A report from the International Energy Agency (IEA) and the International Finance Corporation (IFC) highlights that in order to fulfil the growing energy demands and adhere to the climate objectives outlined in the Paris Agreement, yearly investments in clean energy within emerging and developing economies must increase by over threefold. Specifically, these investments will need to rise from $770 billion in 2022 to approximately $2.8 trillion by the early 2030s.
The study, titled “Scaling Up Private Finance for Clean Energy in Emerging and Developing Economies,” underscores that relying solely on public investments would prove inadequate in achieving both universal energy access and addressing climate change. The optimal approach involves combining increased public funding with private sector investments to mitigate project risks—an approach broadly referred to as blended finance. As outlined in the report, around two-thirds of the funding required for clean energy initiatives in emerging and developing economies (excluding China) must originate from private sector sources. While the current annual influx of $135 billion in private funding for clean energy projects in these economies serves as a foundation, this figure will need to escalate to as much as $1.1 trillion per year in the coming decade.
“Today’s energy world is moving fast, but there is a major risk of many countries around the world being left behind. Investment is the key to ensuring they can benefit from the new global energy economy that is emerging rapidly,” said IEA Executive Director Fatih Birol. “The investment needs to go well beyond the capacity of public financing alone, making it urgent to rapidly scale up much greater private financing for clean energy projects in emerging and developing economies. As this report shows, this offers many advantages and opportunities – including expanded energy access, job creation, growing industries, improved energy security and a sustainable future for all.”
The report underscores the imperative for increased global assistance in terms of technical expertise, regulatory enhancement, and financial backing to unleash the latent potential of clean energy within emerging and developing economies. Through the enhancement of regulatory structures, bolstering energy institutions and infrastructure, and facilitating better financial accessibility, this support can aid governments in surmounting existing hurdles that currently impede investments in clean energy. These challenges include notably steep initial expenses and elevated capital costs.
“The battle against climate change will be won in emerging and developing economies where the potential for clean energy is strong but the level of investments is far below where it should be. To address the pressing energy demands and emissions reduction goals in EMDEs, we need to mobilize private capital at speed and scale and urgently develop more investable projects,” said IFC Managing Director Makhtar Diop. “This report is a call to action and offers a clear roadmap on what is needed to meet both climate and energy goals.”
Additionally, the report recognizes the significance of concessional financing for ventures centred around novel technologies that haven’t achieved widespread adoption and remain less cost-competitive in several markets. This pertains to technologies like battery storage, offshore wind, renewable-powered desalination, low-emissions hydrogen, and those situated in more precarious markets. According to the report’s projections, a yearly injection of $80-$100 billion in concessional finance will be imperative by the early 2030s. This infusion is vital for drawing in private investments at the magnitude necessary to facilitate the energy transition within emerging and developing economies, excluding China.
Another discovery underscores the possibility of increasing the issuance of green, social, sustainable, and sustainability-linked bonds, contingent upon the establishment of industry standards, unified taxonomies, and dependable third-party validation. The report elaborates on the prospects within platforms that consolidate and bundle numerous investments, potentially addressing the incongruity between the comparatively modest scale of energy transition initiatives in emerging and developing economies and the significantly larger minimum investment thresholds demanded by significant institutional investors.
In order to broaden avenues for private investors, the report accentuates the necessity for policy overhauls within emerging and developing economies. An array of overarching policy concerns, including issues such as fossil fuel subsidies, protracted licensing procedures, ambiguous land use rights, limitations on private or foreign ownership, and inadequate pricing strategies, collectively erect obstacles that impede investments or escalate the expenses associated with clean energy ventures. Eliminating these hindrances will facilitate emerging and developing economies in reaping greater advantages from the potential offered by the evolving global energy landscape.
