MANILA, PHILIPPINES - The Asian Development Bank (ADB) and its development partners are setting up a facility that will provide seed capital for renewable energy and energy efficiency projects in the Asia-Pacific region amid growing energy demands and high oil prices.

ADB and the United Nations Environment Programme (UNEP) are developing the Seed Capital Assistance Facility that will be funded by a $4.2 million grant from the Global Environment Facility, which was established in 1991 to help developing countries fund projects and programs that protect the global environment.

The Seed Capital Assistance Facility will be jointly managed by ADB and UNEP. It will provide technical assistance to private equity fund managers and entrepreneurs to develop sustainable clean energy funds and financing for the early stages of such projects, share in the costs of development and transactions, and encourage taking riskier portfolios through a seed capital return enhancement offered on a per-project basis.

The facility will increase access to financing at the early stages of sustainable energy enterprises and projects in the Asia-Pacific region. With increased experience among financiers in investing in small-scale renewable energy and energy efficiency projects, mainstream energy investors will be encouraged to invest more in clean energy enterprises and projects.

"By 2010, Asia is expected to account for nearly a third of global greenhouse gas emissions, so to slow that down, increases in investment in renewable energy, energy efficiency and other clean technologies are needed," said Mu Shin Kim, Investment Specialist of ADB's Private Sector Operations Department. "This facility will play a role in supporting a number of clean energy private equity funds in which ADB invests."

Many Asian governments have recently announced ambitious targets on renewable energy. However, to date, the implementation of renewable energy and energy efficiency and other greenhouse gas mitigation projects across the region has been slow compared with overall energy sector growth. For instance, only 2% of total electricity in Asia comes from renewable sources. This is partly due to the risks attached to investing in such ventures.

From a commercial perspective, the supply of energy services through renewable energy or efficient energy technologies is often considered new and too small and risky. As a result, many investors are not willing to provide equity finance or seed capital to such projects.