Methodology
Climatescope ranks countries on their past, present, and future ability to attract investment for clean energy companies and projects.
Climatescope seeks to bring quantitative rigor to the basic question of what makes a country attractive for clean energy investment, development, and deployment. It seeks to answer this by collecting as much relevant data as possible, then organizing it in a manner that is both easy to consume and empowers users to gain key insights.
Clean energy is defined as biofuels, biomass & waste, geothermal, solar, wind and small hydro (up to 50MW) – but not large hydro. While a number of Climatescope nations have historically embraced large hydro generation to meet local power needs, the study focused exclusively on newer sources of low-carbon generation, both because they are often technologically cutting edge and because they can generally be deployed far faster than large hydro projects, which can take years or even decades to commission.
In this third edition, the index comprises 54 data inputs or “indicators”. These each fall under one of four thematic topics: Enabling Framework (I), Clean Energy Investment and Climate Financing (II), Low-Carbon Business and Clean Energy Value Chains (III), and Greenhouse Gas Management Activities (IV). Each indicator and the parameter it falls under contribute to a country’s overall score but they are not weighted equally. Scores range from 0 to a maximum of 5.
Enabling Framework
The Enabling Framework parameter encompasses fundamental structures and market conditions typically required for a given country to attract investment and interest from financiers, project developers, or independent power producers looking to develop new low-carbon projects, companies or manufacturing facilities. It also takes into account how amenable such structures are to the deployment of distributed generation capacity, such as mini-grids, or residential wind or solar systems.
A welcoming enabling framework is one where: a comprehensive, effective and stable set of rules are in place; the power market structure encourages and adequately rewards new market entrants; the private and public sectors foster universal access to clean and sustainable energy in rural or isolated communities; clean energy penetration of the power and primary energy matrices is ever increasing; adequate price signals are available; and growing demand for power and rapid electrification combine to create a substantial market.
A total of 22 indicators serve as the inputs into Parameter I. These fall into four categories: Policy and Regulation, Clean Energy Penetration, Price Attractiveness, and Market Size Expectation. Each category contributed with varying weights to the overall Enabling Framework parameter score. Five of the 22 indicators were applied exclusively to countries which were assessed under the off-grid focus methodology.
Clean Energy Investment & Climate Financing
Few investors are comfortable with being the first to invest in a new technology or a new region. To rank a country’s ability to attract low carbon investment, it is important to assess its achievements in that regard to date. The Clean Energy Investment and Climate Financing parameter tracks historic investment activity in a given country while laying out financing conditions for future commitments.
In all, Parameter II comprises 11 indicators distributed across four categories: Amount Invested, Fund Sources, Green Microfinance and Cost of Debt. Each of these four categories contributed with varying weights to the overall Clean Energy Investment and Climate Financing parameter score.
Low-Carbon Business & Clean Energy Value Chains
A nation’s ability to attract capital and accelerate low-carbon energy deployment is partly contingent on how many segments of key value chains it has in place. Parameter III sought to take this into account. It included three indicators, with an additional two indicators related to distributed energy companies for the off-grid focus countries.
Greenhouse Gas Management Activities
The Greenhouse Gas (GHG) Management Activities parameter aims to assess the status, risk and potential for carbon offset project activity in a given country. Favorable actions and conditions for this parameter included: a solid track record of commissioned Clean Development Mechanism (CDM) or other offset projects; high success rates for projects seeking CDM accreditation; ample opportunities for further offset project development; forward-looking federal or state-level policies or actions aimed at curbing GHG emissions; and progressive actions from private sector players to adopt projects and measures to reduce carbon footprints.
A total of 13 unique indicators serve as inputs into Parameter IV. These are arranged into three categories: Carbon Offsets, Carbon Policy and Corporate Awareness. The Carbon Offset category measures what countries have done to develop offset projects and measures their potential to continue into the future. It holds the greatest weight toward the overall Parameter IV score at 40%. The other two categories account for 30% apiece.
On vs Off-Grid
Climatescope 2014 assessed nations ranging from low income ones to those firmly considered “middle income”. The methodology as implemented in years one and two of the project fit well for the nations of Latin America and the Caribbean, nearly all of which are considered middle income. But lesser developed nations face substantially different energy challenges, often related to improving basic energy access.
In light of this, Climatescope 2014 includes a special, augmented “off-grid focus” methodology that includes seven additional indicators, with weightings adjusted in the model accordingly. These additional indicators were taken into account alongside the other “on-grid” indicators for a sub-set of 23 Climatescope nations: 18 in Africa, one in Latin America and the Caribbean, and four in Asia. The goal was to level the playing field so that all countries could be compared in the fairest possible manner against one another in a single 55-country list.
To determine which countries would be assessed using the off-grid focus methodology, we devised an initial 0-5 scoring system. Five factors contributed at different weightings to this score; those that scored a 2.5 or higher were considered “off-grid focus countries”. Each factor involved a simply binary question that was used to generate individual scores. The factors included: electrification rate, number of national power outages, duration of outages, power transmission losses, and the Human Development Index.
The off-grid focus methodology’s additional indicators were specifically designed in consultation with outside experts to assess conditions in developing nations. These indicators fell under Climatescope’s first three parameters but had no impact on Greenhouse Gas Management Activities Parameter IV.