Country examples
One country that has seen funding recently approved for renewable energy developments in India. Earlier this year the World Bank’s Board of Executive Directors approved a loan of $200 million to the Government of Himachal Pradesh to facilitate power sector reforms in the state and increase the share of renewable energy in the state’s electricity generation. This will contribute to the state’s overall aim of adding 10GW of additional renewable energy capacity to make the state’s power supply greener.
Himachal Pradesh aims to become a ‘Green State’ by meeting 100% of its energy needs through renewable and green energy by 2030. Himachal Pradesh currently meets more than 80% of its energy demands from hydropower. The World Bank’s Himachal Pradesh Power Sector Development Program will help the state enhance the utilization of its existing renewable energy resources, including hydropower, and help diversify its renewable energy resources further. For instance, it will add 150MW of solar capacity in the state, reducing greenhouse gas emissions by more than 190,000 metric tons per year.
“The Program will boost local economic activity while replacing fossil-fuel-based energy consumption with green energy,” said Auguste Tano Kouamé, the World Bank’s Country Director for India. “Moreover, the Program will support HP to set up a single energy trading desk, thus enabling the sale of surplus hydropower to other states.”
More importantly, the Program will provide a template for the Indian power market for underwriting new investments in renewable energy.
In Himachal’s hilly terrain where challenges in maintaining an uninterrupted power supply are higher – and restoration in case of a breakdown may take longer than elsewhere – the Program will help achieve a strengthened transmission and distribution grid. It will introduce advanced technologies such as a demand response management system and seamless access to renewable energy. This is critical during peak load periods when the state must otherwise rely on expensive fossil-fuel-based power. The introduction of automated systems will be an important step towards providing a clean, reliable 24×7 power supply to citizens, reducing power outages, and minimising consumer complaints.
The Program will help strengthen the environmental, social, financial management, corporate governance, and procurement capabilities of the state’s power sector utilities and agencies. In addition, it will contribute towards creating job opportunities in specialized technical and managerial fields in the sector, especially for women. HP power utilities will train around 700 female apprentices throughout the lifespan of the program, giving them hands-on exposure and training in technical roles within the power sector. This will build on the National Apprentice Promotion Scheme implemented by the Ministry of Skill Development and Entrepreneurship.
“The Program will promote good and sustainable practices within the power utilities in the state to transition them to run a green and low carbon electricity system,” said Surbhi Goyal and Pyush Dogra, team leaders for the Program. “This shall contribute towards the state’s goal to be one of the first ‘Green State’ in the country.”
The $200 million loan from the International Bank for Reconstruction and Development (IBRD) has a final maturity of 14.5 years including a grace period of 4.5 years.
Elsewhere, the New Development Bank (NDB) and the Trans-Caledon Tunnel Authority (TCTA) have officially inked a Loan Agreement to facilitate the execution of Phase II of the Lesotho Highlands Water Project (LHWP). Within this agreement, the NDB has committed to extending a project loan amounting to ZAR 3.2 billion to the TCTA, with the sovereign guarantee of South Africa supporting the arrangement.
The Loan Agreement, signed on the sidelines of the 15th BRICS Summit in Johannesburg, witnessed the signatures of Mr Vladimir Kazbekov, NDB’s Vice President and Chief Operating Officer, and Mr Percy Sechemane, Chief Executive Officer of TCTA. Representing Mr. Sechemane, Mr. Nhlanhla Nkabinde, Executive Manager for Project Finance & Treasury, also joined the momentous occasion.
The TCTA, a state-owned entity tasked with financing and implementing large-scale raw water infrastructure projects, will allocate the received funds toward the construction of the Polihali Dam and reservoir, a 38km water transfer tunnel, vital road and bridge networks, telecommunications infrastructure, and comprehensive developmental utilities in Lesotho.
By enhancing the yield of the Vaal River Basin by nearly 15% in the long term, the LHWP Phase II is set to not only bolster economic growth but also foster sustainable livelihoods for Gauteng’s populace. Gauteng, a highly urbanized province with 15 million residents (accounting for a quarter of the nation’s population), contributes a substantial 36% to South Africa’s GDP. Furthermore, the positive impacts of this venture will extend directly to the North-West, Mpumalanga, and Free State provinces, all benefiting from the increased water supply that the project will deliver.
