A new report released by the International Energy Agency (IEA) and the International Finance Corporation (IFC) reveals that annual investments in clean energy in emerging and developing economies must more than triple, from $770 billion in 2022 to as much as $2.8 trillion by the early 2030s, in order to meet growing energy demands and align with the climate objectives outlined in the Paris Agreement.
The report, titled “Scaling Up Private Finance for Clean Energy in Emerging and Developing Economies,” highlights the insufficiency of public investments alone in achieving universal energy access and addressing climate change. It emphasizes the importance of leveraging private sector capital in partnership with increased public funding through blended finance to mitigate project risks. According to the report, two-thirds of the finance for clean energy projects in emerging and developing economies (excluding China) should come from the private sector. The current annual private financing of $135 billion for clean energy in these economies needs to reach up to $1.1 trillion within the next decade.
The IEA’s Executive Director, Fatih Birol, stresses the urgency of rapidly scaling up private financing, as public financing alone falls short of meeting the investment needs. This increased private financing offers numerous benefits, including expanded energy access, job creation, industry growth, enhanced energy security, and a sustainable future.
The report calls for greater international support in terms of technical, regulatory, and financial assistance to unlock the clean energy potential in emerging and developing economies. Strengthening regulatory frameworks, energy institutions, and infrastructure, and improving access to finance can help overcome current barriers to clean energy investments, such as high upfront costs and capital expenses.
IFC’s Managing Director, Makhtar Diop, underscores the need to mobilize private capital quickly and on a large scale to address energy demands and emission reduction goals in emerging and developing economies. The report serves as a call to action and provides a roadmap for meeting both climate and energy objectives.
Concessional financing is identified as crucial for projects involving newer technologies that have yet to scale or are not cost-competitive in many markets, such as battery storage, offshore wind, renewable-powered desalination, low-emissions hydrogen, or projects in riskier markets. The report estimates that $80 billion to $100 billion of concessional finance will be required annually by the early 2030s to attract the necessary private investment for the energy transition in emerging and developing economies outside China.
The report also highlights the potential of issuing green, social, sustainable, and sustainability-linked bonds, provided industry guidelines, harmonized taxonomies, and reliable third-party certification are established. It emphasizes the opportunity presented by platforms that aggregate and securitize multiple investments, bridging the gap between the relatively small size of energy transition projects in emerging and developing economies and the minimum investment size required by major institutional investors.
Policy reforms in emerging and developing economies are essential to expanding opportunities for private investors. Addressing cross-cutting policy issues, such as fossil fuel subsidies, lengthy licensing processes, land use rights uncertainties, restrictions on private or foreign ownership, and inadequate pricing policies, will remove investment barriers and reduce the costs of clean energy projects. These reforms will enable emerging and developing economies to fully benefit from the opportunities presented by the evolving global energy economy.