The battle to limit global warming to 1.5°C hinges on a clear and decisive shift in financial flows toward renewable energy projects in emerging markets and developing economies (EMDEs), that are home to more than half of the world’s population and receive less than 15% of clean energy investment flows. Bruce Douglas, CEO of the Global Renewables Alliance, calls for targeted debt and equity investments to drive this shift, ensuring that these regions can harness the full economic and environmental benefits of the energy transition.

One year ago, at COP28, world leaders forged a historic agreement to triple global renewable energy capacity by 2030, and aligned on an urgent need to shift away from fossil fuels. However, now at COP29, rapid advancements in certain areas – such as record-high deployment in solar PV and declining costs for battery storage – are masking critical deployment gaps in other essential technologies such as windpower, geothermal, hydropower and green hydrogen. More alarmingly, without financing flowing, most EMDEs remain sidelined, deprived of the social, economic and environmental benefits that clean energy promises. This inequity must be addressed.

To truly meet the UAE Consensus tripling renewables goal, global finance for renewable power projects need to almost triple 2023 levels. However, more significant is the urgent need to redirect a fairer portion of this finance to EMDEs. As published in the Pre-COP IRENA-COP29-GRA report, In 2023, 84% of renewable investment was concentrated in China, the EU, and the United States. While for the same year, Africa, home to 18% of the world’s population, attracted a mere 1.6% of global investment in renewable energy – a starkly disproportionate share denying developing economies the benefits of affordable and clean power and jeopardising the global target to triple renewables by 2030. 

At GRA, we are facilitating crucial trialogue discussions among governments, financial institutions, and the renewable energy industry to better understand the challenges behind this crucial issue, as highlighted in the GRA Financing Principles document. As convened during the Global Renewables Summit in New York in September, these dialogues are essential for bridging the gaps in current financing practices, which fail to meet the scale of investment needed for EMDEs.

The global financial system has the capacity to fund the transition, yet debt and equity markets are not fulfilling the volume of financing required for EMDE projects. Based on BNEF, IRENA, and other data modelling, GRA estimates that, for instance, the transition will demand up to USD 6.2 trillion in debt and USD 2.3 trillion in corporate capital by 2030. To meet the tripling target, EMDEs’ share of total investment must rise from 16% to 44% by 2030 – a six-fold increase to roughly USD 533 billion annually.

As industry looks to raise debt and equity to secure the pipeline of projects needed in EMDEs, it is important to understand that these are two seperate sets of partners and require different criteria to be met before they will commit funds. Having said this, a common challenge in securing both debt and equity at reasonable rates and terms is the higher macroeconomic risks faced by many EMDEs which directly impacts country risk premiums. Investment in EMDEs also often has to deal with relatively under-developed domestic financial systems that constrain the role of domestic finance in supporting their countries energy transition. Indeed, in Africa as much as three-quarters of the continents population inhabit countries which are dependent on concessional finance given the lack of domestic capital and considerable debt servicing. Reliance on public funds, including grants and concessional finance, for a significant proportion of the investment needs remains an ongoing constraint.

Refined risk assessments by MDBs, the increased use of blended finance to crowd-in private sector finance, the greater use of guarantees and insurance, as well as currency hedging, could all help leverage more impact from existing public funds. This must come at the same time as assistance to improve regulatory and market structures, to reduce the perceived and real risks in these areas, such as country and project risk, off-taker risk, uncertain regulatory frameworks, unstable policies, uncertainty around grid connection and planning as well as investment, lack of trained workforce, etc.

Ultimately, however, in Africa, where 570 million people still lack access to electricity, the challenge is especially stark and is likely to require more public funds. Renewable project debt financing, which was USD 6.8 billion in 2022, but dropped to USD 3.6 billion in 2023 remains far behind the levels necessary. To support the continent’s transition and contribute to the tripling target, this annual debt financing needs to rise exponentially to average USD 61 billion per year to 2030. Project promoters will at the same time need to provide a compelling business case to their shareholder or equity investors to unlock the 20 billion per year in equity needs.

This example for Africa provides a small peak of the global challenge, while EMDEs share some common obstacles, financing requirements vary widely across regions and renewable energy technologies. GRA is working to identify and address the specific barriers to finance, including credit risks, currency instability, and underdeveloped debt markets and domestic capital markets across regions and jurisdictions. Tackling these requires customised solutions that strengthen investor confidence and improve access to affordable financing.

We face the greatest challenge, perhaps, of the modern era and we know that the global financial system has the resources to finance the energy transition many times over. But success depends on untangling the knots that have constrained exponential renewable growth in EMDEs. At COP29, we must seize this opportunity to mobilise finance, build sustainable energy markets, and lay the groundwork for a clean, secure and just energy future.