The collaborative endeavour will see the co-financing efforts of the NDB, African Development Bank (AfDB), and other financiers.
“This is the first project financed by NDB outside of BRICS countries and it supports South Africa’s commitment to ensure the availability and sustainable management of water, as promoted by Sustainable Development Goal (SDG) 6,” commented Vladimir Kazbekov, NDB VP & COO. “This project exemplifies NDB’s dedication to supporting projects that promote access to clean water, while prioritising sustainable management of water resources.”
Nhlanhla Nkabinde, TCTA’s Executive Manager for Project Finance & Treasury, added: “This pivotal partnership between the NDB and TCTA represents more than just the provision of water – it is an emblem of our shared commitment to sustainable progress and the empowerment of our communities. The Lesotho Highlands Water Project Phase II is not merely an infrastructure development; it’s a testament to what can be achieved when nations unite with a vision for a brighter and more sustainable future. The very essence of this project is to breathe life into our economy, and most importantly, ensure that every citizen who is impacted by the Vaal River System, which the project augments, has access to life’s most vital resource. As we embark on this transformative journey, we remain ever grateful to our partners and stakeholders for their unwavering support and trust. Together, we are sowing the seeds for a legacy of abundance, prosperity and resilience for generations to come.”
Developed countries
One country that has recently been providing funding in hydropower and water is the US. Just last month, the Department of the Interior announced August $50 million over the next five years to improve key water infrastructure and enhance drought-related data collection across the Upper Colorado River Basin. The Bureau of Reclamation is making an initial $8.7 million investment in the fiscal year 2023 to support drought mitigation efforts in Colorado, New Mexico, Utah and Wyoming that will help ensure compliance with interstate water compact obligations, maintain the ability to generate hydropower at Glen Canyon Dam and minimise adverse effects to resources and infrastructure in the Upper Basin.
President Biden’s Investing in America agenda represents the largest investment in climate resilience in the nation’s history and is providing much-needed resources to enhance Western communities’ resilience to drought and climate change, including protecting the short- and long-term sustainability of the Colorado River System. Through the Bipartisan Infrastructure Law, Reclamation is investing a total of $8.3 billion over five years for water infrastructure projects, including water purification and reuse, water storage and conveyance, desalination and dam safety. The Inflation Reduction Act is investing an additional $4.6 billion to address the historic drought. The mid-August announcement is one of the many historic investments the Biden-Harris administration is implementing as part of an all-of-government effort to make the Colorado River Basin and all the communities that rely on it more resilient to climate change, including the ongoing drought in the West.
“The Biden-Harris administration is committed to bringing every tool and every resource to bear to as we work with states, Tribes, and communities throughout the West to find long-term solutions in the face of climate change and the sustained drought it is creating,” said Deputy Secretary Tommy Beaudreau. “As we look toward the next decade of Colorado River guidelines and strategies, we are simultaneously making smart investments now that will make our path forward stronger and more sustainable.”
“Resources from President Biden’s Investing in America agenda are allowing us to meet a number of program needs across the Colorado River System, including expanding the Basin’s existing network of instrumentation to improve water accounting, weather predicting and monitoring,” said Reclamation Commissioner Camille Calimlim Touton. “Today’s funding will enhance critical data and empower us with the best-available science and technology to more accurately measure the Upper Basin’s consumptive water use.”
The initial $8.7 million will purchase and place 12 new eddy covariance stations. Reclamation will locate the stations throughout the basin to measure evapotranspiration, a key measurement for determining consumptive water use. There are currently four of these stations in the Upper Basin, one placed in each of the Upper Basin states. Reclamation and the Upper Basin states, along with other partners, studied evapotranspiration in the Upper Basin from 2018 through 2020. The data that was collected and analyzed provided critical insight and demonstrated the need and value of expanding the data-gathering ability.
