Market-based Solutions Are Critical To Accelerating Energy Transition: Report

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A new report by BloombergNEF (BNEF) and the Climate Investment Funds details how private capital has been successfully leveraged to support renewable energy growth in developing nations – and offers specific insights on how to grow such investment further in key markets. The insights are published as the contentious question of how wealthier nations can better support developing countries to address climate change will be squarely on the agenda as world leaders gather next week for critical talks in Glasgow.

The report ‘Multiplying the Transition: Market-based solutions for catalyzing clean energy investments in emerging markets’, profiles examples from around the globe of how “financial intermediaries” are mobilizing clean energy investment in emerging markets, with a focus on clean power and sustainable transport.

The report examines the evolution of fund-deployment and fund-raising activities in emerging markets and explores four cases where intermediation has achieved key goals. It then discusses opportunities to involve largely untapped intermediaries such as institutional investors in mobilizing clean energy investment. Finally, it applies these findings to five country-specific “clean energy finance roadmaps” that trace routes for achieving far greater scale by 2030.

Despite achieving a record annual high of $501 billion, in 2020 global energy transition investment became more concentrated in wealthier nations, likely due to the Covid-19 pandemic, according to BloombergNEF data. Emerging markets are, however, key to achieving the global energy transition. With rapid economic expansion and improving access to electricity, BNEF expects that emerging markets will account for 68% of global power demand by 2050. This creates an urgent need to not only ensure that new power-generating capacity is clean, but also that existing fossil assets are successfully replaced by renewables. However, the pandemic’s economic impact has strained public finances, and underlined private capital’s role in achieving climate commitments.

“Public climate finance is not an unlimited resource,” said Mafalda Duarte, CEO of the Climate Investment Funds. “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 Climate Investment Funds is among those leading this charge.”

The report’s roadmaps offer possible pathways to decarbonizing the power sector in India, South Africa, Indonesia and Morocco, as well as the transportation sector in Brazil. It then discusses the types of capital most appropriate for use by country and sector type.

“Energy demand is of course growing fastest in countries with the fastest growing economies,” said Ethan Zindler, Head of Americas at BloombergNEF. “Fortunately, these countries also often have the best natural resources, making clean energy typically lowest-cost option. The challenge then is how to deploy funds needed to drive real scale.”

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