Clean energy investments in both emerging and developing economies must triple to as much as $2.8 trillion per year in the early 2030s from $770bn last year to meet rising energy needs and meet the targets of the Paris climate agreement, the International Energy Agency and the World Bank’s International Finance Corporation said.
Public investments should be used in partnership with private capital to reduce projects risk in a concept known as ‘blended finance’ to reach energy access and climate goals, the two entities said in their joint report ‘Scaling Up Private Finance for Clean Energy in Emerging and Developing Economies’.
Two thirds of the finance for clean energy projects in emerging and developing countries (outside China) will need to come from the private sector, the report said, with annual private financing needing to rise to as much as $1.1 trillion a year within the next decade.
“Today’s energy world is moving fast, but there is a major risk of many countries around the world being left behind,” IEA executive director Fatih Birol said.
“Investment is the key to ensuring they can benefit from the new global energy economy that is emerging rapidly.
“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.
Governments can overcome obstacles that deter clean energy spending today that lead to high upfront costs and a high cost of capital by strengthening regulatory frameworks, energy institutions and infrastructure, and improving access to finance, according to the IEA.
“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,” IFC managing director Makhtar Diop said.
“To address the pressing energy demands and emissions reduction goals in EMDEs [emerging and developing economies], we need to mobilize private capital at speed and scale and urgently develop more investable projects.”
The report also said some $80-100bn in concessional finance for projects that involve newer technologies and aren’t yet cost-competitive in many markets will be needed per year by the early 2030s to attract sufficient private investment.
It also stressed the need for policy reforms, citing fossil fuel subsidies, lengthy licensing processes, unclear land use rights, restrictions on private or foreign ownership, and inappropriate pricing policies as creating barriers to investment and increasing the cost of clean energy projects.