An array of troubling geopolitical incidents and the increasing number of climate-related adverse incidents have clearly demonstrated the necessity of speeding up the transition to energy. These events have also given credibility to the incentive to shift to renewable energy sources.
On a national level the goals for decolonization and climate change are prompting investors and states to think about expanding their portfolio allocations to energy and climate transition assets.
For example, the landmark climate legislation passed by US Senate on August contained the investment of $369 billion in clean and sustainable energy as well as climate change. Other commitments from developing economies, for instance Indian prime minister Narendra Modi’s ambition to reach net-zero emissions by 2070 reflect the amount of consciousness worldwide to speed up the transition to renewable energy.
Financing the green transition
In order for clean energy transitions to be successful institutions, corporations and government agencies must boost the amount of money they invest in renewable infrastructure worldwide especially in developing and emerging economies. They must also access private markets. India’s goal of net-zero emission is expected to require a $1 trillion in investment. But information gaps and short-term ism pose a challenge for investors who want to create and invest in green energy assets. There is a lack of clear and reliable information on unlisted returns on assets, as well macro- and asset-specific financial risk, limit the participation of investors.
A recent study has shown the fact that investing in infrastructure for renewables is beneficial both from a financial and climate viewpoint. If compared with the wider unlisted infrastructure market for renewables that aren’t listed are 22% higher in the global market and 33.5 percent more when it comes to emerging markets as well as emerging economies.
Renewables as well as larger infrastructure assets that are not listed provide advantages of diversification when credit events occur and also against fluctuations in macroeconomic conditions like the price of commodities.
However, many other challenges remain, some of which are worse by the poorer countries. Insufficient data, a lack transparency in the non-listed sector, the lack of flexibility risks to credit issues, regulatory hurdles, and currency issues are all the obstacles to investment.
Opportunities in renewable energy sources
Despite these dangers and limitations there is a chance for both governments and investors to work together and lower the risk of early-stage funding for renewable infrastructure that is required to gain momentum.
One way to do this is by encouraging and investing in a specific green energy yield co. UK Climate Investments (UKCI) is a joint venture formed by Aquamarine’s Green Investment Group (GIG) and the UK Government’s Department for Business, Energy and Industrial Strategy (BEIS) has invested into Revego Africa Energy Limited, together with Investec along with Eskom Pension and Provident Fund.
Revego is a specialized yield business that focuses on potential opportunities to invest equity to invest in operating renewable energy projects within Sub-Saharan Africa, whose portfolio currently comprises 600 MW of wind and solar projects. Combining expertise and financing of a private investment as well as a patron, local pension funds from a public utility fund, and an expert public climate finance investor The fund was able crowd in the required capital by spread the risk.
The frameworks for climate finance should continue to evolve to help channel investment in clean energy in developing and emerging economies.
The Cost of Capital Observatory
One of these initiatives involves one of them is the Cost of Capital (CoC) Observatory created in collaboration with the International Energy Agency (IEA), Imperial College London, ETH Zurich and the World Economic Forum. It is designed to overcome barriers of investing in renewable energy sources by filling in the lack of reliable information and increasing the transparency of investments in clean energy within emerging markets. The Observatory exposes the major factors which increase the cost of capital in developing and emerging economies. The Observatory also highlights areas when, using accurate empirical data De-risking initiatives have proven efficient in reducing the expense of capital needed for renewable energy projects.
In 2030, the annual investment in clean energy in developing and emerging economies need to be multiplied by over seven -up from less than $150 billion in 2021 up to more than $1 trillion to get the world on track to have zero emissions by 2050. In order to facilitate that transition and achieve the goals of climate change initiatives like The Cost of Capital Observatory will identify which areas to focus attention and highlight the risk which are more common in emerging economies.
The transition from the fossil fuel-based energy system in developing and emerging economies requires adjusting to the risk factors like off-taker, stranded assets, transmission network , and risk of land acquisition and also preparing for national macro-economic events like the governing body of the country and fluctuations in currency.
The CoC Observatory Dashboard provides a unique database that compares the costs of capital across five energy technologies in emerging economies. The data will be made available through the IEA website and will be announced during the Clean Energy Ministerial meeting held in Pittsburgh on September 21st to 23rd.
The CoC Observatory is a useful tool for populating available cost of capital information for developing and emerging markets, additional risk-reducing tools and mechanisms to coordinate efforts to distribute risk are required. This platform could aid in those developments by providing the trustworthy actual data required to create the solutions. For instance multilateral institutions can play a crucial roles in de-risking new projects in emerging markets by making sure that the project meets the highest standards for climate and compliance and can help set an appropriate contract and financing frameworks for renewable energy initiatives.
In order to boost investment in unlisted renewables within emerging countries, we require accommodating climate policies, transparent performance measures, reliable information and risk management strategies.
All pillars have to be united to increase the amount of renewable energy infrastructure in the developed and emerging countries to guarantee a long-term sustainable global future Only that way will we be able to ensure that we reach net-zero by 2050 and prevent a catastrophic climate catastrophe.