Annual investment in clean energy in emerging and developing economies needs to more than triple by the early 2030s to meet rising energy demand and align with the climate goals set out in the Paris Agreement, a report has shown.
Clean energy spending is required to rise to as much as $2.8 trillion from $770 billion in 2022, the International Energy Agency and the International Finance Corporation said in a report on Wednesday.
“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 Fatih Birol, the agency's executive director.
“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.”
Two thirds of the finance for clean energy projects in emerging and developing economies, excluding China, will need to come from the private sector, the report said.
Private financing for clean energy in those economies needs to increase to about $1.1 trillion per year by the end of the decade, compared with current spending of $135 billion, the agency and the IFC said.
The report said that blended finance, where public funding is used in partnership with the private sector, will help reduce project risks.
Strengthening regulations, energy infrastructure and improving access to finance can help governments overcome challenges that deter renewable energy investments, including the high cost of capital, the report said.
“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,” said Makhtar Diop, IFC's managing director.
“To address the pressing energy demands and emissions reduction goals in EMDEs [emerging and developing economies], we need to mobilise private capital at speed and scale and urgently develop more investable projects.”
Concessional financing will play a key role in projects that involve newer technologies that are not “cost-competitive” in many markets such as battery storage, offshore wind and low-emissions hydrogen, the report said.
About $80 billion to $100 billion of concessional finance will be needed every year by the early 2030s to attract private investment at the scale necessary for the energy transition, the report said.
It also highlighted the potential for issuing more green and sustainability-linked bonds for project financing.
A range of cross-cutting policy issues such as fossil fuel subsidies, lengthy licensing processes and unclear land use rights create barriers to investment or raise the cost of clean energy projects, the report said.
“Lifting these barriers will help emerging and developing economies benefit more fully from the opportunities of the new global energy economy.”
Investment in clean energy is set to reach $1.7 trillion this year, outpacing spending on fossil fuels, as countries look to address potential energy shortages, the agency said in a report last month.
Global energy investments in 2023 are projected to reach $2.8 trillion, with more than 60 per cent allocated for clean technologies, including renewables, electric vehicles, nuclear power and heat pumps, the Paris-based agency said in its World Energy Investment report in May.
