Oct 27, 2021
The Climate Investment Funds (CIF) and BloombergNEF have released a joint report that identifies the role that financial intermediaries can play in mobilizing clean energy investment in emerging markets, with a focus on clean power and transport.
While many countries are still recovering from the pandemic, they are also attempting to meet climate commitments and transition to a net-zero economy. Unfortunately, developing and middle-income countries lack the resources and conditions to attract the large-scale investments needed to fund new, clean-energy technologies to decarbonize. The joint report explores opportunities to involve largely untapped intermediaries, such as institutional investors, to mobilize clean power investment; examines the history of fund-deployment and fundraising activities in emerging markets; analyzes four successful financial intermediary case studies; and finally uses its research on five country-specific “clean energy finance roadmaps” to show idealized routes for achieving far greater scale by 2030.
The report’s in-depth analysis of four case studies shows how successful financial intermediation was applied in the clean power space at various stages of country’s transition to lower-carbon power sources. One example, is the early-stage intermediation of CIF’s Scaling Up Renewable Energy in Low Income Countries Program (SREP) at the Honduras Renewable Energy Finance Facility (H-REFF). Honduras, one of the poorest countries in Latin America, was interested in moving away from fossil fuel use and investing in clean power such as electricity. Unfortunately, their market wasn’t attracting private finance via foreign direct investment due to a perception of high political, financial and country risk of an early-stage renewables market. H-REFF was created to bridge this private finance gap and SREP funding was key to drawing in capital commitments from other entities. An initial $24 million loan secured a further $34 million in co-financing, including resources from the private sector and other sources. The SREP grant also supported capacity building and knowledge sharing for both H-REFF and the local community. And provided social and environmental training for investee companies along with community development support and due diligence practices on H-REFF.
Additionally, the report looks at how financial intermediation make an immediate difference in today’s climate. Such as recognizing that efforts to improve access to capital are most effective where financial ecosystems are least developed thus ensuring that resources are deployed to places with the greatest need and potential. It acknowledges that because development finance institutions (DFIs) have good standings their support and financing can de-risk energy-transition investment and draw in investors who might normally pass over these opportunities. The report also notes that there is a lot of potential and capital for emerging markets in energy transition investment, but financial intermediaries need to help them access debt in international markets and the burgeoning sustainable debt market.
Finally, CIF and BloombergNEF look at roadmaps that offer possible pathways to decarbonizing the power sector in India, South Africa, Indonesia and Morocco, as well as the transportation sector in Brazil. The report reviews the types of capital most appropriate for use by country and sector type. One example, is the recommendation that Indonesia address fossil-fuel overcapacity and break down barriers to renewables deployment. By reforming tariff caps, operating a national auction program, and initiating a moratorium on coal plants followed by the technology’s phase-out, the country could further promote clean power. And it recognizes that DFI-backed intermediation could help play a role in unlocking funding for commercial projects and decentralized energy.
Learn more:
- Report: Multiplying the Transition: Market-based solutions for catalyzing clean energy investment in emerging economies
- 2030 Brazil Roadmap
- 2030 India Roadmap
- 2030 Indonesia Roadmap
- 2030 Morocco Roadmap
- 2030 South Africa Roadmap
- Press Release: Market Based Solutions Critical to Accelerating Energy Transition
- Launch event: Multiplying the Transition: Market-based solutions for catalyzing clean energy investment in emerging economies
