt to climate change today:
Small Island Developing States (SIDS) are confronted with tremendous prospective impacts on their way of living due to climate change. On top, they are largely exposed to changes in the global economy and depending on international support to being able to adapt. On the other side, the ongoing energy transition seems to offer a way forward to more local, resilient development, while at the same time supporting the global target to reduce GHG emissions. However, although the direction seems somewhat clear, the scale at which these clean energy technologies are being deployment is still largely insufficient.
In the second part, I will share some thoughts on how the emergence of the digital economy can support the acceleration of the local energy transition on SIDS, by introducing Digital Energy Assets.
