The International Energy Agency (IEA) in collaboration with the International Finance Corporation (IFC) has unveiled a seminal report titled “Scaling Up Private Finance for Clean Energy in Emerging and Developing Economies”. This report underscores the pressing necessity for a substantial escalation in investments within these economies to accommodate the sustainable surge in energy demands and to ensure adherence to climate objectives.
Investment Imperative and the Role of Private Finance
The report accentuates the need for clean energy expenditure in emerging and developing economies to triple by 2030 to align with the trajectory towards net-zero emissions by 2050. This signifies an increase from $770 billion in 2022 to an estimated $2.8 trillion by the early 2030s, a target that surpasses the capabilities of public financing, thereby necessitating an extraordinary mobilization of private capital.
In this context, the report underscores the pivotal role of private finance in this transition. It projects that approximately two-thirds of the finance for clean energy projects in emerging and developing economies (excluding China) will need to originate from the private sector. This necessitates an escalation in private sector investment from the current $135 billion to an estimated $1.1 trillion per annum within the forthcoming decade.
Overcoming Investment Barriers and the Potential of Green Bonds
The report identifies and proposes strategies to surmount key barriers to clean energy investment in emerging and developing economies. These barriers encompass relatively high initial costs, elevated cost of capital, and regulatory impediments. The report advocates for the fortification of regulatory frameworks and the enhancement of access to finance as pivotal strategies to attract private investment. It also estimates a requirement of $80-$100 billion of concessional financing annually by the early 2030s to attract private investment at scale for projects involving nascent technologies that are yet to achieve cost-competitiveness in numerous markets.
Moreover, the report underscores the potential of green, social, sustainable, and sustainability-linked bonds in financing the clean energy transition. It emphasizes the necessity for industry guidelines, harmonized taxonomies, and robust third-party certification to ensure the credibility of these financial instruments.