Renewable Energy Business - Averting An Energy Crisis Requires Bold Investment in Renewable Energy - Particularly in Developing Economies

1/16/24, 8:56 AM Investing in renewable energy can help mitigate an energy crisis | World Economic Forum
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CLIMATE CHANGE
Averting an energy crisis requires

bold investment in renewable
energy — particularly in developing
economies
Sep 14, 2022
https://www.weforum.org/agenda/2022/09/energy-crisis-investment-renewable-energy-developing-economies/ 1/14
Wind turbines produce renewable energy outside Caledon, South Africa, May 20, 2020.
Image: REUTERS/Mike Hutchings
Mili Fomicov
Researcher, Centre for Climate Finance & Investment, Imperial College London
Olivia Zeydler
Lead, Strategic Integration, C4IR Energy and Materials, World Economic Forum
This article is part of:

Sustainable Development Impact Meetings
A series of global disruptions have made it abundantly clear that investing in renewable
energy is necessary to avoid future energy crises and to prevent climate change.
But investing in renewables is expensive — India's transition to net-zero alone is expected to

require $10 trillion in investment.
To this end, the World Economic Forum, Accenture, the International Energy Agency (IEA),
Imperial College London and ETH Zurich have launched the Cost of Capital Observatory,
which provides much-needed data on the risks and returns on investment in developing
markets' renewable energy projects.
A spate of disturbing geo-political events and the growing frequency of adverse

climate events have unequivocally proven the need to accelerate the energy
transition. These events have also added weight to the viability and impetus to
transition toward renewable sources of energy.
At a government level, climate change and decarbonization objectives are driving

states and investors to consider increasing their portfolio allocations to climate and
energy transition assets.
For example, landmark climate legislation passed by the US Senate in August

included a $369 billion investment in climate and clean energy. Additional
commitments coming from developing economies, such as Indian Prime Minister
Narendra Modi’s goal of reaching net-zero emissions by 2070, indicate the level of
awareness globally to accelerate the energy transition.
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Funding the green transition

For clean energy transitions to be successful, institutional investors, corporates and
governments must increase funding for renewable infrastructure globally,
particularly in emerging and developing economies. They also need to tap into
private markets. India’s net-zero emissions target alone is estimated to need a $10
trillion investment. However, information gaps and short-termism present challenges
for investors to originate and invest in clean energy assets. The limited availability of
transparent and reliable data on unlisted asset returns, as well as asset-specific and
macro-financial risks, restrain investor participation.
A recent report demonstrated that investing in renewable infrastructure makes

sense from a climate and financial perspective. When compared to the broader
unlisted infrastructure market, returns for unlisted renewables are 22% stronger in
global markets and 33.5% stronger in emerging markets and developing economies.
Both renewables and broader infrastructure unlisted assets provide diversification

benefits during credit events and against cyclical changes in macroeconomic
conditions, such as commodity prices.
However, a number of additional challenges remain — many of which are exacerbated

in developing countries. The absence of reliable data, a lack of transparency in the
unlisted sector, limited flexibility, credit risk, regulatory hurdles and currency issues
all represent obstacles to investment.
Opportunities in renewable energy

Despite these risks and limitations, the opportunity exists for investors and
governments to partner and de-risk early-stage financing for renewable
infrastructure, which is needed to build momentum.
One example would be supporting and investing in a dedicated renewable energy

yieldco. UK Climate Investments (UKCI), a joint venture between Macquarie’s Green
Investment Group (GIG) and the UK Government’s Department for Business, Energy
and Industrial Strategy (BEIS), invested in Revego Africa Energy Limited, alongside
Investec and Eskom Pension and Provident Fund.
Revego is a dedicated yield company focused on opportunities for equity investors in

operating renewables assets in Sub-Saharan Africa, whose portfolio currently
consists of 600 MW of solar and wind projects. By blending expertize and finance
from a private investor and sponsor, a local public utility pension fund and a public
specialist climate finance investor, the fund was able to crowd in the necessary
capital by spreading risk.
Climate finance frameworks must also further evolve to support channelling clean
energy investments into emerging and developing economies.
The Revego yield company invests in renewable energy projects and infrastructure across sub-Saharan
Africa. Image: Revego
The Cost of Capital Observatory

