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Accelerating Renewable Energy Transition in Emerging Economies
In order to combat climate change and meet global energy demands, renewable energy capacity needs to see a threefold increase, accompanied by a doubling of energy efficiency improvements by 2030. Achieving this level of transformation requires an enormous investment—estimated at USD 31.5 trillion—targeting renewable power, electrical networks, energy efficiency technologies, and conservation measures.
Emerging economies are poised to play an essential role in realizing these investment levels for energy infrastructure. Although many of these nations have pledged to achieve net zero greenhouse gas emissions, they currently lack the necessary financial resources to turn these commitments into tangible actions.
The urgency of addressing climate-related crises has never been more pronounced. The year 2024 marked a significant milestone as it was recorded as the hottest year globally, surpassing pre-industrial temperature levels by 1.5°C. The impacts of climate change manifest across the globe, leading to severe weather events such as floods, droughts, and wildfires, underscoring the gravity of the existing climate emergency. The United Arab Emirates’ Consensus passed at COP28 has crystallized global aspirations for renewable energy advancement and energy efficiency. The International Renewable Energy Agency (IRENA) has been assigned the role of monitoring progress to ensure that these targets are not only met but are also transparent and actionable.
During COP29, a crucial agreement was reached to increase climate financing for developing nations to USD 300 billion annually. While this marks a significant step forward, it still falls short of the estimated USD 3.8 trillion needed per year for a comprehensive energy transition.
Concurrently, important developments occurred in carbon markets under Article 6 of the Paris Agreement, which clarified how countries can engage in carbon credit trading and established standards under a centralized crediting framework. This could potentially introduce new financial flows to emerging economies, especially if coupled with capacity-building initiatives for the least developed nations.
The ‘High-level Panel on Energy Transition Pathways in Emerging Economies’ convened during IRENA’s 15th Assembly, where stakeholders engaged in discussions aimed at expediting the deployment of renewable energy technologies. The talks emphasized the need for harnessing public financing to lower the investment risks faced by private capital in these regions. Participants highlighted their progress toward net-zero objectives, the role of prominent global forums like the G20, and the significance of South-South cooperation in these efforts.
During the session, Gauri Singh, IRENA’s Deputy Director-General, emphasized the necessity of mobilizing financial resources from both public and private sectors, backed by international collaboration and strong supportive policies. She articulated that public funds should be utilized strategically to mitigate risks, leverage private financing, and ensure affordable, long-term funding options for energy transition projects. Singh stressed that collaboration among varied stakeholders in emerging economies is critical for scaling up renewable energy deployment.
Robust energy planning was discussed as a key component in reducing investment risks. Developing comprehensive national energy strategies can clarify priorities for investors and facilitate cohesive action across government and private sectors.
Spain’s Secretary of State for Energy, H.E. Joan Groizard, discussed how proactive policy frameworks and integrated, long-term planning can enhance project bankability. He noted that the Spanish government is actively guiding project permitting, offering clarity on what constitutes a viable project.
The G20 is positioned to serve as a pivotal platform for amplifying investments and enhancing planning within emerging markets through the proposed Global Coalition for Energy Planning (GCEP). This coalition aims to aid decision-making related to financing and investments while showcasing effective energy planning as a foundation for successful energy transition investments.
Further discussions during the ‘Ministerial Dialogue on Innovative Sustainable Finance’ highlighted the vital need for innovative financial tools to bolster renewable energy initiatives. Mechanisms like blended finance, green bonds, and carbon credits can play a crucial role in managing risks and fostering confidence among investors targeting opportunities in emerging markets.
H.E. Lisa Cummins, Minister of Energy and Business for Barbados, shared insights on how the debt-to-climate sustainability swap mechanism has improved Barbados’s financial landscape, enabling the execution of large-scale renewable energy projects. This strategy also serves as a scalable framework for other nations aspiring to enhance their clean energy investment efforts.
Investment risks in emerging markets and developing economies (EMDEs) significantly affect the cost of capital and the overall bankability of projects. The nature and extent of these risks differ widely among countries, necessitating a nuanced approach that considers the specific contexts of each nation when developing suitable measures and risk-mitigation tools.
Bridging the financing gap requires a multifaceted strategy. This encompasses the strategic deployment of public funds to reduce investment risks, the utilization of innovative financial instruments like green bonds and carbon credits, and intensifying cross-border collaborative efforts.
By integrating robust global support with effective domestic policy frameworks, emerging economies can unlock their potential to drive significant progress in global decarbonization efforts. While the journey ahead is ambitious, it remains attainable if the international community joins forces to support these critical regions in realizing the extensive socio-economic benefits embedded in the energy transition.
Source
www.irena.org