Global energy investment is at an all-time high, but developing countries are losing ground and private capital can be used to help curb that gap because emerging markets are key to worldwide energy transition, according to a report from BloombergNEF and the Climate Investment Funds.
The report says there are largely untapped opportunities in mobilizing clean energy investment. It specifically offers a clean energy finance road map for improvements by 2030 for five countries – India, Brazil, Indonesia, Morocco and South Africa.
By doing so, the report gives examples from around the world in how financial intermediaries are mobilizing clean energy investments in emerging markets, focusing on clean power and sustainable transport. It also examines the growth of raising funds for these areas and deploying them.
According to the report, energy transition investment hit a record high in 2020 at $501 billion, although most of that was concentrated in wealthier nations.
Challenges remain globally with such investment. BNEF says emerging markets play a key role in advancing energy transition especially considering those markets will account for 68% of global power demand by 2050, emphasizing the need for creating clean and renewable power.
In fact, while global energy investment is at an all-time high, it has decreased in developing countries. In emerging markets, investment in renewable energy fell to $137 billion in 2020, which is the lowest level since 2016 and down from a high of $194 billion.
“Public climate finance is not an unlimited resource,” Climate Investment Funds CEO Mafalda Duarte, CEO says. “One of its critical functions must be to unlock and redirect significant private investment to where it can deliver social impact and climate action. Achieving this requires continuous innovation, not just in the world of technology but also finance.”
The report suggests development finance institutions kick start growth by investing in and entering new markets and adding technology. It also says they can help grow renewables in these areas by increasing the investment chain and improving use of already established tools in the areas.
While confidence in renewable energy investment is at historical highs in nations like the United States, private investment for renewables in developing countries can face roadblocks, including lack of adequate financial systems and regulatory systems. Also, a lack of experience and financial and other resources can make funding difficult.
Green and sustainable bonds are one way to help fund renewable energy transitions, but the report also outlines ways private financing can be advanced as well as programs such as leasing back solar assets, for example.
These still can be hurdles for what is established in the emerging markets. For example, while green bonds are exploding like other funding opportunities, their issuance is down in India. In 2020, $2.7 billion of green bonds were issued in the country, down from $5.5 billion in 2019.
India saw overall assets put toward renewable energy fall to $6 billion in 2020 off a high of $13 billion in 2017. South Africa even saw power generation drop over the past year, according to the report.
The report says many of those obstacles were worsened by the COVID-19 pandemic whereas wealthier countries were more able to mitigate that problem.
Currently 44% of power is generated by coal in these areas, heightening the importance of clean energy transition, the report says.