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2023

GLOBAL LANDSCAPE OF RENEWABLE ENERGY FINANCE 2022 2023

www.irena.org

GLOBAL LANDSCAPE OF RENEWABLE ENERGY FINANCE 2023

Unless otherwise stated, material in this publication may be freely used, shared, copied, reproduced, printed and/or

stored, provided that appropriate acknowledgement is given of IRENA as the source and copyright holder. Material in this

publication that is attributed to third parties may be subject to separate terms of use and restrictions, and appropriate

permissions from these third parties may need to be secured before any use of such material.

Citation: IRENA and CPI (2023), Global landscape of renewable energy finance, 2023, International Renewable

Energy Agency, Abu Dhabi.

ISBN: 978-92-9260-523-0

This report has been re-issued since its original release date in February 2023. This revised digital imprint

incorporates updated data.

Acknowledgements

This report was jointly prepared by the International Renewable Energy Agency (IRENA) and Climate Policy Initiative

(CPI). The report was developed under the guidance of Rabia Ferroukhi (Director, IRENA Knowledge, Policy and

Finance Centre) and Ute Collier (IRENA), and Barbara Buchner and Dharshan Wignarajah (Climate Policy Initiative).

The report was authored by Diala Hawila and Faran Rana (IRENA), Costanza Strinati, Sean Stout, Jake Connolly, and

Sandy Fajrian (Climate Policy Initiative), Antonio Barbalho and Sandra Lozo (IRENA consultants).

Input was also provided by IRENA and CPI colleagues, including Divyam Nagpal, Abdullah Abou Ali, Jinlei Feng,

Emanuele Bianco, Dennis Akande, Gerardo Escamilla, Mirjam Reiner, and Hannah Guinto (IRENA), and Chavi Meattle,

and Baysa Naran (CPI).

Valuable review and feedback were provided by IRENA colleagues Elizabeth Press, Xavier Casals and Paul Komor.

The report benefitted from comments of experts including Christine Eibs Singer (Catalyst Energy Advisors), Charlotte

Gardes-Landolfini (International Monetary Fund), Jonathan Coppel (International Energy Agency), Kingsmill Bond

(Rocky Mountain Institute), Laura Fortes (GOGLA), Olivia Coldrey (Sustainable Energy for All), Miquel Muñoz Cabré,

and Danial Duma (Stockholm Environment Institute).

The report was edited by Fayre Makeig.

For further information or to provide feedback: publications@irena.org

This report can be downloaded from www.irena.org/publications

Disclaimer

This publication and the material herein are provided “as is”. All reasonable precautions have been taken by IRENA to verify the reliability of the material

in this publication. However, neither IRENA nor any of its officials, agents, data or other third-party content providers provides a warranty of any kind,

either expressed or implied, and they accept no responsibility or liability for any consequence of use of the publication or material herein.

The information contained herein does not necessarily represent the views of all Members of IRENA. The mention of specific companies or certain

projects or products does not imply that they are endorsed or recommended by IRENA in preference to others of a similar nature that are not mentioned.

The designations employed and the presentation of material herein do not imply the expression of any opinion on the part of IRENA concerning the legal

status of any region, country, territory, city or area or of its authorities, or concerning the delimitation of frontiers or boundaries.

Cover photos: Kletr © Shutterstock.com, Evgeny_V © Shutterstock.com, Mabeline72 © Shutterstock.com, Alex Traveler © Shutterstock.com and

isak55 © Shutterstock.com

About IRENA

The International Renewable Energy Agency (IRENA) is an intergovernmental organisation that supports

countries in their transition to a sustainable energy future and serves as the principal platform for international

co-operation, a centre of excellence, and a repository of policy, technology, resource and financial knowledge

on renewable energy. IRENA promotes the widespread adoption and sustainable use of all forms of renewable

energy, including bioenergy, geothermal, hydropower, ocean, solar and wind energy, in the pursuit of

sustainable development, energy access, energy security, and low-carbon economic growth and prosperity.

CONTENTS

Figures ..................................................... 

Tablesandboxes ............................................. 

Abbreviations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

FOREWORD ................................................. 

EXECUTIVESUMMARY ....................................... 

OVERVIEW ................................................. 

 RENEWABLEENERGYINVESTMENTINCONTEXT ..............

 Investmentneedsfortheenergytransition .......................................

 Globaltransition–relatedinvestmenttodate ......................................

 Renewableenergyvsfossilfuelinvestmentsupto ............................

 Impactsofrecentmacroeconomicandgeopoliticalevents .........................

 THELANDSCAPEOFRENEWABLEENERGYFINANCE

FROMTO ...................................... 

 Investmentsbytechnology ......................................................

 Investmentsbyapplication(powervsenduses) ...................................

 Investmentsbyregion ..........................................................

 Investmentsbyﬁnancialinstrument ..............................................

 Investmentsbysource ..........................................................

 THELANDSCAPEOFOFF-GRIDRENEWABLEENERGY

INVESTMENTINDEVELOPINGCOUNTRIES ....................

 Overviewoftheo-gridﬁnancinglandscape ......................................

 O-gridrenewableenergyinvestmentsbyenergyuseandproduct ..................

 O-gridrenewableenergyinvestmentsbyregion ..................................

 O-gridrenewableenergyinvestmentsbytypeofﬁnancinginstrument ..............

 O-gridrenewableenergyinvestmentsbyﬁnancingsourceandtypeofinvestor ......

 CONCLUSIONSANDWAYFORWARD .......................

REFERENCES ..............................................

