IEA: Bridging the investment gap is key to spurring clean energy growth in developing nations

Jakarta – The International Energy Agency (IEA) has released a report underscoring the critical need for a dramatic increase in clean energy investments in emerging and developing economies outside China.

Despite the global surge in clean energy financing, reaching an estimated USD 1.8 trillion in 2023, a staggering disparity exists, with less than 15 per cent of this investment directed towards nations that account for 65 per cent of the global population and a significant portion of the world’s GDP.

The report highlights a stark reality: to align with the global objective of capping temperature rise to 1.5 °C, clean energy investments in these regions must soar more than sixfold, from the current USD 270 billion to USD 1.6 trillion by the early 2030s. This monumental task is further compounded by the necessity to triple the availability of concessional finance, primarily sourced from international development finance institutions, within the same period.

A focal point of the report is the dire need for investments across various sectors, emphasising utility-scale solar and wind projects, electricity networks, and the development of energy-efficient buildings and appliances. Despite the cost-effectiveness of clean energy technologies like solar PV and onshore wind in many regions, the prohibitive cost of capital in emerging and developing economies—more than double that in advanced economies—remains a formidable barrier to progress.

IEA Executive Director Fatih Birol stresses the importance of making financing more accessible, stating, “There are huge, cost-effective opportunities for emerging and developing economies to meet their rising energy needs with clean technologies, but financing has to be affordable as well.” He advocates for reducing risks through clear and timely regulation as a critical first step towards attracting investment, bolstered by increased financial and technical support from the international community.

The report reveals that nearly all required investments are in mature technologies and sectors with proven policy success formulas. This indicates that most funding needs through 2035 rely on something other than emerging technologies. This suggests a pathway to a clean energy transition that is feasible and grounded in existing solutions.

Commissioned by the Paris Summit on a New Global Financing Pact in June 2023, the IEA’s report builds on previous analyses. It includes data from a new survey conducted by the IEA’s Cost of Capital Observatory. Covering countries like Brazil, India, Indonesia, Mexico, South Africa, Kenya, Peru, Senegal, and Vietnam, the report offers in-depth insights into the financing cost risk factors across seven clean energy sectors in emerging and developing economies (EMDEs). It provides concrete recommendations and case studies from various regions to address the significant challenges faced in financing clean energy projects. (nsh)

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