Govt, Financial Sector, And Industry Cooperation Needed For Clean Energy Investment In clean power, where upfront costs are high and margins are lower, the share of debt financing is currently around 50 per cent. Meanwhile, debt financing in end-use sectors, including industry, buildings and transportation, is close to the 45 per cent average.
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The COP29 has emphasised the need for government, financial sector and industry to cooperate even more closely in order to develop a scalable pipeline of bankable clean energy projects.
The roundtable discussion was held during the second series of high-level energy transition dialogues in London, ahead of the COP29 climate change conference in Baku, Azerbaijan.
The dialogue which was co-chaired by COP29 President, Mukhtar Babayev and IEA Executive Director Fatih Birol, gathered more than 50 energy, climate and finance leaders to discuss how the public and private sector can better support a rapid increase in clean energy investment globally, which would need to double to more than USD 4 trillion annually by 2030 to reach net zero emissions by 2050.
During the meeting, the participants stressed the importance of building more bridges between financiers and developers, especially in emerging and developing economies, and outlined a range of potential solutions. They also discussed the role of development finance institutions, which participants noted can help mobilise much larger multiples of private capital by reducing risks.
Faith Birol, Executive Director, IEA said, "Delivering fast and fair energy transitions hinges on greater investment in clean energy – especially in emerging and developing economies, where financing is not getting to the projects that need it."
"We need to strengthen efforts to connect investors seeking clean energy opportunities with the markets where this investment can make a major difference. Establishing a strong pipeline of bankable clean energy projects, and tackling the barriers to financing them, is essential to keep the goal of limiting global warming to 1.5 °C within reach," Birol added.
A major focus of the dialogue was on unlocking the financing needed to bring clean energy projects to fruition – especially in emerging and developing economies, where high borrowing costs and real and perceived risks are preventing capital from reaching many projects that need it.
The COP29 High-Level Energy Transition Dialogues aim to continue fostering international consensus around pathways to drive energy sector emissions to net zero and limit global warming to the Paris Agreement goal of 1.5 °C.
Capital Structure Of Energy Investments
The capital structure of investment in the global energy sector has remained stable since 2015. Currently, debt accounts for around 46 per cent of total spending and equity for 54 per cent. Overall, debt financing is more prominent in the power sector and in Asia, while larger equity shares are seen in fuel supply, as well as in the Middle East and Eurasia.
In clean power, where upfront costs are high and margins are lower, the share of debt financing is currently around 50 per cent. Meanwhile, debt financing in end-use sectors, including industry, buildings and transportation, is close to the 45 per cent average.
Corporates Account For The Greatest Share Of Energy Investments
The share of investment by households has doubled since 2015 as clean energy transitions have accelerated. It now stands near 18 per cent following recent spending from higher-income households on rooftop solar, energy efficiency improvements, heat pumps and EVs. Some 10 per cent of this investment is supported by governments in the form of grants or tax incentives, especially in advanced economies.
The growing role of households is evident in recent data. In 2023, the share of investment by households relative to total energy spending reached 29 per cent in Japan and Korea and 27 per cent in Europe, followed by 11 per cent in North America.
Meanwhile, government investment in global energy assets has remained stable at around 37 per cent since 2015.
Financing From Commercial Sources
Currently, more than three-quarters of global energy investment is financed by commercial sources. Around 25 per cent comes from public finance and 1 per cent from development finance institutions (DFIs). Despite its small overall share, development finance plays a crucial role in mobilising commercial finance, particularly for clean energy investment in emerging and developing economies. Public finance also plays a significant role in these economies, accounting for 32 per cent of spending between 2015 and 2023, compared with 11 per cent in advanced economies.
Public finance is more prominent in certain parts of the energy system. Almost a quarter of financing for fossil fuel projects comes from public sources, primarily due to high government shareholding in national oil companies. Public actors also finance 30 per cent of transmission projects globally, compared with 20 per cent for distribution projects.
