Governments take two general approaches to building sustainable energy markets: first, by setting overarching regulatory, tax and incentive frameworks that foster private investment in the sector; and second, by using targeted public funding to fill or overcome specific financing gaps and market barriers that currently block the growth or transformation of these markets, and that the private sector does not address.  The second approach is increasingly emphasised by governments at the national level, and there is currently a great deal of experimentation in the design and implementation of public finance mechanisms to support sustainable energy technology innovation, commercialisation and initial deployment.

This second, targeted financing function by the public sector has become a priority for a number of reasons.  One is the acknowledged need for a technological revolution in the energy field, and a technology innovation track to complement emissions trading and regulatory incentive structures.  Another is that, regardless of how much incentive the private sector is given, there are certain market barriers that it cannot overcome and financing gaps that it cannot fill.  Moreover, while the market is able to drive structural change in the energy sector on its own, the pace of that change needs to be accelerated beyond its current pace in order to meet energy targets for the future.

However, whereas the more macro regulatory function of the public sector within the clean energy arena has received a healthy degree of attention at the international policymaking and institutional level, the more micro, niche financing function has not.  A conspicuous institutional gap has existed in the international arena for structuring exchange and collaboration among public finance practitioners.  The targeted financing role of government is critical, yet the managers of these public funds have little structured means of comparing or coordinating efforts with their international peers.

The SEFI Public Finance Alliance ("SEF Alliance") is the first attempt to fill this gap. It was established by the United Nations Environment Programme (UNEP), with the support of its Collaborating Centre BASE (Basel Agency for Sustainable Energy) and the U.S. Clean Energy Group (CEG), as a specialised international platform that groups together public and publicly-backed institutions that are financing development of the clean energy markets in their respective regions.  

There is general acknowledgment among members that sufficient commercial expertise exists to help them structure and implement commercial financial instruments, but when it comes to instruments with a broader public mandate or structure, very little useful experience exists and agencies mostly have to develop the knowledge in-house through experience of what works and what does not.  The aim is therefore to improve agency effectiveness by working together to evaluate different financing instruments, to share experiences of what is working and to increase the pool of expertise and knowledge in this area.  Another key aim is to enable members to pool resources and launch join projects, thereby improving overall cost-effectiveness.

A successul prototype for this platform has existed since 2003 in the United States, where fourteen clean energy funds and two state agencies joined together to create the Clean Energy States Alliance (CESA), managed by the Clean Energy Group (CEG). The SEF Alliance takes the CESA model to the international level.  CEG supports the management of the SEF Alliance, bringing its experience with CESA to bear on this effort.  This is a strong compliment to the location of the entity within the UNEP, which brings the international legitimacy and institutional reach of the United Nations; and to the experience of BASE, which is a partner in implementing the UNEP Sustainable Energy Finance Initiative (SEFI).