/132

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20232GLOBALLANDSCAPEOFRENEWABLEENERGYFINANCE2023©IRENA2023Unlessotherwisestated,materialinthispublicationmaybefreelyused,shared,copied,reproduced,printedand/orstored,providedthatappropriateacknowledgementisgivenofIRENAasthesourceandcopyrightholder.Materialinthispublicationthatisattributedtothirdpartiesmaybesubjecttoseparatetermsofuseandrestrictions,andappropriatepermissionsfromthesethirdpartiesmayneedtobesecuredbeforeanyuseofsuchmaterial.Citation:IRENAandCPI(2023),Globallandscapeofrenewableenergyfinance,2023,InternationalRenewableEnergyAgency,AbuDhabi.ISBN:978-92-9260-523-0Thisreporthasbeenre-issuedsinceitsoriginalreleasedateinFebruary2023.Thisreviseddigitalimprintincorporatesupdateddata.AcknowledgementsThisreportwasjointlypreparedbytheInternationalRenewableEnergyAgency(IRENA)andClimatePolicyInitiative(CPI).ThereportwasdevelopedundertheguidanceofRabiaFerroukhi(Director,IRENAKnowledge,PolicyandFinanceCentre)andUteCollier(IRENA),andBarbaraBuchnerandDharshanWignarajah(ClimatePolicyInitiative).ThereportwasauthoredbyDialaHawilaandFaranRana(IRENA),CostanzaStrinati,SeanStout,JakeConnolly,andSandyFajrian(ClimatePolicyInitiative),AntonioBarbalhoandSandraLozo(IRENAconsultants).InputwasalsoprovidedbyIRENAandCPIcolleagues,includingDivyamNagpal,AbdullahAbouAli,JinleiFeng,EmanueleBianco,DennisAkande,GerardoEscamilla,MirjamReiner,andHannahGuinto(IRENA),andChaviMeattle,andBaysaNaran(CPI).ValuablereviewandfeedbackwereprovidedbyIRENAcolleaguesElizabethPress,XavierCasalsandPaulKomor.ThereportbenefittedfromcommentsofexpertsincludingChristineEibsSinger(CatalystEnergyAdvisors),CharlotteGardes-Landolfini(InternationalMonetaryFund),JonathanCoppel(InternationalEnergyAgency),KingsmillBond(RockyMountainInstitute),LauraFortes(GOGLA),OliviaColdrey(SustainableEnergyforAll),MiquelMuñozCabré,andDanialDuma(StockholmEnvironmentInstitute).ThereportwaseditedbyFayreMakeig.Forfurtherinformationortoprovidefeedback:publications@irena.orgThisreportcanbedownloadedfromwww.irena.org/publicationsDisclaimerThispublicationandthematerialhereinareprovided“asis”.AllreasonableprecautionshavebeentakenbyIRENAtoverifythereliabilityofthematerialinthispublication.However,neitherIRENAnoranyofitsofficials,agents,dataorotherthird-partycontentprovidersprovidesawarrantyofanykind,eitherexpressedorimplied,andtheyacceptnoresponsibilityorliabilityforanyconsequenceofuseofthepublicationormaterialherein.TheinformationcontainedhereindoesnotnecessarilyrepresenttheviewsofallMembersofIRENA.ThementionofspecificcompaniesorcertainprojectsorproductsdoesnotimplythattheyareendorsedorrecommendedbyIRENAinpreferencetoothersofasimilarnaturethatarenotmentioned.ThedesignationsemployedandthepresentationofmaterialhereindonotimplytheexpressionofanyopiniononthepartofIRENAconcerningthelegalstatusofanyregion,country,territory,cityorareaorofitsauthorities,orconcerningthedelimitationoffrontiersorboundaries.Coverphotos:Kletr©Shutterstock.com,Evgeny_V©Shutterstock.com,Mabeline72©Shutterstock.com,AlexTraveler©Shutterstock.comandisak55©Shutterstock.comAboutIRENATheInternationalRenewableEnergyAgency(IRENA)isanintergovernmentalorganisationthatsupportscountriesintheirtransitiontoasustainableenergyfutureandservesastheprincipalplatformforinternationalco-operation,acentreofexcellence,andarepositoryofpolicy,technology,resourceandfinancialknowledgeonrenewableenergy.IRENApromotesthewidespreadadoptionandsustainableuseofallformsofrenewableenergy,includingbioenergy,geothermal,hydropower,ocean,solarandwindenergy,inthepursuitofsustainabledevelopment,energyaccess,energysecurity,andlow-carboneconomicgrowthandprosperity.3CONTENTSFigures......................................................4Tablesandboxes..............................................6Abbreviations................................................7FOREWORD..................................................8EXECUTIVESUMMARY........................................10OVERVIEW..................................................3001RENEWABLEENERGYINVESTMENTINCONTEXT...............321.1Investmentneedsfortheenergytransition.......................................331.2Globaltransition–relatedinvestmenttodate......................................341.3Renewableenergyvs.fossilfuelinvestmentsupto2021............................361.4Impactsofrecentmacroeconomicandgeopoliticalevents.........................4002THELANDSCAPEOFRENEWABLEENERGYFINANCEFROM2013TO2022.......................................422.1Investmentsbytechnology......................................................462.2Investmentsbyapplication(powervs.enduses)...................................522.3Investmentsbyregion..........................................................542.4Investmentsbyfinancialinstrument..............................................642.5Investmentsbysource..........................................................7303THELANDSCAPEOFOFF-GRIDRENEWABLEENERGYINVESTMENTINDEVELOPINGCOUNTRIES.....................843.1Overviewoftheoff-gridfinancinglandscape......................................863.2Off-gridrenewableenergyinvestmentsbyenergyuseandproduct..................893.3Off-gridrenewableenergyinvestmentsbyregion..................................923.4Off-gridrenewableenergyinvestmentsbytypeoffinancinginstrument..............973.5Off-gridrenewableenergyinvestmentsbyfinancingsourceandtypeofinvestor......9904CONCLUSIONSANDWAYFORWARD........................106REFERENCES...............................................1224GLOBALLANDSCAPEOFRENEWABLEENERGYFINANCE2023FIGURESFigureS.1Annualglobalinvestmentinrenewableenergy,energyefficiencyandothertransition-relatedtechnologies,2015-2022..................................................................10FigureS.2Annualinvestmentinrenewableenergyvs.fossilfuels,2015-2022.............................11FigureS.3Annualfossilfuelsubsidiesbyregion,2013-2020.............................................12FigureS.4Annualfinancialcommitmentsinrenewableenergy,bytechnology,2013-2022..................13FigureS.5Annualinvestmentinoff-gridrenewableenergyandaveragetransactionsize,2010-2021........14FigureS.6Annualinvestmentinoff-gridrenewableenergy,byoff-gridproduct,andenergyuse,2010-2021................................................................................15FigureS.7Investmentinrenewableenergybyregionofdestination,2013-2022...........................16FigureS.8Debtandequityinvestmentbytypeofinvestor,2013-2020....................................18FigureS.9Privateinvestmentinrenewableenergybyinvestor,2013-2020................................19FigureS.10Investmentinrenewableenergy,byfinancialinstrument,2013-2020...........................19FigureS.11Annualinvestmentinoff-gridrenewableenergy,byfinancinginstrumentandlocalversusforeigncurrencydebt,2013-2021...........................................................20FigureS.12Publicinvestmentinrenewableenergybyinvestortype,2013-2020............................21FigureS.13PortionofDFIfundingintheformofgrantsandlow-costdebt.................................22FigureS.14Annualcommitmentstooff-gridrenewableenergybytypeofinvestor,2015-2021...............23FigureS.15Theflowofpublicfinanceforajustandinclusiveenergytransition.............................24Figure1.1Annualglobalinvestmentinrenewableenergy,energyefficiencyandothertransition-relatedtechnologies,2015-2022..................................................................34Figure1.2Shareofnewelectricitycapacity,2001-2021.................................................36Figure1.3Annualinvestmentinrenewableenergyvs.fossilfuels,2015-2022.............................37Figure1.4Annualinvestmentsinrenewableenergyvs.fossilfuelbyregion,2015-2020...................38Figure1.5Annualfossilfuelssubsidiesbyregion,2013-2020............................................40Figure2.1Annualfinancialcommitmentsinrenewableenergy,bytechnology,2013-2022..................43Figure2.2Globallandscapeofrenewableenergyfinance,2019-2020(USDbillion)........................45Figure2.3Shareofannualrenewableenergyinvestments,bytechnology,2013-2022......................46Figure2.4Annualinvestmentsvs.capacityadditionsforsolarenergytechnologies,2013-2022.............48Figure2.5Annualinvestmentsvs.capacityadditionsforwindenergytechnologies,2013-2022.............49Figure2.6Annualinvestmentsvs.capacityadditionsforrenewableenergytechnologiesotherthansolarandwind,2013-2021.................................................................51Figure2.7Annualrenewableenergyinvestmentbyapplication,2013-2022...............................52Figure2.8Investmentinrenewableenergybyregionofdestination,2013-2022..........................54Figure2.9Publicandprivateinvestmentsinoffshorewind,China,2013-2020............................55Figure2.10RenewableenergyinvestmentsinVietNamandThailand,2013-2020...........................57Figure2.11Renewableenergyinvestmentsindevelopingandemergingmarkets,bytopcountries,2013-2020...............................................................................585FiguresFigure2.12CumulativerenewableenergyinvestmentinAfricaandglobally,2000-2020.....................60Figure2.13Cumulativedomesticandinternationalinvestmentinrenewableenergy,byregionofdestination,2013-2020...............................................................................62Figure2.14Investmentinrenewableenergybyregionoforigin,2013-2020................................63Figure2.15Regionalprovidersandreceiversofinternationalrenewableenergyinvestments,2013-2020......63Figure2.16Investmentinrenewableenergy,byfinancialinstrument,2013-2020...........................65Figure2.17SolarPVandonshorewindinvestmentsbyinstrument,2019/2020average.....................65Figure2.18Renewableenergyinvestmentbyregionandtypeofinvestment(debtvs.equity),2013-2020.....67Figure2.19Debtandequityinvestmentbytypeofinvestor,2013-2020....................................67Figure2.20Greenbonds’cumulativeissuances,2007-2021...............................................68Figure2.21GSSSbonds’annualissuances,2007-2021...................................................70Figure2.22Publicandprivateinvestmentinrenewableenergy,2013-2020................................73Figure2.23Shareofpublic/privateinvestmentsbyrenewableenergytechnology,2020.....................74Figure2.24Privateinvestmentinrenewableenergybyinvestor,2013-2020...............................75Figure2.25Annualfinancialcommitmentinrenewableenergyprojectsmadebyinstitutionalinvestors,2013-2020...............................................................................76Figure2.26Publicinvestmentinrenewableenergybyinvestortype,2013-2020............................78Figure2.27PortionofDFIfundingintheformofgrantsandlow-costdebt................................80Figure2.28Annualinternationalpublicfinancialcommitmentstodevelopingcountriesinsupportofrenewableenergyproduction,andresearchanddevelopment,byregion,2000-2019............81Figure2.29AnnualcommitmentstoLDCsandnon-LDCsinsupportofrenewables,2010-2019...............82Figure2.30Proportionofcountriesindebtdistress,orathighriskofdebtdistress(asof31March2022).....83Figure3.1Populationservedbyoff-gridrenewablepowerindevelopingandemergingeconomies,2012-2021..86Figure3.2Annualinvestmentinoff-gridrenewableenergyandaveragetransactionsize,2010-2021........87Figure3.3Landscapeofoff-gridrenewableenergyfinance,2010-2021(USDmillion)......................88Figure3.4Annualinvestmentinoff-gridrenewableenergy,byenergyuse,2010-2021.....................90Figure3.5Annualinvestmentinoff-gridrenewableenergy,byoff-gridproduct,andenergyuse,2010-2021................................................................................92Figure3.6Sharesofannualinvestmentinoff-gridrenewablesbysubregionofdestination,2015-2021......94Figure3.7InvestmentwithrespecttoRISEscoresandpopulationsservedbyoff-gridrenewablesinaccess-deficitcountriesinSub-SaharanAfrica,2010-2021.....................................96Figure3.8Cumulativeoff-gridrenewableenergyinvestmentsbytypeofflowandregionoforigin,2010-2021................................................................................97Figure3.9Annualinvestmentinoff-gridrenewableenergy,byfinancinginstrumentandlocalversusforeigncurrencydebt,2013-2021..................................................................99Figure3.10Annualcommitmentstooff-gridrenewableenergybytypeofinvestor,2015-2021..............101Figure3.11Sharesofannualoff-gridrenewableenergyinvestmentsbypublic/privateinvestor,pre-pandemicyears(2015-2019)versus2020-2021..........................