Finance | Advancing investment
A comprehensive report by the International Energy Agency (IEA) and the International Finance Corporation (IFC) underscores the urgent need for substantial increases in annual clean energy investments in emerging economies. To meet rising energy demands and align with Paris
Agreement climate targets, investments must surge from $770 billion in 2022 to around $2.8 trillion by the early 2030s. This report highlights private sector involvement, blended finance strategies, and concessional funding for novel technologies as key drivers. Examples from countries like India and Bosnia and Herzegovina illustrate the transformative potential of such investments, not only in clean energy but also in flood protection initiatives, providing a roadmap to a more sustainable future
A NEW REPORT FROM the International Energy Agency (IEA) and the International Finance Corporation (IFC) highlights that in order to fulfill the growing energy demands and adhere to the climate objectives outlined in the Paris Agreement, yearly investments in clean energy within emerging and developing economies must increase by over threefold. Specifically, these investments will need to rise from $770 billion in 2022 to approximately $2.8 trillion by the early 2030s. The study, titled “Scaling Up Private Finance for Clean Energy in Emerging and Developing Economies,” underscores that relying solely on public investments would prove inadequate in achieving both universal energy access and addressing climate change. The optimal approach involves combining increased public funding with private sector investments to mitigate project risks – an approach broadly referred to as blended finance. As outlined in the report, around two-thirds of the funding required for clean energy initiatives in emerging and developing economies (excluding China) must originate from private sector sources. While the current annual influx of $135 billion in private funding for clean energy projects in these economies serves as a foundation, this figure will need to escalate to as much as $1.1 trillion per year in the coming decade. “Today’s energy world is moving fast, but there is a major risk of many countries around the world being left behind. Investment is the key to ensuring they can benefit from the new global energy economy that is emerging rapidly,” said IEA Executive Director Fatih Birol. “The investment needs go well beyond the capacity of public financing alone, making it urgent to rapidly scale up much greater private financing for clean energy projects in emerging and developing economies. As this reports shows, this offers many advantages and opportunities – including expanded energy access, job creation, growing industries, improved energy security and a sustainable future for all.” The report underscores the imperative for increased global assistance in terms of technical expertise, regulatory enhancement, and financial backing to unleash the latent potential of clean energy within emerging and developing economies. Through the enhancement of regulatory structures, bolstering energy institutions and infrastructure, and facilitating better financial accessibility, this support can aid governments in surmounting existing hurdles that currently impede investments in clean energy. These
38 | September 2023 |
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challenges include notably steep initial expenses and elevated capital costs. “The battle against climate change will be won
in emerging and developing economies where the potential for clean energy is strong but the level of investments is far below where it should be. To address the pressing energy demands and emissions reduction goals in EMDEs, we need to mobilize private capital at speed and scale and urgently develop more investable projects,” said IFC Managing Director Makhtar Diop. “This report is a call to action and offers a clear roadmap on what is needed to meet both climate and energy goals.” Additionally, the report recognizes the significance of concessional financing for ventures centered around novel technologies that haven’t achieved widespread adoption and remain less cost-competitive in several markets. This pertains to technologies like battery storage, offshore wind, renewable-powered desalination, low-emissions hydrogen, and those situated in more precarious markets. According to the report’s projections, a yearly injection of $80-$100 billion in concessional finance will be imperative by the early 2030s. This infusion is vital for drawing in private investments at the magnitude necessary to facilitate the energy transition within emerging and developing economies, excluding China. Another discovery underscores the possibility of
increasing the issuance of green, social, sustainable, and sustainability-linked bonds, contingent upon the establishment of industry standards, unified taxonomies, and dependable third-party validation. The report elaborates on the prospects within platforms that consolidate and bundle numerous investments, potentially addressing the incongruity between the comparatively modest scale of energy transition initiatives in emerging and developing economies and the significantly larger minimum investment thresholds demanded by significant institutional investors. In order to broaden avenues for private investors, the
report accentuates the necessity for policy overhauls within emerging and developing economies. An array of overarching policy concerns, including issues such as fossil fuel subsidies, protracted licensing procedures, ambiguous land use rights, limitations on private or foreign ownership, and inadequate pricing strategies, collectively erect obstacles that impede investments or escalate the expenses associated with
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