Clean energy investments in developing countries, excluding China, account for less than one-fifth of global investment in clean energy. That is part of the findings of a new tool launched on Friday by the International Energy Agency and several partners to track financing costs for energy projects around the world.
The Cost of Capital Observatory provides data on the risks and returns on investment in developing markets’ renewable energy projects. It found that despite having two-thirds of the global population, emerging and developing economies, excluding China, account for less than one-fifth of global investment in clean energy.
According to the observatory, one of the key barriers is a high cost of capital, reflecting some real and perceived risks about investment in these economies.
It suggests that bringing down the cost of capital is a critical lever to attract funds, especially private capital. Policymakers across the world can use the Cost of Capital Observatory to ensure that investments are remunerated in a fair manner, especially when it comes to sectors or projects that need any kind of government support.
This tool is likely to be another armor for the African group of negotiators heading for the UN Climate Change Conference taking place in Egypt in November.
In July. a technical committee of the African Union adopted “The African Common Position on Energy Access and Just Transition”
The position is supported by Uganda and other African countries that have just discovered oil and gas and are in the process of developing those resources but they are being asked by wealthier nations to leave them in the ground to avert global warming.
The European Union Parliament this month adopted a resolution denouncing alleged human rights violations as well as environmental and climate risks posed by the Tilenga and EACOP projects, developed by TotalEnergies in Uganda and Tanzania.
Uganda and the African group have insisted that Africa should be allowed to use their oil and gas as well as environmental and climate risks posed by the Tilenga and EACOP projects, developed by TotalEnergies. Uganda and the African group of negotiators at COP 27 in Egypt continue to push that Africa must continue to deploy all forms of its abundant energy resources including non-renewable and renewable to address the energy crisis in the continent.
Reports have found that only 2% of renewable energy investment from the private sector goes to Africa. Investing in renewable energy sources is very expensive. Uganda’s universal electrification has been costed at $4 billion.
Without investments from the private sector, a country like Uganda has to mobilize those resources from loans and therefore risk plunging itself into huge further debts.
At the global level, the IEA report says there is a lack of transparency about the cost of capital, making it harder for investors to price risk and for policymakers to act.
The IEA estimates that global clean energy investment will increase by more than 10% in 2022 to reach a total of USD 1.4 trillion, but this is due almost entirely to advanced economies and China.
IEA Executive Director Fatih Birol observes that a high cost of capital is a roadblock for investors. He said the data provided by our Observatory is essential to understand how this roadblock can be dismantled.
Bringing down the cost of capital would make a huge difference to the overall costs of energy transitions. According to new IEA estimates, reducing financing costs by 2 percentage points would bring down the investment needed to reach net zero emissions in emerging and developing economies by a cumulative USD 16 trillion over the period to 2050.
Many countries find themselves in a trap, with underdeveloped financial markets deterring investment, and a lack of projects preventing the establishment of reliable pricing benchmarks.
IEA analysis, based on surveys of investors and experts in different countries, has shown that the cost of capital for a utility-scale solar PV plant in 2021 was between two and three times higher in key emerging economies than in advanced economies and China.
As a result, financing costs accounted for around half of the total leveled costs of a solar PV plant, notably higher than the 25% to 30% seen in advanced economies and China.
