 Man fallar oss tåkning av att det business klimat tillbaka det business klimat till reduce risks. En av Janik Le Marke från UNDP är sköna tåk morbart. Vad har det riktigt minn? To remove risks in the morning he talked about the market. The green market transformation. But how do you really do this? What are the best ideas for that? Please welcome Mr. Janik Le Marke. Yes, this morning I made the bold claim that market transformation approaches held the promises of scaling up climate mitigation efforts worldwide. And I've been given by the organizer a chance to further dwell on this issue. How do we do it in practice? What does it mean? The as mentioned by Africa is in the middle of an energy crisis. You have about 30 percent of the people only that have access to electrifications. The total consumption of energy consumption of Sub-Saharan Africa is less than the state of New York. And if you take South Africa out is far, far, far less. And they won't be any kind of development in Africa unless we can increase the power generation capacity of the countries. It's a preconditions for development. And how to do it? The building additional coal fire power plant is not an option. It's not an option from a climatic viewpoint, but it's not an option from an economic viewpoint either in the sense that most of the non oil producing african countries already spend more than 10 percent of their GDP on oil imports. And there is a limit to the percentage of the GDP that they can use. At the same time, Africa has splendid, wonderful renewable energy resources. So you need power. You don't want to spend more, a higher percentage of your GDP on oil import. And you have huge renewable energy resources that could create a lot of green jobs. It seems that we have a perfect situation. But here again, as mentioned this morning, the problem is that nothing happens in these countries because these countries cannot get access to long term affordable finance. So why is long term affordable finance so important for renewable energy? One could say that that's the same for coal fire plant. If you cannot access money for coal fire plant, you cannot access money for renewable energy, etc. Actually it's different because of the financial profile of these technologies. When you invest in a wind power, you have to invest a lot, a lot of money upfront. And in exchange of this upfront investment, after you have very, very low operation and maintenance costs, you have no fuel costs. So renewable energy technologies, and this is also true for energy efficiency, are capital intensive upfront. But after they are very affordable technologies. Now if you compare this with a coal fire plant or gas fire plant, there your initial investment is relatively modest. But after you have all the fuel costs. No, which one is the most competitive? Which of these two profiles is the most attractive for investors? The answer is not about the technology. The answer is about the cost of the money. It's not the technology cost that tells one from the other one is the cost of financing. For example, in Europe, if you compare the cost of wind, good site, wind power with combined cycle gas turbine, the most affordable fossil fuel base power generation, it's more or less the same. And it's slightly more expensive, but when you internalize the external cost, it's much less expensive to go for wind. So wind is already competitive vis-à-vis any kind of fossil fuel technologies in Europe. No, the same technologies, exactly the same technologies, but this time you move to Africa, to an African country. There suddenly the cost of wind turbine is 40% more expensive than the combined cycle gas turbine. Why? Because the cost of money is not the same. In Sweden, the cost of debt must be around 5% for a wind power project. But the cost of debt will be more about 8 to 10% in an African countries. The cost of equity here might be 9%, 10%, the cost of equity in Africa will be 15%, 18%. And this has a huge bearing on the competitiveness of these technologies. If you buy your house with a loan at 5%, you will have to reimburse 1.5 million dollars. If you buy your house, if you take 1 million dollar loan at 5%, you will have to reimburse in total 1.5 million. If you buy the same house with a debt of 12%, you will have to reimburse 3 millions, the double. So the key issue is not about the technology, it's about the cost of financing that technology. And this difference of cost, as I mentioned this morning, reflect, perceive or actual investment risk. And basically investors are asking higher interest rate as a compensation for this investment risk. And so the concept of market transformation is to remove these barriers, remove this investment risk to lower the cost of financing and increase the attractiveness of renewable energies. Now I've been asked to illustrate that concept with a very specific example. And in consultation with the organizers, we decided to go for South Africa in Africa. Why South Africa is because it's one of the hardest nuts to crack because South Africa has a lot of coal and coal is very cheap. So if you make it in South Africa, you can make it anywhere else, almost in Africa, plus South Africa has an expertise, has an assembling capacity, local manufacturing capacity that will basically totally transform the African continent. South Africa has the potential to play a leadership role in that field. So making it happen in South Africa is not a small thing. So how do we do, how do we move ahead in South Africa when 100% of the power comes from coal and when actually people need additional power and they don't have so much money to buy for it. The good thing in South Africa is that you have a political commitment. The government is under pressure to reduce greenhouse gas emissions as part of the international negotiation and came with a very big target of 8.6 gigawatt of wind power within 20 years, 20% of the energy. So we have the key ingredient, political vision, political ingredient, political commitment. How do we build on it? And so what you do, as I mentioned this morning, is that you look at what are your barriers, what are your risks and what kind of policy instruments can you use to remove this risk. Now there are three to four thousand different public measure instruments to remove risk. I was mentioning the funds this morning, the public policy instruments that basically is the same. But actually among this three or four thousand policy instruments you have a few instruments that are the center of any market transformation exercise, what UNDP called cornerstone policy. And for renewable energy it's basically mandated price and grid access mechanism, some things that give to independent power producer a guarantee access to the grid and a guarantee price for 20 years. So it can be a power purchase agreement, it can be a feeding tariff, it can be anything such as any kind of RPS. And so in the case of South Africa for our modeling, South Africa originally wanted to go for a feeding tariff after went for an auctioning process that provide a power purchase agreement and access to the grid. So this is your cornerstone strategy and we try to model what will be the impact of coming with a number of additional policy initiative to streamline the licensing process to increase the local supply of expertise, etc. On the final total cost of incremental cost of renewable energy. And so there we started by looking at what is the cost of equity for example in South Africa compared to the best in class, which is Denmark and Germany and what are the different risk that are behind this increased cost of equity, increased cost of debt and after we model the impact of different type of model of instruments and for example, strengthening the market policies, strengthening the grid integration, reducing the grid integration risk, etc. And so we came to the conclusion that actually one could reduce the cost of equity from 15% to 13.8 and the same for debt from 7.5 to 7. So it doesn't seems to be a lot. All that work for that. My last slide. The most user friendly. Actually when you change 1.2% in your equity and 0.5% in your cost of debt, you change a lot of things. For example, the incremental cost, the additional cost of wind power versus coal in South Africa for 8.6 gigawatt will fall from 7.2 billion dollars to 4.9 billion dollars. So you save a lot of money, more than 2 billion dollars and you catalyze 16 billion dollars of private sector investment. It's a very good business to invest in policies. Here again, like my father was saying, we need an investment environment and it's a good business to have a good business environment. The example in terms of public tax payer money for 1 dollar that you invest in policy change in reducing investment risk, you save 57 dollars that you will have to invest in compensation in subsidies. So it's much cheaper to remove risk than to compensate for risk through performance based payment. So let's get rid of your risk first and after you compensate for whatever you cannot remove. But in South Africa, the cost of wind power will still be slightly higher than coal and so in the case of South Africa, it will be important to find a way to basically finance this remaining 4.9 billion dollars over the next 20 years because in a poor country you cannot ask the country to do everything on its own. So one could imagine that 50 percent of that money could come from an increase in tariff and 50 percent will come, for example, from global carbon markets. The cost of the price of carbon will not need to be very, very high after the risking project, 8 dollar a ton. So what are we speaking, we will be speaking about 2, 2.5 billion dollars over the next 20 years. So 100 million dollars a year in carbon finance to basically change a market that can change Africa and be a real solution to the energy crisis. As far as I'm concerned, it's a good deal.