Where is the Dominican Renewable Energies Fund?

This series of blogs explores current mechanisms in place to finance renewable energies in the Dominican Republic. Be sure not to miss Part 1 on the Dominican Republic’s clean energy entrepreneurs, and Part 2 and Part 3 on the Dominican Republic’s efforts to incentivize clean energy production.

The Dominican Republic established a fund to develop renewable energies that generates its revenue from a 5 percent levy on the country's fossil imports. In 2010, this represents 177 million US dollars. Source: Vital Signs Online, 2011, Worldwatch Institute

To help incentivize the development of renewable energies in the Dominican Republic, Law 112-00 of January 2000 established a national fund to develop renewable energies. The law creates “a special fund from the tax differential on fossil fuels in order to finance projects of great national interest for the promotion of alternative, renewable or clean energy and energy savings.” Generating its revenues from a 5 percent levy on the country’s fossil fuels imports, the fund would help to finance projects for the promotion of alternative, renewable or clean energy, and energy efficiency. Law 57-07 further stipulates that the fund, managed by the national energy commission (CNE), will also help pay for the nation’s renewable energy feed-in-tariff.

Worldwatch calculations – based on data from the Central Bank of the Dominican Republic – show that a 5 percent levy on the annual total import value of fossil fuels could have generated more than US $171 million in 2010, and more than US $100 million annually over the past 5 years, to help pay for the development of renewable energy technologies, playing a key part in the Dominican Republic’s energy transition.

Calculation of a potential 5% levy on oil imports for the Dominican Renewable Energies Fund,

Source: Subdirección de Balanza de Pagos, División de Análisis de Exportaciones e Importaciones a partir de informaciones suministradas por la Dirección General de Aduanas (DGA) y empresas del sector privado, Dominican Republic, Worldwatch calculation

 

However, a survey of existing literature and interviews with government officials revealed that the actual implementation of the fund has not taken place. The final evaluation report by the Gesellschaft für Internationale Zusammenarbeit (GIZ, former GTZ) of a project supporting the development of policy and legislative frameworks for renewable energies in the Dominican Republic, states that in 2007, difficulties arose when the Dominican Ministry of Industry and Trade (SEIC) and CNE negotiated the implementation agreement for the management of the fund. The two partner institutions were not able to agree on a clear division of responsibilities – partly because CNE was at that time a relatively new agency in the construction phase – and did not agree on which institution should be in charge of managing the fund.

Amongst many other reasons analyzed in previous posts, a lack of availability of capital through concessional loans, of risk mitigation mechanisms, and of technical know-how are all major barriers to the deployment of commercial renewable energies projects in the Dominican Republic. Were the fund to exist, it would be a cornerstone in the Dominican Republic’s financing mechanism for renewable energies to address these financial and technical barriers.

In countries where the capital market is not ready to finance renewable energy projects adequately because of a structural lack of capital, awareness, and experience, creating a specialized financial institution is a good way to leverage the amount of private capital necessary for renewable energy, even when short-term gains are not evident. Other countries’ energy agencies, such as the Indian Renewable Energy Development Agency (IREDA) and Chile’s Production Development Corporation (CORFO), have successfully developed national funding institutions to foster renewable energy development. The design of these funds varies between countries by their financial sources, governance systems, and the types of financial vehicles that they have to offer. Renewable energy funds in developing countries often draw on a mix of domestic and international finance: for example, India’s IREDA was created from a seminal grant from the Global Environmental Facility, and continues to receive funding from the World Bank today. In the case of the Dominican Republic, the government could consider diversifying the source of revenues for its domestic fund. Technical assistance from international donors could support the government in establishing a fund, and once set-up, it could become a major domestic instrument to access international climate finance for renewable energies and mitigation technologies.

The Dominican Republic has a comprehensive set of policies in place to harness the great potential for renewable energies in the country and to increase the share of renewable energies in its energy portfolio. Although comprehensive laws to incentivize the deployment of these technologies have been passed during the past five years, the country still faces challenges in their implementation. The lack of sphere of the newly established CNE amongst other players in the energy sector, as well as the lack of cooperation amongst the actors in the sector has made implementation and enforcement of the law challenging. However, recent signs of success such as the development of the country’s first utility-scale wind farm and an increased interest in the tax exemptions for import and production of clean energy technologies shed light on a promising future for renewable energies in the Dominican Republic.

This piece closes the blog series on current mechanisms in place to finance renewable energies in the Dominican Republic. Be sure not to miss Part 1 on the Dominican Republic’s clean energy entrepreneurs, and Part 2 and Part 3 on the Dominican Republic’s efforts to incentivize clean energy production.

Supported by the International Climate Initiative of the German Government, Worldwatch currently works on Sustainable Energy Roadmaps for the Dominican Republic, Haiti, and Jamaica.

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clean energy, Dominican Republic, environmental policy, finance, green power, low-carbon, renewable energy finance, renewable energy sources