One such initiative underway is the Cost of Capital (CoC) Observatory, developed by
the International Energy Agency (IEA), Imperial College London, ETH Zurich and the
World Economic Forum. It aims to address the obstacles to investing in renewable
energy by filling the absence of reliable data and improving transparency in clean
energy investments in emerging economies. The Observatory highlights the main
drivers leading to higher costs of capital in emerging and developing economies, and
where, through reliable empirical data, de-risking efforts have been effective in
reducing the cost of capital for clean energy investments.
By 2030, annual clean energy investments in emerging markets and developing

economies must be multiplied by more than seven — from less than $150 billion in
2021 to over $1 trillion — in order to put the world on track to reach net-zero
emissions by 2050. To support that transition and to meet the climate goals,
initiatives such as the Cost of Capital Observatory will reveal where attention should
be focused, and highlight the risks that are more prevalent in emerging economies.
Transitioning out of a fossil fuel-based energy system in the emerging and

developing economies requires adapting to risks such as stranded assets, off-taker,
transmission network and land acquisition risk, as well as preparing for national
macro-economic factors, such as domestic regulations and currency fluctuations.
The CoC Observatory Dashboard provides a first-of-its-kind database comparing

cost of capital data across energy technologies in five emerging economy countries.
It will be published on the IEA website and announced at the Clean Energy Ministerial
meeting held in Pittsburgh from September 21st – 23rd.
While the CoC Observatory is a useful tool to populate available cost of capital data
for emerging and developing markets, more risk mitigation mechanisms and tools to
coordinate efforts that help distribute risk are needed. This platform can support
those discoveries by bringing the reliable empirical data needed to curate those
solutions. For example, multilateral institutions could play a critical role in de-risking
projects in emerging markets by ensuring that projects meet high climate and
compliance standards and provide leverage in setting up viable contractual and
financing frameworks for renewable energy projects.
To effectively accelerate investment in unlisted renewables in emerging economies,

we need accommodative climate infrastructure policies, transparent performance
measures, reliable data and risk management mechanisms.
All pillars must come together to scale renewable infrastructure in developing and
developed economies to ensure a sustainable future globally — only in this way can
we ensure that we hit net-zero by 2050, and avert a catastrophic climate collapse.
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1/16/24, 8:56 AM Investing in renewable energy can help mitigate an energy crisis | World Economic Forum

Averting an energy crisis requires

This article is part of:

But investing in renewables is expensive — India's transition to net-zero alone is expected to

A spate of disturbing geo-political events and the growing frequency of adverse

At a government level, climate change and decarbonization objectives are driving

For example, landmark climate legislation passed by the US Senate in August

Have you read?

These developing countries are leading the way on renewable energy

Funding the green transition

A recent report demonstrated that investing in renewable infrastructure makes

Both renewables and broader infrastructure unlisted assets provide diversification

However, a number of additional challenges remain — many of which are exacerbated

Opportunities in renewable energy

One example would be supporting and investing in a dedicated renewable energy

Revego is a dedicated yield company focused on opportunities for equity investors in

The Cost of Capital Observatory

By 2030, annual clean energy investments in emerging markets and developing

Transitioning out of a fossil fuel-based energy system in the emerging and

The CoC Observatory Dashboard provides a first-of-its-kind database comparing

To effectively accelerate investment in unlisted renewables in emerging economies,

Don't miss any update on this topic

Sign up for free

License and Republishing

Climate Change Davos Agenda

THE BIG PICTURE

Explore and monitor how Climate Change is affecting economies,

Get involved with our crowdsourced digital platform to deliver impact

The Agenda Weekly

More on Climate Change SEE ALL

1.5°C is a physical limit: Here’s why this target can’t be negotiated

January 15, 2024

7 experts attending Davos share what’s on the horizon for 2024

First Movers Coalition Cement and Concrete Procurement Guide

Leadership and Governance

Sustainability at the Forum

Subscribe to our press releases

MORE FROM THE FORUM

Young Global Leaders

Schwab Foundation for Social Entrepreneurship

Centre for the Fourth Industrial Revolution

PARTNERS & MEMBERS

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