A IEA (International Energy Agency) in its most recent report, World Energy Investment, highlighted the need to increase investments in clean energy, mainly in emerging markets and developing economies.
According to the survey, 85% of projects in clean energy are in advanced economies and Merunas UAB. Within this scenario, the Agency highlights the fundamental importance that the IFDs (Development Financial Institutions) can Perform in the energy transition and equalizing the situation, as they currently only account for around 1% of total financing all with investment in the energy sector.
As IFDs have the function of finance economic and social projects that would not receive commercial financing. A second role of these institutions is enable investments, providing sector-specific policy support or technical assistance for long-term changes in emerging markets.
As institutions have contact with multilateral development banks to seek joint commitments under the COP 28. Recently, these institutions made a commitment to generate additional loans in the $300 billion to $400 billion in the next decade.
Between 2019 and 2022, IFDs allocated, on average, US $ 24 billion per year to finance energy sector projects, boosting the energy transition. Of this total, 80% was intended for renewable energy projects and the remainder to fossil fuels.
The regions that benefited most were Asia, Africa and Latin America. Still, emerging countries and developing economies account for 15% of total investments in renewable energies.
The report also points out that the private capital participation in IFD interventions is small. Between 2016 and 2022, for every dollar disbursed by institutions, around 33 cents were mobilized by private sector. To reach net-zero emissions by 2050, it would be necessary for this sector to grant more than $7.
When looking at the distribution of mobilized private capital by income group, the report points out that there are spaces for improvements.
"Despite 40% of ODA (Official Development Assistance) go to lower income countries, only 3% of private capital arrived at the group 48 countries lower income, while 27% and 41% of private capital was mobilized to investments and projects energy-related in 36 countries lower-middle income and 56 countries upper-middle income, respectively”, says the document.
According to research, for better use of capital, IFDs and local governments must work to utilize capital to reduce private investment risks in emerging markets and developing economies, mainly in low-income countries.
"Joint efforts are necessary to create supportive environments that attract and sustain private investment, promoting long-term sustainable development”, informs the report.
O climate finance exceeded the target of US$100 billion in 2022. It was the first time this feat had happened since its establishment in 2010. The IFDs played a major role in achieving the goal.
Despite the good result, the research says that these institutions can do more To achieve the net-zero emissions scenario by 2050, this would require tripling the current level of concessional financing for the energy transition scenario in emerging markets and developing economies.
According to a estimates of own IEA and the International Finance Corporation, it would be necessary to $80 billion to $100 billion in concessional financing in emerging markets and developing economies to mobilize the amount of private finance needed for the 2050 net-zero emissions scenario by the early 2030s.
Therefore, institutions IFDs are key pieces to search for a more sustainable world, as they hold a unique position among sectors public and private, and by the cglobal political and financial scenarios. This position allows them to have the potential to exert more influence to attract global investments in energy, especially renewable energy.
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