This funding helps further Drought Contingency Planning activities in the Upper Colorado River Basin and is consistent with the obligations of the Secretary under the Colorado River Drought Contingency Plan Authorization Act (P.L. 116-14) and related agreements.
Earlier in August, the US Department of Energy’s (DOE) Water Power Technologies Office (WPTO) and the Minority-Serving Institutions STEM Research and Development Consortium (MSRDC) opened a $1.2 million funding opportunity to support promising, potentially high-impact water power research ideas from minority-serving colleges and universities. Inspired by its successful Seedlings and Saplings program for DOE national laboratories, WPTO is launching this program as part of its “Seedlings for Universities” initiative to seed research and development activities in academic institutions that do not have significant existing hydropower research portfolios.
This opportunity seeks innovative and practical solutions to advance water power technologies. WPTO seeks applications for:
- New and innovative ideas to advance marine energy, including opportunities to engage blue economy markets and end users. This topic seeks projects that support WPTO’s Marine Energy Program goals and may include addressing technology challenges, engaging end users in the industry and the communities these technologies may be deployed, and discovering and developing new use cases for marine energy integration. WPTO is also interested in research frameworks to help understand and mitigate socioeconomic risks of marine energy development. WPTO seeks projects that will provide the assessments of qualitative and quantitative social and economic data needed to understand the potential risks and benefits of marine energy development for communities and local economies.
- Hydrologic and/or hydropower systems modelling for climate resilience. Changing climate and weather patterns can create significant challenges for water and power management. While widely available forecasting and prediction products help address management challenges, there remain significant opportunities for model improvements, new model development, and uncertainty analysis. WPTO seeks advancements in models and analytics that attempt to understand the impact of changing water availability and quality on hydropower and reservoir systems. Examples of this type of work include applications of artificial intelligence, machine learning, signal processing, decision-making under deep uncertainty, or other approaches that improve data analysis.
This opportunity also includes an open topic that seeks ideas for research and development activities that more broadly support objectives outlined in WPTO’s Multi-Year Program Plan.
Concept papers were due September 12, 2023, followed by full proposals on October 13, 2023.
Flood funding
Another sector that has seen growing finance initiatives is flood protection. In June it was announced that about 300,000 people in Bosnia and Herzegovina will benefit from increased flood protection with support from new World Bank financing.
The additional resources will help geographically expand the first phase of the Sava and Drina Rivers Corridors Integrated Development Program in Bosnia and Herzegovina to include the Federation of Bosnia and Herzegovina and Brčko District. Financing for Republika Srpska was approved in August 2020.
For years, Bosnia and Herzegovina has been at risk of water hazards and natural disasters, which affect agriculture and human health through seasonal flooding and periods of drought. The projected impacts of climate change make the country increasingly vulnerable to more intense rainfalls and floods directly affecting the Drina and the Sava, the largest tributary of the Danube, the second-longest river in Europe.
The additional World Bank financing of €37 million will help deliver much-needed infrastructure investments, such as dikes, dams, and water reservoirs, that support flood protection and improve environmental management in the country.
“This project is a perfect example of enhancing Bosnia and Herzegovina’s climate resilience in times when environmental threats are stronger than ever,” said Christopher Sheldon, World Bank Country Manager for Bosnia and Herzegovina and Montenegro. “The project’s focus on enhancing regional cooperation, both in Bosnia and Herzegovina and in the Western Balkans, aligns perfectly with our vision of a greener and more prosperous future for the region.”
The initiative is part of a larger program that covers three riparian countries of the Sava and Drina rivers—Bosnia and Herzegovina, Montenegro, and Serbia. The integrated approach of this program combines funding for flood protection, environmental management, and port modernization activities to enhance connectivity along the Sava and Drina Rivers Corridors.
This article first appeared in International Water Power magazine.