................102Figure3.12Publicfinanceframeworkforuniversalenergyaccess.......................................103Figure4.1Theflowofpublicfinanceforajustandinclusiveenergytransition............................1136GLOBALLANDSCAPEOFRENEWABLEENERGYFINANCE2023TABLESTable1.1Annualinvestmentneedsbytechnologicalavenueintheshortandlongterms..................33Table1.2Africancountrieswiththehighestcapitalexpenditureonoilandgasexploration,2020-2022......39Table2.1Investmentpercapitabyregionandpopulationgrowth,2015-2021............................59Table4.1Macroeconomicpoliciesthataffectthedeliveryofpublicfunds..............................114BOXESBox1.1Hydrogeninvestments.....................................................................35Box2.1ScopeofCPIdata:Powergenerationvs.end-useapplications.................................53Box2.2RenewableenergytrendsinVietNamandThailand..........................................57Box2.3Theroleofinstitutionalinvestors...........................................................76Box2.4Internationalpublicfinanceflowstodevelopingcountriesinsupportofrenewableenergy........81Box3.1PAYGmodeltoattractfinancingintheoff-gridsolarsector....................................93Box3.2Off-gridrenewableenergyinvestmentsandenablingpolicyframeworks........................95Box3.3Limitedexitsandcapitalrecyclingintheoff-gridsector......................................101Box3.4Publicfinancingframeworkforenergyaccess...............................................103Box4.1TheJustEnergyTransitionPartnership.....................................................110Box4.2EnergyTransitionAcceleratorFinancing...................................................112Box4.3TheBridgetownInitiative.................................................................115Box4.4LiquidityfacilitiessupportedbytheWorldBankandKfW-ATI.................................117Box4.5RiskmitigationinpartiallydenominatedPPAsinlocalcurrency...............................1207ABBREVIATIONSABBREVIATIONSBNEFBloombergNewEnergyFinance°CdegreeCelsiusC&IcommercialandindustrialCAGRcompoundannualgrowthrateCFDcontractfordifferenceCOVID-19CoronavirusdiseaseCPIClimatePolicyInitiativeCSPconcentratedsolarpowerDFIdevelopmentfinanceinstitutionEUEuropeanUnionFIfinancialinstitutionFIPfeed-inpremiumFITfeed-intariffFMODutchEntrepreneurialDevelopmentBankGSSSBONDgreen,social,sustainableandsustainability-linkedbondGWgigawattKFWGermanDevelopmentBankIEAInternationalEnergyAgencyIRENAInternationalRenewableEnergyAgencyLDCleast-developedcountryOECDOrganisationforEconomicCo-operationandDevelopmentPAYGpay-as-you-goPPApowerpurchaseagreementPVphotovoltaicSDGSustainableDevelopmentGoalSHSsolarhomesystemSOEstate-ownedenterpriseSOFIstate-ownedfinancialinstitutionUSDUnitedStatesdollarsUSDFCUSInternationalDevelopmentFinanceCorporationESMAPEnergySectorManagementAssistanceProgramRISERegulatoryIndicatorsforSustainableEnergyFEIFacilityforEnergyInclusion8GLOBALLANDSCAPEOFRENEWABLEENERGYFINANCE2023Globalinvestmentintechnologiesrelatedtotheenergytransition,includingforenergyefficiency,reachedUSD1.3trillionin2022-anewrecord-high.Nonetheless,annualinvestmentsneedtoatleastquadrupletoremainontracktoachievethe1.5°CScenariolaidoutinIRENA’sWorldenergytransitionsoutlook2022.Ongoingglobalcrisespresentbothachallengeandanopportunityfortheaccelerateddeploymentofrenewableenergy.Thetighterfiscalspaceanduncertainmacroeconomicoutlookarenegativelyimpactingflowsofinvestmenttowardsrenewables,whilethepresentenergycrisisisforcingcountriestourgentlydeployalternativesourcesofenergythataresustainable,reliableandaffordable.Meanwhile,733millionpeoplehadnoaccesstoelectricityandnearly2.4billionpeoplereliedontraditionalfuelsandtechnologiesforcookingattheendof2020.Whileglobalinvestmentinrenewableenergy,specifically,reachedarecordhighin2022-atUSD0.5trillion-itrepresentedlessthanone-thirdoftheaverageinvestmentneededeachyearbetween2021and2030accordingtoIRENA’s1.5°CScenario.Investmentsarealsonotflowingatthepaceorscaleneededtoachievetheimprovementsinlivelihoodsandwelfarecalledforunderthe2030AgendaforSustainableDevelopment.Forexample,investmentsinoff-gridrenewableenergysolutionsin2021-atUSD0.5billion-fellfarshortoftheUSD2.3billionneededannuallyinoff-gridsolarproductsalonebetween2021and2030toaccelerateprogresstowardsuniversalenergyaccess.Moreover,investmentshavebecomefurtherconcentratedinspecifictechnologiesanduses,andinasmallnumberofcountries/regions.In2020,solarphotovoltaicaloneattracted43%ofthetotalinvestmentinrenewables,followedbyonshoreandoffshorewind(at35%and12%,respectively).Tobestsupporttheenergytransition,morefundsneedtoflowtolessmaturetechnologiesandtosectorsbeyondpower(e.g.heatingandcooling,transport,energyefficiencyandsystemintegration).FOREWORDFrancescoLaCameraDirector-GeneralInternationalRenewableEnergyAgency9ForewordMoreimportantly,morethan50%oftheworld’spopulation,mostlyresidingindevelopingandemergingcountries,receivedonly15%ofglobalinvestmentsin2022.Sub-SaharanAfrica,forexample,receivedlessthan1.5%oftheamountinvestedgloballybetween2000and2020.Thedisparityinrenewableenergyfinancingreceivedbydevelopedversusdevelopingcountrieshasincreasedsignificantlyoverthepastsixyears.Forexample,therenewableenergyinvestmentpercapitainEuropeandNorthAmerica(excludingMexico)wasalmost23timeshigherthanthatinSub-SaharanAfricain2015.In2021,investmentpercapitainEuropewas41timesthatinSub-SaharanAfrica,andinNorthAmericaitwas57timesmore.Fortheenergytransitiontohaveapositiveimpact,governmentsanddevelopmentpartnersneedtoplayamoreactiveroleinensuringamoreequitableflowoffinancethatrecognisesthedifferentendowmentsandstartingconditionsofcountries.Thisreportunderscorestheneedtodirectpublicfundstoregionsandcountriesthathaveconsiderableuntappedpotentialbutfinditdifficulttoattractinvestment.Thesefundsshouldbedirectedtosupportenergytransitioninfrastructuredevelopment,andenablingpolicyframeworkstodriveinvestmentandaddresspersistentsocio-economicgaps.Achievinganenergytransitioninlinewiththe1.5°CScenariorequirestheredirectionofUSD1trillionperyearfromfossilfuelstoenergy-transition-relatedtechnologies;butfollowingabriefdeclinein2020duetoCOVID-19,fossilfuelinvestmentsareontherise.Inaddition,thefossilfuelindustrycontinuestoreceiveconsiderablesupportthroughsubsidies.Subsidiesdoubledin2021across51countries,withconsumptionsubsidiesexpectedtohaverisenevenfurtherin2022duetocontemporaneouspricepressures.Thephasingoutofinvestmentsinfossilfuelassetsshouldbecoupledwiththeeliminationofsubsidiestoleveltheplayingfieldwithrenewables.However,thereductionofsubsidiesneedstobeaccompaniedbyarobustsafetynettoensureadequatestandardsoflivingforvulnerablepopulations.Thisreportemphasiseshowlendingtodevelopingcountriesseekingtodeployrenewablesmustbereformed.Theanalysishighlightsthelimitationsofusingpublicfundsmainlyforde-riskinginvestmentsandemphasisestheneedforamuchstrongerroleforpublicfinancing.Recognisingthelimitedpublicfundsavailableinthedevelopingworld,theneedforstrongerinternationalcollaborationtoachieveasubstantialincreaseinfinancialflowsfromtheGlobalNorthtotheGlobalSouthishighlighted.Thereportalsodiscussesthedifferentsources,intermediariesandpolicyinstrumentsthatcanchannelpublicfinancingintotheenergysectorandthebroadereconomytosupportajustandinclusivetransition.10GlobalinvestmentsinenergytransitiontechnologiesreachedUSD1.3trillionin2022,arecordhigh.Yet,thecurrentpaceofinvestmentisnotsufficienttoputtheworldontracktowardsmeetingclimateorsocio-economicdevelopmentgoals.In2022,globalinvestmentsinenergytransitiontechnologies–renewableenergy,energyefficiency,electrifiedtransportandheat,energystorage,hydrogenandcarboncaptureandstorage(CCS)–reachedUSD1.3trilliondespitetheprevailingmacroeconomic,geopoliticalandsupplychainchallenges.Globalinvestmentswereup19%from2021levels,andalmost70%from2019,beforetheCOVID-19pandemic(FigureS.1).Thistrenddemonstratesagrowingrecognitionoftheclimatecrisisandenergysecurityrisksassociatedwithover-relianceonfossilfuels.Yet,thecurrentpaceofinvestmentisnotsufficient;annualinvestmentsneedtoatleastquadruple.Keepingtheworldontracktoachievingtheenergytransitioninlinewiththe1.5°CScenariolaidoutinIRENA’sWorldenergytransitionsoutlook2023willrequireannualinvestmentsofmorethanUSD5trilliononaveragebetween2023and2030(IRENA,2023a).USDbillionElectriﬁedheatRenewableenergyElectriﬁedtransportEnergyeciencyEnergystorageHydrogenCarboncaptureandstorageFigureS.1Annualglobalinvestmentinrenewableenergy,energyefficiencyandandothertransition-relatedtechnologies,2015-2022Notes:Renewableenergyinvestmentsfor2021and2022representpreliminaryestimatesbasedondatafromBloombergNewEnergyFinance(BNEF).AsBNEFhaslimitedcoverageoflargehydropowerinvestments,thesewereestimatedatUSD7billionperyear,theannualaverageinvestmentin2019and2020.EnergyefficiencydataarefromIEA(2022a).Thesevaluesareinconstant2019dollars,whileallothervaluesareatcurrentpricesandexchangerates.Duetothelackofmoregranulardata,theunitscouldnotbeharmonisedacrossthedatabases.Forthisreason,thesenumbersarepresentedtogetherforindicativepurposesonlyandshouldnotbeusedtomakecomparisonsbetweendatasources.DataforotherenergytransitiontechnologiescomefromBNEF(2023a).Basedon:IEA(2022a)andBNEF(2023a).EXECUTIVESUMMARY11ExecutiveSummaryAchievinganenergytransitioninlinewiththe1.5°CScenariorequirestheredirectionofUSD1trillionperyearfromfossilfuelstoenergy-transition-relatedtechnologies;butfossilfuelinvestmentsarestillontherise.Fossilfuelinvestmentshaddeclinedin2020(down22%fromtheUSD1trillioninvestedin2019)mainlyduetotheimpactsoftheCOVID-19pandemiconglobalenergymarkets(IEA,2022c).Nevertheless,2021sawfossilfuelinvestmentsbouncebackup15%toUSD897billion(FigureS.2),andpreliminarydatafor2022suggesttheymighthavealmostreturnedtotheirpre-pandemiclevels(+6%),reachingUSD953billion(IEA,2022c).InvestmentinenergyisstillgoingintofundingnewoilandgasfieldsinsteadofrenewablesanditisestimatedthatUSD570billionwillbespentonnewoilandgasdevelopmentandexplorationeveryyearuntil2030(IISD,2022).Investorsandbankshavealreadycommittedtofinancingfossilfueldevelopmentoverandabovethelimitneededtomeetthe1.5°Ctarget.OverthesixyearsfollowingtheParisClimateAgreement,somelargemulti-nationalbanksmaintainedandevenincreasedtheirinvestmentsinfossilfuelsatanaverageofaboutUSD750billiondollarsperyear(EnvironmentalFinance,2022a).Theworld’s60largestcommercialbanksinvestedaroundUSD4.6trillioninfossilfuelsbetween2015and2021,morethanone-quarterofwhichcamefromUSbanks(EnvironmentalFinance,2022a).USDbillionREFFREFFREFFREFFREFFREFFREFFREFFFossilfuelpowergenerationOilandgasupstreamOilandgasdownstreamandinfrastructureOtherrenewableenergyCoalminingandinfrastructureSolarOnshoreandoshorewindFigureS.2Annualinvestmentinrenewableenergyvs.fossilfuels,2015-2022Note:FF=fossilfuel;RE=renewableenergy.Basedon:CPI(2022a)andIEA(2022b).12GLOBALLANDSCAPEOFRENEWABLEENERGYFINANCE2023Fossilfuelcompaniesbasedinemergingmarketsanddevelopingeconomieshavecontinuedtoattractsubstantialvolumesoffinancing.Between2016and2022,theiroutstandingdebtroseby400%forcoaland225%foroilandgas,despitetheneedtoaligninvestmentswiththegoalsoutlinedintheParisAgreement(IMF,2022a).InAfrica,capitalexpendituresforoilandgasexplorationrosefromUSD3.4billionin2020toUSD5.1billionin2022.Africancompaniesaccountedforlessthanone-thirdofthissum.Inadditiontodirectinvestmentsinassets,thefossilfuelindustrycontinuestoreceiveconsiderablesupportthroughsubsidies.Between2013and2020,USD2.9trillionwasspentgloballyonfossilfuelsubsidies(FossilFuelsSubsidyTracker,2022).In2020,Europewastheregionprovidingthemostsubsidies,havingovertakentheMiddleEastandNorthAfrica(MENA)(FigureS.3).Onapercapitabasis,fossilfuelsubsidiesinEuropetotalledUSD113perperson,morethantriplethoseinMENA(USD36perperson).However,fossilfuelsubsidiesinMENAmakeup1.56%ofthegrossdomesticproduct(GDP)whileinEurope,theyconstituteonly0.3%ofGDP.USDbillionEuropeEurasiaEastAsiaandthePaciﬁcLatinAmericaandtheCaribbeanMiddleEastandNorthAfricaSouthAsiaSub-SaharanAfricaNorthAmerica(excludingMexico)OtherAsiaOtherOceaniaFigureS.3Annualfossilfuelsubsidiesbyregion,2013-2020Source:FossilFuelsSubsidyTracker(2022).13ExecutiveSummarySubsidiesdoubledin2021across51countries,fromUSD362billionin2020toUSD697billion,withconsumptionsubsidiesexpectedtohaverisenevenfurtherin2022duetocontemporaneouspricepressures(OECDandIEA,2022).Thephasingoutofinvestmentsinfossilfuelassetsshouldbecoupledwiththeeliminationofsubsidiestoensurethatthefullcostsoffossilfuelsarereflectedintheirpriceandtoleveltheplayingfieldwithrenewablesandotherenergy-transition-relatedtechnologies.However,thephaseoutofsubsidiesneedstobeaccompaniedbyapropersafetynettoensureadequatestandardsoflivingforvulnerablepopulations(IRENA,2022a).Investmentsinrenewableenergycontinuetogrow,butnotatthepaceneededtoachieveclimate,energyaccessandenergysecurityobjectivesalongwithothersocio-economicdevelopmentgoalsby2030.Despitemultipleeconomic,socialandgeopoliticalchallenges,annualinvestmentsinrenewableenergycontinuedapositivetrendthatbeganafter2018(seeFigureS.4).Preliminarydatasuggestthatin2021,investmentsreachedUSD430billion(24%upfrom2020)andin2022theyfurtherincreasedby16%reachingalmostUSD0.5trillion(BNEF,2023b).1Yet,investmentin2022waslessthanone-thirdoftheaverageinvestmentneededeachyearbetween2023and2030(aboutUSD1.6trillioninrenewablepowerandthedirectuseofrenewables)accordingtoIRENA’s1.5°CScenario(IRENA,2023a).USDbillionOnshorewindOshorewindSolarthermalincludingCSPSolarPVBiofuelsHydropowerUnknownMarineBiomassGeothermalCompoundannualgrowthrate-FigureS.4Annualfinancialcommitmentsinrenewableenergy,bytechnology,2013-2022Note:CAGR=compoundannualgrowthrate;CSP=concentratedsolarpower;PV=photovoltaic.Source:CPI(2022a).Investmentsfor2021and2022arepreliminaryestimatesbasedondatafromBNEF(2023b).AsBNEFdatahaslimitedcoverageoflargehydropowerinvestments,thesewereassumedtobeUSD7billionperyear,equivalenttotheannualaverageinvestmentfortheprecedingtwoyears.1Thesefiguresrepresent“primary”financialtransactionsinbothlarge-andsmall-scaleprojectsthatdirectlycontributetodeploymentofrenewableenergy,andthereforeexcludesecondarytransactions,e.g.refinancingofexistingdebtsorpublictradinginfinancialmarkets.NotethatthisisdifferentfrominvestmentsdiscussedinChapter3fortheoff-gridrenewableenergysectorwhichrelatestocorporate-leveltransactions(bothprimaryandsecondary)andisthereforedifferentfrominvestmentsdiscussedinChapter2(althoughsomeoverlapispossible).Formoredetails,pleaseseethemethodologydocument(Appendix).Aspreviouslynoted,2021and2022investmentnumbersinChapters1and2arepreliminaryestimatesbasedonBNEF(2023b).14GLOBALLANDSCAPEOFRENEWABLEENERGYFINANCE2023Investmentsarealsonotflowingatthepaceorscaleneededtoachievetheimprovementsinlivelihoodsandwelfareenvisionedinthe2030AgendaforSustainableDevelopment.Despiteprogressinenergyaccess,approximately733millionpeoplehadnoaccesstoelectricityandnearly2.4billionpeoplereliedontraditionalfuelsandtechnologiesforcookingattheendof2020(IEA,IRENA,etal.2022).Between2010and2021,theoff-gridrenewablessectorattractedmorethanUSD3billion(WoodMackenzie,2022a).Investmentsinoff-gridsolutionsreachedUSD558millionin2021,a27%increasefrom2020(FigureS.5).ButthisamountisfarshortoftheUSD2.3billionneededannuallyinoff-gridsolarproductsalone(notincludingmini-grids)between2021and2030toaccelerateprogresstowardsuniversalenergyaccess(ESMAPetal.2022a).2Althoughontherise,off-gridinvestmentsareconcentratedamongsevenlargeincumbentcompaniesthathavealreadyreachedscaleandarelookingtofurthersolidifytheirmarketpositionthroughtheirabilitytoattractcapital.TheaveragetransactionsizeclimbedfromUSD1.1millionin2017to1.7millionby2020,beforemorethandoublingtoUSD3.7millionin2021(FigureS.5).Whileatrendofgrowingticketsizeisasignofsectorgrowthandmaturity,itmayalsoindicateexistingchallengesforenterpriseslookingforsmallerinvestments.OverallinvestmentsUSDmillion(constant)Averageticketsize(USDmillion)OverallinvestmentsAverageticketsizeFigureS.5Annualinvestmentinoff-gridrenewableenergyandaveragetransactionsize,2010-2021Basedon:WoodMackenzie(2022a).2Thiswillbeneededonboththesupplysideforoff-gridrenewableenergycompaniesanddemandside(mainlyintheformofpublicfunding)toenhanceaffordabilityforconsumers.Investmentshavebecomefurtherconcentratedinspecifictechnologiesanduses.Tobestsupporttheenergytransition,morefundsneedtoflowtolessmaturetechnologiesandtosectorsbeyondpower.Whileannualrenewableenergyinvestmentshavebeengrowingovertime,thesehavebeenconcentratedinthepowersector.Between2013and2020,powergenerationassetsattracted,onaverage,90%ofrenewableinvestmentseachyear,andupto97%in2021and2022.15ExecutiveSummarySolarandwindtechnologiesconsistentlyattractthelargestshareofinvestmentbyawidemargin.In2020,solarphotovoltaic(PV)aloneattracted43%ofthetotal,followedbyonshoreandoffshorewind(at35%and12%,respectively).Investmentsinenduses,i.e.directapplications,whichincludeheatgeneration(e.g.solarwaterheaters,geothermalheatpumps,biomassboilers)andtransport(e.g.biofuels)arelagging;theywillneedtoincreasefromUSD13billionin2022toanaverageUSD269billioneachyearbetweennowand2030(IRENA,2023a).Intheoff-gridspace,solarPVproductsalsodominate,attracting92%ofoverallinvestmentsin2010-2021,owingchieflytotheirmodularanddistributedcharacteristics,andtheiradaptabilitytoawidevarietyofapplications.Solarhomesystems(SHSs)arethemostfundedtechnology(FigureS.6).Eventhoughthemajorityofoff-gridinvestmentswenttoresidentialapplicationsbetween2010and2021,thesharegoingtocommercialandindustrial(C&I)applicationshasbeenexpandingovertime(from8%in2015to32%in2021)asconsumerneedsgrowbeyondbasichouseholdaccesstomoreenergy-intensiveusesinlocalindustryandagriculture.PoweringC&Iapplicationscanpromotelocaleconomiesbycreatingjobsandspurringeconomicgrowth,whilealsoenhancingfoodsecurityandresilienceagainsttheimpactsofclimatevariabilityonagri-foodchains(IRENA,2016b).USDmillion(constant)InvestmentsinsolarhomesystemsbysectorInvestmentsinmicrominigridsbysectorCommercialandindustrialCommunitiesandothereconomicactivitiesCommunitiesandothereconomicactivitiesMultipleResidentialMicro-/mini-gridsMultipleSolarlightsSolarhomesystemsAncillaryproductsandservicesOthero-gridsolarMultipleCommercialandindustrialResidentialFigureS.6Annualinvestmentinoff-gridrenewableenergy,byoff-gridproduct,andenergyuse,2010-2021Basedon:WoodMackenzie(2022a).16GLOBALLANDSCAPEOFRENEWABLEENERGYFINANCE2023Investmentsareincreasinglyfocusedinanumberofregionsandcountries.Theyneedtobemoreuniversalforamoreinclusiveenergytransition.Althoughrenewableenergyinvestmentsareontheriseglobally,theycontinuetobefocusedinanumberofcountriesandregions.TheEastAsiaandPacificregioncontinuestoattractthemajorityofinvestment–two-thirdsoftheglobaltotalin2022(FigureS.7)–primarilyledbyChina.AsuiteofpoliciesincludingtaxexemptionshavedriveninvestmentsinsolarandwindinChina,puttingthecountryontracktomeetingthetargetssetoutinthe14thFive-YearPlan(CarbonBrief,2021).VietNamsawinvestmentinsolarPVgrowbyanaverageof219%peryearbetween2013and2020,drivenmainlybyfeed-intariffs(Lorimer,2021).NorthAmericaexcludingMexicoattractedthesecond-largestshareofinvestmentin2022,mainlydrivenbytheproductiontaxcreditintheUnitedStates,followedbyEurope,wherenet-zerocommitmentsandextensivepoliciestophaseoutfossilfuelsaredrivinggrowthinrenewables.IntheUnitedStates,the2022InflationReductionAct–encompassingnewtaxcredits,USD30billioningrantsandloansforcleanenergygenerationandstorage,andUSD60billioninsupportofmanufacturingoflow-carboncomponents–isexpectedtoattractUSD114billioninvestmentby2031.InEurope,theEuropeanCommissionpresentedaGreenDealIndustrialPlanfortheNet-ZeroAge,whichwouldprovideinvestmentaidandtaxbreakstowardstechnologicaldevelopment,manufacturing,productionandinstallationofnet-zeroproductsingreensectorsincludingrenewablesandhydrogen(Bloomberg,2023;EuropeanCommission,2023).TheplanlookstomobiliseEUR225billioninloansfromitsexistingRecoveryandResilienceFacility,andanadditionalEUR20billioningrants(EuropeanCommission,2023).EuropeEastAsiaandPaciﬁcNorthAmerica(excludingMexico)EurasiaSouthAsiaSub-SaharanAfricaOthersLatinAmericaandtheCaribbeanFigureS.7Investmentinrenewableenergybyregionofdestination,2013-2022Note:“NorthAmerica(excludingMexico)”includesBermuda,CanadaandtheUnitedStates.“Others”includetheMiddleEastandNorthAfrica,OtherOceania,Transregional,OtherAsiaandUnknown.Formoredetailsonthegeographicclassificationusedintheanalysis,pleaseseemethodologydocument(Appendix).Source:CPI(2022a).17ExecutiveSummaryRegionshometoabout120developingandemergingmarketscontinuetoreceivecomparativelylowinvestment.Acrosstheseregions,thebulkofrenewableenergyinvestmentsiscapturedbyahandfulofcountries:Brazil,ChileandIndia.Inotherwords,morethan50%oftheworld’spopulation,mostlyresidingindevelopingandemergingcountries,receivedonly15%ofglobalinvestmentsinrenewablesin2022.Further,theshareofrenewableenergyinvestmentsgoingtotheseregionshasbeenprogressivelydecliningyearonyear(e.g.from27%in2017to15%in2022).Inabsoluteterms,annualinvestmentshavebeendecliningprecipitouslysince2018atanaveragerateof36%.Countriesdefinedas“leastdeveloped”bytheIntergovernmentalPanelonClimateChangeattractedonly0.84%ofrenewableenergyinvestmentsonaveragebetween2013and2020.Lookingatinvestmentsonapercapitabasisfurtherrevealsthedisparityininvestments.InEastAsiaandPacific,investmentpercapitaincreasedby51%between2015and2021fromUSD70/personin2015toUSD105/personin2021.ThebulkoftheincreasetookplaceinChina,whileJapanexperienceda45%declineoverthesameperiod.Excludingthesetwocountries,theregionexperiencedamorethan6-foldincreaseledbycountriessuchasVietNamandRepublicofKorea.InSouthAsia,investmentspercapitadeclinedby6%between2015and2021,howeverthetrueextentofthedeclineismaskedbyIndiawhichsawinvestmentpercapitagrowby34%inthesameperiod.ExcludingIndia,investmentpercapitadeclinedby61%fromUSD12/personin2015toUSD5/personin2021.Themoststriking–andrapidlygrowing–disparityisbetweenSub-SaharanAfricaandbothNorthAmerica(excludingMexico)andEurope.In2015,renewableenergyinvestmentpercapitainNorthAmerica(excludingMexico)orEuropewasalmost23timeshigherthanthatofSub-SaharanAfrica.In2021,investmentpercapitainEuropewas41timesthatinSub-SaharanAfrica(whichin2021felltojustUSD3/personfromUSD6/personin2015),andNorthAmericawas57timesmore.Sub-SaharanAfricaremainstheprimarydestinationforinvestmentinoff-gridrenewables.TheregionattractedUSD2.2billionin2010-2021–morethan70%ofglobaloff-gridinvestments.Electrificationratesinthisregionareamongthelowestintheworld,with568millionpeoplelackingaccesstoelectricityin2020(IEA,IRENAetal.2022).WithinSub-SaharanAfrica,EastAfrica–hometothreeofthetopfiverecipientcountriesofoff-gridinvestment(Kenya,theUnitedRepublicofTanzaniaandRwanda)-attracted43%ofthetotal.Investmentinthesedestinationsbenefitedfromtheexistingmobilemoneyecosystem,whichwasleveragedbythepay-as-you-go(PAYG)businessmodel.Approximately78%ofthetotalcommitmentsinoff-gridrenewablesin2010-2021(orUSD2.4billion)involvedthefundingofcompaniesorprojectsusingPAYG,withEastAfricaaccountingforUSD917million.DuringtheCOVID-19pandemic,off-gridrenewableenergyinvestmentsinSoutheastAsiadeclinedby98%,leavingkeyoff-gridmarketsevenmorevulnerable.Althoughthemajorityofcountriesintheregionhaveachievedhighornear-universalratesofelectricityaccess,partsofthepopulationsincountriessuchasMyanmarandCambodia(26%and15%,respectivelyin2020)stilllackaccesstoelectricity(WorldBank,2022).WhereastheregionattractedUSD137millioninoff-gridrenewableenergyinvestmentsover2018-2019(ledprimarilybyMyanmar),during2020-2021,investmentsplummetedtoUSD3million,likelyduetotheimpactsoftheCOVID-19pandemicandpoliticaldevelopments(ESMAPetal.2022b).18GLOBALLANDSCAPEOFRENEWABLEENERGYFINANCE2023Investmentshavebeenprimarilymadebyprivateactors.Privatecapitalflowstothetechnologiesandcountrieswiththeleastrisks–realorperceived.Theprivatesectorprovidesthelion’sshareofglobalinvestmentsinrenewableenergy,committingaround75%ofthetotalintheperiod2013-2020(FigureS.8).Theshareofpublicversusprivateinvestmentsvariesbycontextandtechnology.Typically,lowersharesofpublicfinancearedevotedtorenewableenergytechnologiesthatarecommerciallyviableandhighlycompetitive,whichmakesthemattractiveforprivateinvestors.Forexample,in2020,83%ofcommitmentsinsolarPVcamefromprivatefinance.Meanwhile,geothermalandhydropowerrelymostlyonpublicfinance;only32%and3%ofinvestmentsinthesetechnologies,respectively,camefromprivateinvestorsin2020.DebtEquity2013-2020,USDbillionPublicPrivateHouseholds/IndividualsState-ownedFISOENationalDFIMultilateralDFIMultilateralclimatefundsGovernmentExportCreditAgencyBilateralDFIInstitutionalinvestorsFundsCorporationCommercialFIPrivatePublicFigureS.8Debtandequityinvestmentbytypeofinvestor,2013-2020Note:DFI=developmentfinanceinstitution;FI=financeinstitution;SOE=state-ownedenterprise.Source:CPI(2022a).Globally,commercialfinancialinstitutionsandcorporationsarethemainprivatefinanceproviders,accountingtogetherforalmost85%ofprivatefinanceforrenewablesin2020(FigureS.9).Upuntil2018,privateinvestmentscamepredominantlyfromcorporations(onaverage,65%during2013-2018),butin2019and2020theshareofcorporationswentdownto41%peryear,andalargershareofinvestmentswasfilledbycommercialfinancialinstitutions(43%).19ExecutiveSummaryThisalignswiththefallingshareofequityfinancingglobally,from77%in2013to43%by2020(FigureS.10)ascorporationstogetherwithhouseholds/individualsprovided83%ofequityfinancingduring2013-2020(FigureS.8).Duringthistime,theshareofdebtfinancingincreasedfrom23%in2013to56%in2020(FigureS.10).ThisislikelylinkedtothematurationandconsolidationofmajorrenewabletechnologiessuchassolarPVandonshorewindthatareabletoattracthighlevelsofdebt,aslendersareabletoenvisionregularandpredictablecashflowsoverthelongterm,facilitatedbypowerpurchaseagreements(PPAs)inmanycountries.InstitutionalinvestorsCommercialFIHouseholds/IndividualsFundsCorporationFigureS.9Privateinvestmentinrenewableenergybyinvestor,2013-2020Note:FI=financeinstitution.Source:CPI(2022a).UnknownProject-levelequityGrantBalancesheetﬁnancing(equityportion)Project-levelmarketratedebtLow-costprojectdebtBalancesheetﬁnancing(debtportion)FigureS.10Investmentinrenewableenergy,byfinancialinstrument,2013-2020Source:CPI(2022a).20GLOBALLANDSCAPEOFRENEWABLEENERGYFINANCE2023Intheoff-gridspace,debtandequityinvestmentscontributedabout47%and48%oftheoverallfinancing,respectivelybetween2010and2021,withanadditional5%contributedbygrants.Bytechnology,debtfinancingconstitutedthemajorityoftheinvestmentsinsolarhomesystemsandsolarlights(54%ofthetotalandrisingovertime)whileequityfinancingdominatedthemicro-/mini-gridspace.PriortotheCOVID-19pandemic,themajorityofoff-gridfinancingcamefromequityinvestmentsowingtothedominationbyprivateequity,venturecapitalandinfrastructurefundsandthelackofdebtaccessforthesector.Eversince,theshareofprivateequityhasseenarelativedecline(FigureS.11),inpartduetotheuncertaintiesposedbythepandemic,andthelimitedtrackrecordofexitsandcapitalrecyclinginthesector.Thecontributionofdebthasincreasedsharplyoverthepasttwoyears,particularlyasdebt-preferringDFIsbolsteredtheirsupportduringthepandemic(FigureS.14)andmajoroff-gridcompanieswereabletocapitaliseontheirstrongmarketpositiontosecure(large-size)predominantlydebt-baseddealsfrombothpublicandprivateinvestors(ESMAPetal.2022b).Anotherremarkabletrendistheincreaseinlocalcurrencydebt,drivenmainlybymarketsinKenyaandNigeria.Goingforward,widespreadmobilisationoflow-costdebtwillbecriticalfordeploymentofcapital-intensiverenewableenergyprojects,whileequityfinancingwillalsoremainkey,particularlytokick-startrelativelylessmaturetechnologies,andfinanceprojectsinrelativelyhigh-riskorcredit-constrainedcontexts.USDmillion(constant)ForeigncurrencydebtEquityGrantLocalcurrencydebtFigureS.11Annualinvestmentinoff-gridrenewableenergy,byfinancinginstrumentandlocalversusforeigncurrencydebt,2013-2021Basedon:WoodMackenzie(2022a).21ExecutiveSummaryThemajorityofpublicinvestmentsaremadedomesticallywithrelativelylittleinternationalcollaboration.Theinternationalflowofpublicmoneytorenewableenergyhasbeenindeclinesince2018.Publicfundsarelimited,sogovernmentshavebeenfocusingwhatisavailableonde-riskingprojectsandimprovingtheirrisk-returnprofilestoattractprivatecapital.Globally,thepublicsectorprovidedlessthanone-thirdofrenewableenergyinvestmentin2020.State-ownedfinancialinstitutions,nationalDFIsandstate-ownedenterpriseswerethemainsourcesthatyear,providingmorethan80%ofpublicfinance(FigureS.12).MultilateralDFIsprovided9%ofpublicfinance–inlinewiththeirpastannualcommitments–andaccountedforabouthalfofinternationalflowscomingfromthepublicsector.CommitmentsfrombilateralDFIsin2020fell70%comparedto2019,largelyduetoa96%declineininternationalcommitmentsbytheGermanDevelopmentBank(KfW).ThismeansthatmultilateralandbilateralDFIsprovidedlessthan3%oftotalrenewableenergyinvestmentsin2020.MultilateralclimatefundsPublicfundExportCreditAgencyState-ownedFIGovernmentBilateralDFIMultilateralDFISOENationalDFIFigureS.12Publicinvestmentinrenewableenergybyinvestortype,2013-2020Note:DFI=developmentfinanceinstitution;FI=financeinstitution;SOE=state-ownedenterprise.Source:CPI(2022a).Inaddition,financingfromDFIswasprovidedmainlyintheformofdebtfinancingatmarketrates(requiringrepaymentwithinterestrateschargedatmarketvalue).Grantsandconcessionalloansamountedtojust1%oftotalrenewableenergyfinance,equivalenttoUSD5billion.Sincetheinterestratesarethesame,theonlydifferencethatDFIfinancingprovidesistomakingfinanceavailable,albeitatthesamehighcostsforusers.FigureS.13illustratestheportionofDFIfundingprovidedintheformofgrantsandlow-costdebt.22GLOBALLANDSCAPEOFRENEWABLEENERGYFINANCE2023GrantUnknownProject-levelmarketratedebtProject-levelequityLow-costprojectdebtBilateralDFIsMultilateralDFIsUnknownProject-levelmarketratedebtGrantProject-levelequityLow-costprojectdebtBalancesheetﬁnancing(equityportion)FigureS.13PortionofDFIfundingintheformofgrantsandlow-costdebtNote:DFI=developmentfinanceinstitution.Source:CPI(2022a).Intheoff-gridspace,theroleofthepublicsector,inparticularDFIs,ismuchmoreimportant.DFIswerethelargestpubliccapitalproviders(accountingfor79%ofthepublicinvestmentsinoff-gridsolutionsand27%ofthetotalinvestmentsinoff-gridsolutionsin2010-2021).Notably,DFIs’contributionsafterthepandemicconstitutehalfoftheiroverallcontributionssince2010(FigureS.14).PublicfinanceflowstotheGlobalSouthareessentialtoachievingthe1.5°CScenarioanditssocio-economicbenefits(togetherwithprogressivefiscalmeasuresandothergovernmentprogrammessuchasdistributionalpolicy,asoutlinedinIRENA[2022a]).Infact,almost80%oftheoff-gridinvestmentsbetween2010and2021involvedNorth–Southflows.However,theinternationalflowofpublicfinancegoingtorenewableenergyinthebroadercontexthasbeenindeclinesince2018(IEA,IRENAetal.2022).Preliminarydatashowthatthedowntrendcontinuedthrough2021.23ExecutiveSummaryToachieveajustandinclusiveenergytransition,publicfinancing–includingthroughinternationalcollaboration–hasacriticalroletoplayacrossabroadspectrumofpolicies.Amongriskmitigationinstruments,sovereignguaranteeshavebeenpreferredforlenderslookingtoobtaina“one-size-fits-all”solutionforcreditrisks.Butsuchguaranteesaretreatedascontingentliabilitiesandmayhamperacountry’sabilitytotakeonadditionaldebtforcriticalinfrastructuredevelopmentandotherinvestments(IRENA,2020a).Moreover,sovereigndebtsarealreadystressedtotheirbreakingpointinmanyemergingeconomiesgrapplingwithhighinflationandcurrencyfluctuationsordevaluationsinthewakeoftheCOVID-19pandemic.Inthismacroeconomicenvironment,manycountriescannotaccessaffordablecapitalininternationalfinancialmarketsorprovidesovereignguaranteestomitigaterisk.Giventheurgentneedtostepupthepaceandgeographicspreadoftheenergytransition,andtocaptureitsfullpotentialinachievingsocio-economicdevelopmentgoals,moreinnovativeinstrumentsareneededthathelpunder-investedcountriesreapthelong-termbenefitsoftheenergytransitionwithoutputtingtheirfiscallyconstrainedeconomiesatafurtherdisadvantage.USDmillion(constant)InstitutionalinvestorsPrivateequity,venturecapitalandinfrastructurefundsDevelopmentﬁnanceInstitutionsGovernmentagenciesandintergovernmentalinstitutionsIndividuals(incl.crowdfundingplatforms)CorporationsandbusinessassociationsUndisclosedOthers(incl.non-proﬁt/impactfunding)CommercialﬁnancialinstitutionsFigureS.14Annualcommitmentstooff-gridrenewableenergybytypeofinvestor,2015-2021Note:Definitionsofallinvestortypeincludedinthisanalysisareprovidedintheaccompanyingmethodologydocument(Appendix).Basedon:WoodMackenzie(2022a).24GLOBALLANDSCAPEOFRENEWABLEENERGYFINANCE2023Publicfundingmustflowintotherenewableenergysector(coveringallsegmentsofthevaluechain),thewiderenergysectorandtheeconomyasawhole,forajustandequitableenergytransition.Publicfundscanbemobilisedandprovidedusingavarietyofinstruments.FigureS.15showsthetypesofinstrumentsthatcanbeusedtochannelpublicfinance,thesourcesofpublicfunds(domesticorinternationalthroughcollaboration)andtheintermediariesthatcanhelpchannelthem(e.g.governments,nationalDFIs,localbanks,multilateralandbilateralDFIs,exportcreditagencies,globalfundsincludingtheJustEnergyTransitionPartnership[JETP]andUN-linkedfundssuchastheGreenClimateFund).Theseinstrumentscanbeexistingornewlydesignedandmayinclude(1)governmentspendingsuchasgrants,rebatesandsubsidies;(2)debtincludingexistingandnewissuances,creditinstruments,concessionalfinancingandguarantees;(3)equityanddirectownershipofassets(suchastransmissionlinesorlandtobuildprojects)and(4)fiscalpolicyandregulationsincludingtaxesandlevies,exemptions,accelerateddepreciation,deferralsandregulationssuchasPPAs(especiallywhenthetariffspaidtoproducers–inadditiontothecostofrunningthesystem–arelowerthanwhatiscollectedbyconsumersandthedifferenceispaidthroughagovernmentsubsidy).However,suchinstrumentsshouldbeusedwithcautionastonotconcentratethebenefitsamongasmallnumberofplayersintheindustry,andinstrumentsshouldbedesignedinawaythatdistributesthebenefitsinanequitableandfairway.AsshowninFigureS.15,publicfinanceflowsviainstrumentsinvariouspolicycategoriesofIRENA’sbroadpolicyframework.Examplesincludethefollowing:PotentialinstrumentsCategoriesofpoliciesIntermediariesSourcesoffundsGovernmentsNationalInternationalSOFIs/SOEs/NationalDFIsLocalbanks/MicroFinanceInstitutionsCo-operatives/Foundations/NGOsCrowdfundingplatformsDirectinvestmentsingovernment-ownedassets,designingandfundingpoliciesInvestmentininfrastructurethatsupportintegrationofrenewablesintotheenergysystemSupportforlong-termenergyplanning,capacitybuildingandtraining,researchanddevelopment,technicalassistance,etc.PoliciestoaddressmisalignmentsandmarketfailuresGovernmentspendingincludinggrants,rebates,subsidiesDebtincludingexistingandnewissuances,creditinstruments,concessionalﬁnancing,guaranteesEquityanddirectownershipofassetsFiscalpolicyandregulationsincludingtaxesandlevies,exemptions,accelerateddepreciation,andregulationssuchasPPAsMultilateralandbilateralDFIsExportCreditAgenciesGlobalfunds(e.g.GCF,JETP)CarbonFinancePlatformsInternationalandSouth-SouthcollaborationMacroeconomicpolicies(formulateandimplementﬁscal,monetaryandforeignexchangepoliciesthatimpactthedeliveryofpublicfunds)StructuralchangeandjusttransitionpoliciesEnablingpoliciesIntegratingpoliciesDeploymentpoliciesFigureS.15TheflowofpublicfinanceforajustandinclusiveenergytransitionNote:DFI=developmentfinanceinstitution;GCF=GreenClimateFund;JETP=JustEnergyTransitionPartnership;NGO=non-governmentalorganisation;PPA=powerpurchaseagreement;SOFI=state-ownedfinancialinstitution;SOE=state-ownedenterprise.25ExecutiveSummary1.Underdeploymentpolicies,publicfundscanflowasdirectinvestmentsingovernment-ownedenergy-transition-relatedassets,public-privatepartnerships,orindesigningandfundingpoliciesthatcanattractorsupportprivateinvestment(e.g.capitalsubsidies,grantsandtariff-basedmechanismssuchasauctions,feed-intariffsandfeed-inpremiums).2.Underintegratingpolicies,publicinvestmentscangointoinfrastructureandassetsthatsupporttheintegrationofrenewablesintotheenergysystem(e.g.regionalandnationaltransmissionlines,pumpedhydroelectricenergystoragefacilities).3.Underenablingpolicies,publicmoneycansupportlong-termenergyplanning,capacitybuildingandtraining,researchanddevelopment,thedevelopmentoflocalindustryandvaluechains,aswellastechnicalassistanceofferedviamultilateraldevelopmentbanks(MDBs)andinter-governmentalorganisationssuchasIRENA.4.Understructuralchangeandjusttransitionpolicies,publicfundscangointotheredesignofpowermarketstomakethemmoreconduciveforlargesharesofvariablerenewableenergy,towardscompensationforthephasing-outoffossilfuels,aswellaspoliciestoensurethattheenergytransitionpromotesgenderequalityandsocialinclusion,amongmanyotherpriorities.5.TheglobalpolicyframeworkdefinesinternationalandSouth-Southcollaboration,whichiskeytostructuringandensuringtheinternationalflowsfromtheGlobalNorthtotheGlobalSouth.6.Inaddition,althoughnotdirectlyrelatedtoanyspecificsector,therearemacroeconomicpolicies(fiscal,monetaryandcurrencyexchangepolicies)thataffectthedeliveryofpublicfundstowardstheenergytransition.Someelementspresentedintheframework(FigureS.15)mightoverlap.Forexample,taxincentivesareatthesametimefiscalormacroeconomicpolicieswhileactingasdeploymentpolicies,andfundinggridinfrastructurecanbeviewedasanenablingoranintegratingpolicy.Whilefundingcapacitybuildingispartofanenablingpolicy,thesefundsalsofacilitatestructuralchange,beingpartofsocialdevelopmentprogrammes,andeducation,socialprotectionandcompensationpolicies,etc.Thus,therearecomplexinter-linkagesandfeedbackloopsbetweenthedifferentpoliciesandinstruments.Byunderstandingthebroadstructuralworkingsunderlyingtherenewableenergy“economy”,publicpolicyandfinancingcanbestrategicallyusedtoadvancetheenergytransition.Governmentsfromdevelopedanddevelopingcountrieswillplayacentralroleinprovidinganenablingenvironmentforbothpublicandprivateinvestments.Amorecomprehensivewayofdefiningrisk(includingrisksharing)isneeded.Anarrowinvestor-centricfocusontheriskofinvestmentinenergyassetsnotpayingoffneedstobebroadenedtoincludeenvironmental,planetaryandsocialrisks.Theseincludetheriskofleavingalargepartof26GLOBALLANDSCAPEOFRENEWABLEENERGYFINANCE2023thepopulationoutoftheenergytransitionandlockedinunderdevelopment,andtheriskoftheSustainableDevelopmentGoalsremainingfarfrombeingmet.Thisishowinvestmentrisksmustbeviewedfromtheperspectiveofgovernmentsandtheinternationalcommunity.Andwiththeverylimitedpublicfundsavailableinthedevelopingworld,theinternationalcommunitymuststepup.Theavailabilityofcapitalforpublicinvestmentsinrenewableenergywillneedtobeincreased,andlendingtodevelopingnationstransformed.Today’senvironmentcallsforafundamentalshiftinhowlendingismadetodevelopingnations,especiallythoseaffectedbyeconomicandclimatecrises,andparticularlyhowcountriesintheGlobalNorthsupportcountriesintheGlobalSouthtocopewithandadapttocrisesrelatedtoclimatechange,thecostoflivinganddebt.ThesituationindevelopingcountriesisbeingmademoredifficultamidtighteningmonetarypoliciesandastrengtheningUSdollar.Oneinfivecountriesisexperiencingfiscalandfinancialstress,whichleftunaddressedwoulddeepenhardship,increasedebtdefaults,wideninequalityanddelaytheenergytransition.Atthe27thUnitedNationsClimateChangeConference(COP27)adecisionwasreachedtoestablishalossanddamagefund,particularlyforthosenationsmostvulnerabletoclimateevents.Detailsregardingtheamountsinvolved,andhowthefacilitywillbesetupandoperationalisedareyettobenegotiated.Thefundisexpectedtoaddressadverseeffectsofclimateimpactssuchasdroughts,floods,risingseasandotherdisastersthatimpairthedeploymentofrenewableenergy.Tappingpoolsofpublicfundsforbothdevelopedanddevelopingcountrieswithoutburdeningthefiscalspaceremainsakeypriority.Governmentsshouldadopta“doingmorewithwhatisavailable”approachthroughenhancedcollaborationamongDFIsandMDBs,andbyexploringthefollowingmechanisms:CapitalreleasefrombalancesheetsofDFIs.Balancesheetsofinvestorsandfinancialinstitutionsdiscloserightsandobligationsconnectedtotheowningandlendingofassets.ItispossibleforDFIstousethoseelementstoraiseadditionalfundsthroughpostingexistingassetsascollateral(providedtheirvalueisfreeandclearofanyencumbrances),andpartiallyrepackagingreceivablesfromguaranteedloanrepayments(e.g.loansthatareguaranteedbyinsurers)intonewfinancialstructuredproductsinthemarket.TheDFIscouldoffera(highrated)newdebtproduct(e.g.acollateraliseddebtobligation)3guaranteedandmanagedbyabanksuchasanMDBtoqualifiedinvestors(e.g.pensionfunds,insurers,institutionalinvestors,etc.)andtradedoninternationalexchanges.However,suchaproductshouldbeusedwithrigorousduediligence.3Collateraliseddebtobligationsareasset-backedsecuritiesthatbundletogetheradiversifiedportfolioofinstruments(e.g.loans,bonds).Cashflowsfromunderlyingassetsareusedtorepayinvestors.27ExecutiveSummaryProductinnovationamongMDBs.Multilateralsbenefitfromtheconveningpowergrantedbyshareholdersinbothdevelopedanddevelopingcountries,tocraft,implementandoperateinnovativeframeworkstomobilisecapitalandmitigaterisks.Inparticular,liquidityfacilitiescanbescaleduptoassistrenewableenergyinvestorsinfulfillingtheirbusinessobligationsbyensuringanuninterruptedflowofpaymentsfromoff-takers–withoutposingaburdenonthefiscalspaceofdevelopingcountries(local-currency-denominatedPPAscanalsobenefitfromthisfacility).TheseliquidityfacilitiescanevolvetoincorporatetheroleofguarantorsupportedbyMDBsandDFIsincompliancewithguidelinesissuedbymultilateralsandagreedbyshareholders.Thehighlycapitalisedguarantorbecomesasupranationalfacilitytomitigatecreditandforeignexchangerisksforrenewableenergyinvestorsandlenders.MDBs,undertheapprovalofhostgovernments,canallocatefundsandcreditlinestothefacilityuptoprudentlimitsdeterminedbyministriesoffinanceandcentralbanks.BroadeningcapitalisationroutesforMDBs.Capitalcallingfromshareholdershasbeenthecommonapproachadoptedbymultilateralstoexpandtechnicalassistanceandlendingprogrammes.ThenewcapitalincreasesMDBs’fundavailabilityandenablesthemtoplacebondsintheglobalcapitalmarket,therebyraisingadditionalcapital.BondsareplacedasAAA-ratedobligationsguaranteedbyMDBs–defacto,suchinstitutionshaveanenviabletrackrecordrecognisedbycountriesandmarketparticipantsinmanagingrisks–thatcanbeplacedinthemarket,ifappropriatefinancingvehiclesareusedandtargetmarketsareidentified.MDBsshouldnowconsiderrisk-tiereddebtobligationplacementswithadifferentinvestmentgrade(BBB+andabove,e.g.multi-ratedgreenbonds),implyingdifferentlevelofreturnstobondholders.Theinitiativebroadensaccesstotheinvestorbase–frominstitutionalinvestorsandsovereignwealthfundstocorporate/qualifiedinvestors–increasingtheamountofcapitalthatcouldbecomeavailableanddeployedinrenewableenergyinvestments.Meanwhile,publicfinanceandpolicyshouldcontinuetobeusedtocrowdinprivatecapital.Policiesandinstrumentsbeyondthoseusedtomitigaterisksareneeded.Publicfinanceshouldcontinuetobeusedstrategicallytocrowdinadditionalprivatecapital.Riskmitigationinstruments(e.g.guarantees,currencyhedginginstrumentsandliquidityreservefacilities)willstillplayamajorrole,butpublicfinanceandpolicymustgobeyondriskmitigation.Examplesincludefundingcapacitybuilding,supportforpilotprojectsandinnovativefinancinginstrumentssuchasblendedfinanceinitiatives,etc.Inaddition,policymakersmayconsiderthefollowing:Incentiviseaninvestmentswapfromfossilfuelstorenewableenergybybanksandnationaloilcompanies.Incentivisinginvestorstodivertfundstowardstheenergytransitioncanbedonethroughmeasuressuchasphasingoutoffossilfuelsubsidiesandadaptingfiscalsystemstoaccountfortheenvironmental,socialandhealthimpactsofafossil-fuel-basedenergysystem.However,thephaseoutofsubsidiesshouldbeaccompaniedbyapropersafetynettoensureadequatestandardsoflivingforvulnerablepopulations(IRENA,2022a).28GLOBALLANDSCAPEOFRENEWABLEENERGYFINANCE2023Asupplementalwayofincentivisingthisshiftisthroughhighlightingandrecognisingtheleadershiproleofthoseinstitutionsthatarepavingtheroadthroughearlyinvestmentsintheenergytransition.Morethan30significantfinancialinstitutionsincludingbanks,insurers,assetownersandassetmanagershavecommittedtostopfinancingfossilfuels.Governmentsandcivilsocietiescantakeactiontorewardtheirleadershipandencourageotherinstitutionstotakesimilarsteps.Afterthat,publicpressure,alongwithpolicyandregulation,canfurtherinfluencefinancialdecision-makinginfavourofrenewableenergyandotherenergytransitiontechnologies(EnvironmentalFinance,2022a).Mobiliseinstitutionalinvestmentandpromotegreateruseofgreenbondsforrenewables.WithaboutUSD87trillionofassetsundermanagement,institutionalinvestorshaveakeyroletoplayinreachingtheinvestmentlevelsrequiredfortheongoingglobalenergytransition.Greaterparticipationofinstitutionalcapitalwillrequireacombinationofeffectivepoliciesandregulations,capitalmarketsolutionsthataddresstheneedsofthisinvestorclass(e.g.greenbonds),aswellasavarietyofinternalchangesandcapacitybuildingonthepartofinstitutionalinvestors(IRENA,2020d).Greenbondscanhelpattractinstitutionalinvestorsandchannelconsiderableadditionalprivatecapitalintherenewableenergysector,helpingtofillthesignificantoutstandinginvestmentgap.Greenbondshaveexperiencedsignificantgrowthoverthepastdecade(about103%ayearin2011-2021),increasingfromaboutUSD800millionofissuancesin2007toaboutUSD545billionofissuancesin2021–anall-timeannualhighdespitepandemic-inducedeconomicchallenges.ThecumulativevalueofgreenbondissuancesbroketheUSD1trillionthresholdattheendof2020andstoodataboutUSD1.64trillionasoftheendof2021(EnvironmentalFinance,2022b).Somerecommendedactionsforpolicymakersandpublicfinanceproviderstofurtherincreasegreenbondissuancesincludetheadoptionofgreenbondstandardsinlinewithinternationalclimateobjectives,theprovisionoftechnicalassistanceandeconomicincentivesforgreenbondmarketdevelopmentandthecreationofbankableprojectpipelines(IRENA,2020e).Implementregulatorysandboxesforbroadeningaccesstocapitalandcreditinstruments.Regulatorysandboxesdesignedtoservebroadersocialandenvironmentalgoalscanhelpunlockmoreinvestments.Byenactingregulatorysandboxesforstart-upsandinvestorsforbothgridandoff-gridinitiatives,newsolutionsmayemergetowardsenablingaccesstopoolsofcapital/creditinstruments.SuchinitiativescanbenefitfromMDBs’support(Barbalhoetal.2022)inconnectionwithotheravailablefundingagenciesatlocal,regionalandgloballevels.Furthermore,companiescanbeinvitedtoparticipateinthesandboxwithaviewtopilotinnovativeconceptsthatfacilitateriskmitigation,includingforeignexchangerisksinelectricityexchanges.FacilitatelocalcurrencylendinganddenominatePPAs(atleastpartially)inlocalcurrencies.LocalcurrencyPPAsarehelpfultoaddresstherisksofcurrencydevaluationswhichmayotherwisecripplepoweroff-takers’abilitytomakepaymentstopowerproducersinhardcurrency(suchastheUSD)attimeswhenthedomesticcurrencyplummets.Relativelyestablishedmarketsintheoff-gridspace,forinstance,suchasKenyaandNigeriaareseeingmorelocalcurrencydebtfinancing.29ExecutiveSummaryDuring2020-2021,about28%ofdebtinthetwocountrieswasdenominatedinlocalcurrencies(primarilytheKenyanshilling,followedbytheNigeriannaira),comparedwithjust11%duringthepre-pandemicyears.Goingforward,low-costlocalcurrencyfinancingwillbepreferredforthenextphaseoftheoff-gridrenewableenergysector’sdevelopment.Acomplementarymechanismtoaddressforeigncurrencyrisksistofacilitatelocalcurrencylendingforprojectswithdevelopmentcapitalchannelledthroughintermediariesincludingnationalbanksornon-bankingfinancialinstitutions.Severalcountries,includingBangladesh,BrazilandJordan,havepilotedsuchapproachestocatalyseinvestmentintotherenewableenergysector.Enhancetheparticipationofcorporateactors.Althoughcompaniesthatproducerenewableenergyarealreadyprovidingsubstantialinvestmentinthesector,non-energy-producingcorporationshaveapreeminentroletoplayintheenergytransitionbydrivingdemandforrenewableenergy.Bysettinguptherightenablingframework,policymakerscanencourageactivecorporatesourcingandunlockadditionalcapitalinthesector.Recommendedactionsinclude,forexample,establishingatransparentsystemforthecertificationandtrackingofrenewableenergyattributecertificates,enablingthird-partysalesbetweencompaniesandindependentpowerproducers,andcreatingincentivesforutilitiestoprovidegreenprocurementoptionsforcompanies(IRENA,2018b).Incentivisetheparticipationofphilanthropies.AccordingtoOxfam’sreporttitledSurvivaloftheRichest:HowWeMustTaxtheSuper-RichNowtoFightInequality,therichest1%ownalmosthalfoftheworld’swealthwhilethepooresthalfoftheworldownjust0.75%(Oxfam,2023).Totapintotheexistingwealth,governmentsshouldlookatincentivisingphilanthropiestomobiliseadditionalfundsintosupportforrenewableenergythatcanhelpfightpoverty,inequality,climatechangeandhumanitariancrises.Philanthropiesareplayinganincreasinglyimportantroleinbridgingfundinggaps,especiallyintheenergyaccesscontext,wherefundshavegoneintomarketdevelopment(e.g.technologyinnovationfunds)anddeliveringfinancingforendusersandenterprisesthroughvariousinstruments,suchasresults-basedgrantsandequity.Individuals(high-net-worthindividuals,familiesorhouseholds)investedanaverageofUSD20millionperyearinoff-gridrenewablesduring2015-2021,primarilythroughdedicatedcrowdfundingplatforms(IRENA,2022f).In2021,individuals,bequests,foundationsandcorporationsgaveanestimatedUSD485billiontocharitiesintheUnitedStatesalone.Theseweredistributedtowardseducation,humanservices,foundations,public-societybenefitorganisations,health,internationalaffairs,andenvironmentalandothersocialservices(GivingUSA2022).Theenergytransitionbeingtiedtoalltheseobjectives,tappingintothesefundscanhelpfillgapsleftbygovernments,andsupportthelivelihoodsandwell-beingofrelativelypoorpopulationswithoutrelyingonfossilfuels(Dennis,2022).30Renewablesareattheheartoftheglobalenergytransition,atransitionthatpromisestoputtheworldonaclimate-safepathwaywhileensuringuniversalaccesstosustainable,reliableandaffordableenergy.Theurgentneedforacceleratedrenewableenergyinvestmentsisfurtherunderscoredbythewideningeffectsofclimatechangearoundtheworld,growingfoodshortagesandtheloomingenergycrisis.Anenergysectorbasedonrenewablescanofferimprovedenergysecurityandindependence,pricestabilityandreductionsingreenhousegasemissions,allofwhicharerequiredtoachieveclimateandsustainabledevelopmentgoals.Tothatend,significantcapitalmustbeshiftedfromfossilfuelstorenewablesatafasterpace.Investmentsinrenewablesmustmorethantriplefromtheircurrentlevel.ThisisthethirdeditionofthebiannualGloballandscapeofrenewableenergyfinancereport,jointlyproducedbytheInternationalRenewableEnergyAgency(IRENA)andtheClimatePolicyInitiative(CPI).Sincethelasteditionofthereport,theworldhasexperiencedamultitudeofcrisesincludingCOVID-19,theconflictinUkraineandassociatedsupplychaindisruptions,morefrequentanddestructiveclimate-induceddisasters,andglobalinflation.Thecurrentcrisespresentbothachallengeandanopportunityforaccelerateddeploymentofrenewableenergy.Ontheonehand,theyprovidethepoliticalmomentumforhurryingthedeploymentofenergytransitiontechnologies.Indeed,thecrisisinUkrainehasforcedaglobalreckoningwiththefactthat80%oftheworld’spopulationliveincountriesthatarenetenergyimporters,asituationthatcarriesprofoundimplicationsforenergysecurityandaffordability.Ontheotherhand,tighterfiscalcircumstancesandhighercostsofcapitalaredimmingtheprospectsforrenewableenergy,whichisparticularlycapitalintensive.Thecurrentuncertainmacroeconomicoutlook,withinflationatlevelsnotseeninmanycountriesforover40yearsandthepossibilityofsovereigndefaults,couldthreatenrenewableenergydevelopment,especiallyinlow-incomecountries.OVERVIEW31ExecutiveSummary1Theanalysisofrenewableenergyinvestmentsin2021and2022inChapters1and2arebasedondatafromBNEF(2023b).Investmentfiguresforpreviousyears(2013-2020)comefromtheCPIGlobalLandscapeofClimateFinancedatabase,whichgathersandcleansdatafromseveralsources,includingBloombergNewEnergyFinance(BNEF).Thesefiguresrepresent“primary”financialtransactionsgoingintobothlarge-andsmall-scaleprojectsthatdirectlycontributetodeploymentofrenewableenergy.Theythereforeexcludesecondarytransactions,e.g.refinancingofexistingdebtsorpublictradinginfinancialmarkets.Formoredetails,pleaseseethemethodologydocument(Appendix).2ThedatainChapter3cover2010-2021andcomefromWoodMackenzie(2022a).Theyrelatetocorporate-leveltransactions(bothprimaryandsecondary)andthereforedifferfromtheinvestmentsdiscussedinChapters1and2,althoughsomeoverlapispossible.Thesefiguresareimportantastheyprovideanindicationofhowthisrapidlyemergingsectorisevolving,givenitsimportancetoachievinguniversalenergyaccess.Likethefirsttwoeditions,thisreportanalysesinvestmenttrendsandfinancinggaps,thegoalbeingtoinformpolicymakingforthedeploymentofrenewableenergyatthescaleneededtoachievetheenergytransition.Thisthirdeditionlooksatkeyinvestmenttrendsbetween2013and2020andprovidespreliminaryinsightsandfiguresfor2021and2022.1Thereportisstructuredasfollows:Chapter1presentsanoverviewoftheinvestmentneededforIRENA’s1.5°CScenario.Investmentsmadetodatearecomparedwiththosemadeinfossilfueltechnologies.Chapter2presentsthelandscapeofglobalrenewableenergyfinance,providinginsightsintokeytrendsbytechnologyandsector,region,sourceoffinance(publicandprivate)andfinancialinstrument.Chapter3providesanin-depthanalysisofoff-gridrenewableenergyfinanceindevelopingandemergingeconomies,analysingtrendsbytechnology,country,typeofinvestorandfinancialinstrument.2Chapter4presentsrecommendationsforpolicymakersandfinancialinstitutionstoacceleraterenewableinvestmentsgloballyacrosstechnologiesandsectors.GLOBALLANDSCAPEOFRENEWABLEENERGYFINANCE2023RENEWABLEENERGYINVESTMENTINCONTEXTTravelStock©Shutterstock.com33Renewableenergyinvestmentincontext1.1InvestmentneedsfortheenergytransitionKeepingtheworldontracktoachievingtheenergytransitioninlinewiththe1.5°CScenariolaidoutinIRENA’sWorldenergytransitionsoutlook2023willrequireacumulativeinvestmenttotalingaroundUSD150trillionbetween2023and2050.Intheshortterm,thereportestimatesthatinvestmentswouldneedtoexceedUSD5trillionperyearbetween2023and2030,includingtheredirectionofUSD1trillionperyearfromfossilfuelstoenergy-transition-relatedtechnologies.Table1.1showsthebreakdownofannualinvestmentneedsintheshortterm(2023-2030)bytechnologicalavenue.InvestmentneedsforIRENA’s1.5°CScenario2023-2030(billion/year)TechnologicalavenueRenewablepowergenerationcapacity1300Directuseofrenewables,includingdistrictheat269Powergridsandenergyflexibility548Energyefficiency(includingcirculareconomy)1772Electrificationinend-usesectors407·Charginginfrastructureforelectricvehicles141·Heatpumps266Hydrogenanditsderivatives80CCSandBECCS18Table1.1AnnualinvestmentneedsbytechnologicalavenueintheshortandlongtermsNote:CCS=carboncaptureandstorage;BECCS=bioenergycoupledwithcarboncaptureandstorage.Source:IRENA(2023a).0134GLOBALLANDSCAPEOFRENEWABLEENERGYFINANCE20231.2Globaltransition–relatedinvestmenttodateIn2022,globalinvestmentsinenergytransitiontechnologiesreachedUSD1.3trillion,arecordhigh,up19%from2021investmentlevels,andalmost70%frombeforethepandemicin2019(Figure1.1).Theseincludeinvestmentsinrenewableenergyandenergyefficiency,electrifiedtransportandheat,energystorage,hydrogenandcarboncaptureandstorage.Whilerenewableenergyandenergyefficiencyremainedthelargestsectors–withacombinedvalueofUSD772billionin2022–theirshareintotalenergytransitioninvestmentshasprogressivelydeclinedasothertechnologieshavebeguntoattractlargeramountsofinvestments.Thisisthecaseforelectrifiedtransporttechnologies(includingelectricvehiclesandassociatedcharginginfrastructure),3whichreachedUSD466billionin2022,a54%increasecomparedto2021.Investmentsinelectrifiedheat4havegrownrathermodestlyoverthelastfewyears,reachingUSD64billionin2022,whilehydrogen5investmentsmorethantripledfrom2021,attractingUSD1.1billionin2022(Box1.1).USDbillionElectriﬁedheatRenewableenergyElectriﬁedtransportEnergyeciencyEnergystorageHydrogenCarboncaptureandstorageFigure1.1Annualglobalinvestmentinrenewableenergy,energyefficiencyandandothertransition-relatedtechnologies,2015-2022Notes:Renewableenergyinvestmentsfor2021and2022representpreliminaryestimatesbasedondatafromBNEF.AsBNEFhaslimitedcoverageoflargehydropowerinvestments,thesewereassumedtobeUSD7billionperyear,equivalenttotheannualaverageinvestmentin2019and2020.EnergyefficiencydataarefromIEA(2022a).Thesevaluesareinconstant2019dollars,whileallothervaluesareincurrentpricesandexchangerates.Duetothelackofmoregranulardata,theunitscouldnotbeharmonisedacrossthedatabases.Forthisreason,thesenumbersarepresentedtogetherforindicativepurposesonlyandshouldnotbeusedtomakecomparisonsbetweendatasources.DataforotherenergytransitiontechnologiescomefromBNEF(2023a).Basedon:CPI(2022a),IEA(2022a)andBNEF(2023a).3Electrifiedtransportinvestmentsincludesalesofelectriccars,commercialvehiclesandbuses,aswellashomeandpubliccharginginvestments(BNEF,2023a).4Electrifiedheatinvestmentsincluderesidentialheatpumpinvestments(BNEF,2023a).5Hydrogeninvestmentsincludehydrogenelectrolyserprojects,fuelcellvehiclesandhydrogenrefuellinginfrastructure(BNEF,2023a).35RenewableenergyinvestmentincontextTheincreaseintransition-relatedinvestmentsin2022wasdrivenchieflybynationalpoliciesintroducedforobjectivesrelatedtoclimate,energysecurity,accessandsocio-economicdevelopment,butsomeoftheincreasecanbeattributedtohighercosts.Afteryearsofdeclines,thecostsofsolarpanelsandwindturbinesrosetemporarilyby10%to20%between2020and2022(IEA,2022b).Theincreaseswereduemainlytosupplychainissuesandhighercostsforlabour,financing,shippingandconstructionmaterialssuchassteelandcement.Althoughhydrogenhasbeenidentifiedasakeytechnologyfortheenergytransition,ithassofarattractedonlyafractionofenergytransition–relatedinvestments:USD1.1billionin2022,0.08%ofthetotal(BNEF,2023a).Hydrogen’sroleindecarbonisationliesinhard-to-abatesectors,whereelectrificationisdeemedtechnologicallyinfeasible,impracticalornotcosteffective.Amongtheseareheavyindustrialprocesses,suchassteel,aluminiumandcementproduction,aswellasenergy-intensivemodesoftransportsuchasaviation,shippingandheavy-dutytrucks.Hydrogenwillalsoproveusefulasafuelincontinentalcountrieswithremotecities,forstoringenergyandforprovidinggridflexibility.Greenhydrogenisexpectedtobecomesignificantlycheaperthanalternativemethods.ItcouldreachproductioncostsaslowasUSD1/kilogrammeby2050,comparedtoalowerboundofclosetoUSD3/kilogrammein2021(IRENA,2019).Althoughprospectsforcostreductionaregood,thecost-effectivelong-distancetransportoflargevolumesofhydrogenremainsachallengebeingaddressedbymajortechnologydevelopers.Hydrogentechnologiesaregainingmomentumacrosstheworld.InvestmenthasbeenledbytheAmericas(particularlytheUnitedStates),whichmadeup44%ofoverallinvestmentsin2022,followedbyAsiaandthePacific(mainlyChina)accountingfor33%oftheUSD1.1billionglobaltotal.Despitereceivingrelativelylowerinvestments,Chinacommissioned2.5timesmoreelectrolysercapacitythantheAmericas,butelectrolyserssoldinChinaaremorethan70%cheaperthanelsewhere.EuropeandtheMiddleEastmadeuptheremainderofinvestments;manyprojectsintheregionstruggledtoreachfinancialcloseduetouncertaintiesoverhydrogenstandardsandsubsidies(BNEF,2023c).AsofOctober2022,morethan60countrieshaddevelopedorwerepreparinghydrogenstrategies,upfromjustonecountry(Japan)in2017.Itisexpectedthat115gigawattsofelectrolysercapacitywillbeaddedby2030,73%ofitinEurope(IRENA,2022b).Whilecurrentinvestmentissignificantlylessthanformaturerenewableenergytechnologiessuchaswindandsolar,hydrogentechnologyhasseenstronginflowsofearly-stagecapitalaswellashighlevelsofnationalfundinginrecentyears.Asubstantialportionisintheformofventurecapital.In2021,hydrogenstart-upsinEuropereceivedmoreinvestmentthantheirUScounterparts(IEA,2021).Meanwhile,theInflationReductionActintheUnitedStates,aswellassimilarlyrobustpublicpolicyinEurope,ledtogovernmentscommittingUSD126billiontodevelopingthehydrogenecosysteminthefirsthalfof2022.Box1.1Hydrogeninvestments36GLOBALLANDSCAPEOFRENEWABLEENERGYFINANCE20231.3Renewableenergyvs.fossilfuelinvestmentsupto2021Lookingatnewpowergenerationcapacityonly,investmentsinnewrenewablepowerassetswereconsistentlyhigherthanthoseinnewfossilfuel–poweredelectricityplantsintheperiodbetween2015and2021.Onaverage,USD339billionperyearwascommittedgloballyforrenewablepowergeneration,comparedtoUSD135billion,onaverage,forfossilfuelpowergeneration(IEA,2022b).Theseinvestmentscorrespondwithcapacityadditiontrends:renewablescapacitygrewby130%between2011and2021,comparedtoonly24%growthinnon-renewables(Figure1.2),withsolarphotovoltaic(PV)showcasingthefastestcapacitygrowth,mostlyduetotechnologicaladvancement,highlearningrates,policysupportandinnovativefinancingmodels(IRENA,2022a).Beyondnewpowergenerationcapacity,however,investmentsinrenewableenergyaredwarfedbythoseinfossilfuels.Consideringupstream,downstreamandinfrastructureinvestments,6fossilfuelcapitalinvestments–withanaverageUSD991billioninvestedannuallybetween2015and2022–werealmostthreetimeshigherthanrenewableenergyinvestments–estimatedatanaverageUSD360billionannually(Figure1.3).Newcapacityrenewables(GW)Newcapacitynon-renewables(GW)Renewableshare(%)Annualcapacityinstallations(GWyr)Shareofnewelectricitygeneratingcapacity()Figure1.2Shareofnewelectricitycapacity,2001-2021Note:GW/yr=gigawattsperyear.Source:IRENA(2022a).6Upstreaminvestmentsrefertothoseinexplorationandproductionofoilandgas,whiledownstreamandinfrastructureinvestmentsusuallyrefertothoseinrefining,manufacturing,anddistributionassetsofoil,gasandtheirproducts.37RenewableenergyinvestmentincontextFossilfuelinvestmentsdeclinedin2020(down22%fromtheUSD1trillioninvestedin2019),mainlyduetotheimpactsoftheCOVID-19pandemiconglobalenergymarkets(IEA,2022c).Nevertheless,2021sawthembouncebackuptoUSD897billion,andpreliminarydatafor2022suggesttheymighthavealmostreturnedtotheirpre-pandemiclevels(+6%),reachingUSD953billion(IEA,2022c).Thisrecoveryispartlydrivenbyrisingcostsacrosstheentireenergysectorglobally,particularlyinrelationtoreservesreplacement,andpartlybytheconflictinUkraine,which,togetherwithhighoilandgasprices,isincentivisingfossilfuelexplorationinemergingmarketsanddevelopingeconomies,atleastintheshortrun(seeSection1.4).Regionally,fossilfuelinvestments(includingupstream,downstreamandinfrastructureinvestments)werehighestinAsiaandthePacificfollowedbyNorthAmerica.AsiaandthePacificsawhighfossilfuelinvestmentsacrossallaspectsofthesector–powergeneration,upstreamanddownstreamoilandgasinfrastructure,andcoalminingandassociatedinfrastructure–totallingoverUSD1.7trillionbetween2015and2020(Figure1.4).NorthAmericafollowedatUSD1.5trillioninvestedoverthesameperiod,muchofwhichwasdirectedtowardsupstreamoilandgas.However,itwasEurasiaandCentralAsiathatshowedthebiggestgulf,proportionately,betweenrenewableenergyandfossilfuelinvestments,withthelatter58timeshigherthantheformer.TheMiddleEastfollowed,withfossilfuelinvestment28timeshigherthanrenewableenergyinvestment.TheAfricancontinentalsoexhibitedawidegapbetweenrenewableenergyinvestmentandfossilfuels(thelatter10timeshigher).USDbillionREFFREFFREFFREFFREFFREFFREFFREFFFossilfuelpowergenerationOilandgasupstreamOilandgasdownstreamandinfrastructureOtherrenewableenergyCoalminingandinfrastructureSolarOnshoreandoshorewindFigure1.3Annualinvestmentinrenewableenergyvs.fossilfuels,2015-2022Note:FF=fossilfuel;RE=renewableenergy.Basedon:CPI(2022a)andIEA(2022b).38GLOBALLANDSCAPEOFRENEWABLEENERGYFINANCE2023Fossilfuelinvestmentsmustbeurgentlyphasedout,withcapitalredirectedtoenergytransition-relatedassetsiftheworldistomeetthegoalsoutlinedintheParisAgreement.Investmentinenergyisstillgoingintofundingnewoilandgasfieldsinsteadofrenewables.Investorsandbankshavealreadycommittedtofinancingfossilfueldevelopmentoverandabovethelimitneededtostaywithin1.5°C.OverthesixyearssincetheParisClimateAgreement,somelargemulti-nationalbanksmaintainedandevenincreasedtheirinvestmentsinfossilfuelsatanaverageofaboutUSD750billiondollarsayear(EnvironmentalFinance,2022a).Theworld’s60largestcommercialbanksinvestedaroundUSD4.6trillioninfossilfuelsbetween2015and2021,morethanaquarterofwhichcamefromUSbanks(EnvironmentalFinance,2022a).Fossilfuelcompaniesbasedinemergingmarketsanddevelopingeconomieshavecontinuedtoattractsubstantialvolumesoffinancing.Between2016and2022,theiroutstandingdebtroseby400%forcoaland225%foroilandgas,despitetheneedtoaligninvestmentswiththegoalsoutlinedintheParisAgreement(IMF,2022a).InAfrica,substantialinvestmentshavebeenmadein48countriesoverthepastfewyears,bothinexplorationandinexploitationofrecentlydiscoveredreserves,withthemajorityofprojectsbeingexportorientedandundertakenbyforeigncompanies.AstudybyGanswindtetal.(2022)showsthattotalcapitalexpendituresforoilandgasexplorationinAfricarosefromUSD3.4billionin2020toUSD5.1billionin2022.Africancompaniesaccountedforlessthanone-thirdofthissum(Table1.2).USDbillionREFFREFFREFFREFFREFFREFFREFFAsiaandthePaciﬁcNorthAmerica(inclMexico)EurasiaandCentralAsiaMiddleEastEurope(inclTürkiye)AfricaCentralandSouthAmericaFossilfuelpowergenerationOilandgasupstreamOilandgasdownstreamandinfrastructureOtherrenewableenergyCoalminingandinfrastructureSolarOnshoreandoshorewindFigure1.4Annualinvestmentsinrenewableenergyvs.fossilfuelbyregion,2015-2020Note:FF=fossilfuel;RE=renewableenergy.Basedon:CPI(2022a)andIEA(2022b).39RenewableenergyinvestmentincontextLookingahead,ithasbeenestimatedthatUSD570billionwillbespentannuallyonnewoilandgasdevelopmentandexplorationthrough2030(IISD,2022),despitethepledgesmadetohaltsuchinvestments.TheGlasgowFinancialAllianceforNetZero(GFANZ),forexample,acoalitionoffinancialinstitutionsformedatthe26thUnitedNationsClimateChangeConference(COP26)andrepresentingUSD150trillioninassets,announcedoneyearafteritslaunchthatithasscrappedmembershipcriteriathatdemandednet-zeroplansandeliminatedanindependentvettingmechanismcalledRacetoZero(EnvironmentalFinance,2022a).Inadditiontodirectinvestmentsinfossilfuelassets,theindustrycontinuestoreceiveconsiderablesupportthroughsubsidies.Between2013and2020,USD2.9trillionwasspentgloballyonfossilfuelsubsidies(FossilFuelsSubsidyTracker,2022).In2020,Europewastheregionprovidingthemostsubsidies,havingovertakentheMiddleEastandNorthAfrica(MENA)(Figure1.5).Onapercapitabasis,fossilfuelsubsidiesinEuropetotalledUSD113/person,morethantriplethoseinMENA(USD36/person).However,fossilfuelsubsidiesinMENAmakeup1.56%oftheGrossDomesticProduct(GDP)whileinEurope,theyconstituteonly0.3%ofGDP.Subsidiesdoubledin2021across51countries,fromUSD362billionin2020toUSD697billion,withconsumptionsubsidiesexpectedtohaverisenevenfurtherin2022duetocontemporaneouspricepressures(OECDandIEA,2022).Thesesubsidiescreatesignificantmarketdistortionswhereinthenegativeenvironmental,healthandsocialimpactsofburningfossilfuelsarenotproperlypriced,thusaffectingthecompetitivenessofcleaneralternatives.Thephasingoutofinvestmentsinfossilfuelassetsshouldbecoupledwiththeeliminationofsubsidiestoensurethatthefullcostsoffossilfuelsarereflectedintheirpriceandtoleveltheplayingfieldwithrenewablesandotherenergytransition–relatedtechnologies.However,thephaseoutofsubsidiesshouldbeaccompaniedbyapropersafetynettoensureadequatestandardsoflivingforvulnerablepopulations(IRENA,2022a).CountryCapitalspendingforexploration(USDmillion)CompaniesthatspentUSD100millionormoreonexplorationAlgeria3256SonatrachEgypt1744Eni,BP,APACorporation,EdisonE&PNigeria1331Shell,ExxonMobil,Sunlink,TotalEnergiesNamibia1124QatarEnergy,Shell,TotalEnergies,Namcor,Maurel&PromAngola977TotalEnergies,Sonangol,EniMozambique498ExxonMobilTable1.2Africancountrieswiththehighestcapitalexpenditureonoilandgasexploration,2020-2022Source:Ganswindtetal.(2022).40GLOBALLANDSCAPEOFRENEWABLEENERGYFINANCE20231.4ImpactsofrecentmacroeconomicandgeopoliticaleventsTheglobalpandemicandthecrisisinUkrainehaveseverelydisruptedenergymarkets,onboththesupplyanddemandsides.Thepriceincreaseswitnessedoverthepastyear–60%foroiland400%fornaturalgasinEurope(CER,2022)–firstaroseaspost-pandemicdemandsurgedaroundtheworld;theygrewasWesternsanctionscutimportsfromRussia.Althoughthepricesfornaturalgashadreturnedtopre-pandemiclevelsbyJanuary2023,theUkrainecrisishasforcedaglobalreckoningthat80%oftheworld’spopulationlivesincountriesthatarenetenergyimporters(IRENA,2022a),afactthathasprofoundimplicationsforenergysecurityandaffordability.TheEuropeanUnion’sREPowerEUstrategy,whichaimedtocutRussiangasimportsbytwo-thirdsin2022,hashadcascadingeffectsworldwide.InAfrica,keyoilandgasproducers,notablyAlgeria,MozambiqueandNigeria,havebeengivenanewopportunitytocementtheirplaceintheglobalenergysupplylandscape,whileinAsia,whereliquefiednaturalgas(LNG)pricesroseinresponsetohigherEuropeandemand,somecountriesareturningbacktocoaloroiltomeetpowergenerationneeds.JapanandtheRepublicofKoreareturnedtonuclearenergytoeasesupplyconcernsbeforethewinter(ING,2022).USDbillionEuropeEurasiaEastAsiaandthePaciﬁcLatinAmericaandtheCaribbeanMiddleEastandNorthAfricaSouthAsiaSub-SaharanAfricaNorthAmerica(excludingMexico)OtherAsiaOtherOceaniaFigure1.5Annualfossilfuelssubsidiesbyregion,2013-2020Source:FossilFuelsSubsidyTracker(2022).41RenewableenergyinvestmentincontextThecurrentglobalenergycrisisservesasanopportunitytospeeduptherenewableenergytransition;however,supplychaincostsandregulatoryhurdlesareobstaclestodeployment,mainlyindevelopedmarkets.France,GermanyandtheUnitedKingdom,amongothercountriesinsideandoutsideEurope,havesetmoreaggressiverenewableenergytargets.FranceandGermanyhavecommittedtoaddressingredtapeandthelengthypermittingprocessforoffshorewind,whiletheUnitedKingdomissettotriplethepaceofdevelopingwindandsolarprojects(Ashurt,2022).Whilesteepfossilfuelpricesmakerenewableenergycomparativelymorecostcompetitive,abigchallengewillbesupplychains,withthecostsofsolarandwindturbinecomponentsaffectedbyspirallinginflation.Theriskpersiststhatpricesforenergytransitioncomponentswillriseandlimitdemandgrowthifsupplydoesnotkeeppace.Inthiscontext,actionstosupportcircularity(e.g.mandatingrecyclingofretiredequipment;fundingforresearchanddevelopmenttoreducematerials’intensityorenablesubstitution)canhelpreducetheserisks(WoodMackenzie,2022b).Indeed,solarpanelsupplychainshavebeenmarkedbycontinueddisruptionsfromCOVID-19lockdownsinChinaandbythesuddenconstraintsonsteelproductioninUkraineandaluminiumfromRussia(Ashurt,2022).Atthesametime,policiesinEuropestillfocusonfurthercompressingprices,threateningthesustainabilityoftheindustry(IISD,2022).Butonamorepositivenote,expansionaryfiscalstimuluspackages(throughindustrialpolicymeasures)bygovernments–forexample,theInflationReductionActintheUnitedStates,whichprovidestaxincentivesforwind,solarandotherrenewables–couldhelpspuranewwaveofpublicandprivateinvestmentinrenewables,especiallyasotherjurisdictionslooktoenactsimilarpackagesofsupportforcleanenergy(seeSection2.3.1).However,countriesoutsidethedevelopedworldmaylackthefiscalspaceforsuchmeasures,whichiswhyIRENAhasbeenproposingatransferoffundsfromtheGlobalNorthtotheGlobalSouthbasedonequityconsiderations(IRENA,2022a).Tightermonetarypolicy–pushingupinterestratesandthereforethecostofcapital–ishittingcleanenergyhard(RockefellerFoundation,2022),especiallyindevelopingmarkets.Thecurrentuncertainmacroeconomicoutlook,withinflationatlevelsnotseeninmanycountriesforover40years(ECB,2022),couldthreatenrenewableenergydevelopmentglobally.Publicfundingfortheenergytransition,especiallyinlow-incomecountries,isenduringmorechallengesinadeterioratingeconomiccontextasgovernmentsdivertattentionandfundstowardsadjustmentpoliciestodealwithinflation,misalignmentofsupplychains,foodshortagesandslowgrowth(Chapter4).Theglobalenergycrisishasservedasaremindertopolicymakersofthepotentialthatrenewableenergyoffersforsolvingtheinterlinkedissuesofenergysecurity,energysustainability,energyaffordabilityandenergyaccess,particularlyfortheGlobalSouth.Renewablesalsocreateamuchbroaderindustry/economyforshareholders,investors,lenders,producers,technologyprovidersandusers.Thefollowingchapterfocusesoninvestmentsinrenewables.GLOBALLANDSCAPEOFRENEWABLEENERGYFINANCE2023THELANDSCAPEOFRENEWABLEENERGYFINANCEFROM2013TO2022Mabeline72©Shutterstock.com43Thelandscapeofrenewableenergyfinancefrom2013to202202Despitemultipleeconomic,socialandgeopoliticalchallenges,annualinvestmentsinrenewableenergycontinuedapositivetrendthatbeganafter2018(seeFigure2.1).In2020,renewableenergyinvestmentsreachedUSD348billion,representinga5.6%increasefrom2019.TheSankeydiagraminFigure2.2providesanoverviewofthegloballandscapeofrenewableenergyfinance,depictingflowsalongtheirinvestmentlifecyclein2019and2020.Preliminarydatasuggestthatinvestmentsfurtheracceleratedin2021and2022.In2021,investmentsreachedUSD430billion(24%upfrom2020)andin2022theyfurtherincreasedby16%reachingUSD499billion(BNEF,2023b).1USDbillionOnshorewindOshorewindSolarthermalincludingCSPSolarPVBiofuelsHydropowerUnknownMarineBiomassGeothermalCompoundannualgrowthrate-Figure2.1Annualfinancialcommitmentsinrenewableenergy,bytechnology,2013-2022Note:CAGR=compoundannualgrowthrate;CSP=concentratedsolarpower;PV=photovoltaic.Source:CPI(2022a).Investmentsfor2021and2022arepreliminaryestimatesbasedondatafromBNEF(2023b).AsBNEFdatahaslimitedcoverageoflargehydropowerinvestments,thesewereassumedtobeUSD7billionperyear,equivalenttotheannualaverageinvestmentfortheprecedingtwoyears.1Thesefiguresrepresent“primary”financialtransactionsinbothlarge-andsmall-scaleprojectsthatdirectlycontributetodeploymentofrenewableenergy,andthereforeexcludesecondarytransactions,e.g.refinancingofexistingdebtsorpublictradinginfinancialmarkets.NotethatthisisdifferentfrominvestmentsdiscussedinChapter3fortheoff-gridrenewableenergysectorwhichrelatestocorporate-leveltransactions(bothprimaryandsecondary)andisthereforedifferentfrominvestmentsdiscussedinChapter2(althoughsomeoverlapispossible).Formoredetails,pleaseseethemethodologydocument(Appendix).Aspreviouslynoted,2021and2022investmentnumbersinChapters1and2arepreliminaryestimatesbasedonBNEF(2023b).44GLOBALLANDSCAPEOFRENEWABLEENERGYFINANCE2023Theincreaseinrenewableenergyinvestmentshasbeendrivenby1)policymakers’growingawarenessoftheimportanceofrenewableenergyinfightingclimatechange,strengtheningenergysecurityandreducingdependenceonvolatileenergysources;and2)investors’appetiteforalternativestobalanceoutthevolatilityandrisksofinvestmentsinfossilfuels.Theyears2020and2021alsocoincidedwithdeadlinesinsomejurisdictionsforachievingrenewableenergytargetsandapplyingforsupportmechanisms,notableexamplesbeingthefeed-intariffs(FiTs)inChinaandVietNam(Doetal.2021;Jaghory,2022),bothofwhichdemonstratethepowerofpolicyincentivesinthedeploymentofrenewableenergy.Whileannualinvestmentshavecontinuedtogrow–atacompoundannualgrowthrateof8.5%over2013-2022–renewableenergycostsdeclineddramaticallyduringthatperiod,meaningthatadollarinvestedtodaytranslatesintohighercapacityinstalledthanitdidinthepast.Forinstance,between2013and2021theglobalweightedaverageoftotalinstalledcostsforsolarPV,onshorewindandoffshorewindcamedownby69%,33%and45%,respectively(IRENA,2022c).Withoutthesecostreductions,farhigherinvestmentswouldbeneededtobringthesamelevelofcapacityonline.ThorstenSchier©Shutterstock.com45Thelandscapeofrenewableenergyfinancefrom2013to2022SOURCESANDINTERMEDIARIESWhichtypesoforganisationsaresourcesorintermediariesofcapitalforrenewableenergyﬁnance?INSTRUMENTSWhatmixofﬁnancialinstrumentsareused?REGIONSWhereisﬁnanceﬂowing?TECHNOLOGIESWhichtechnologiesarefunded?PublicPrivateMiddleEastandNorthAfrica-Sub-SaharanAfrica-Transregional-Unknown-GovernmentsNationalDFIsBilateralDFIsMultilateralDFIsState-ownedenterprisesState-ownedﬁnancialinstitutionsOtherpublicOtherprivateCommercialﬁnancialinstitutionsHouseholdsIndividualsCorporationsAfricaandMiddleEastAmericasLatinAmericaandtheCaribbeanEastAsiaandPaciﬁcOtherAsiaOtherOceaniaSouthAsiaEuropeEurasiaNorthAmerica(excludingMexico)AsiaandthePaciﬁcEuropeandEurasiaOthersSolarPVSolarthermalincludingCSPBioenergyHydropowerOtherOnshorewindOshorewindGrantsLow-costprojectdebtProject-levelmarketratedebtProject-levelequityUnknownBalancesheetﬁnancing(debtportion)Balancesheetﬁnancing(equityportion)USD339billionAnnualaverageinvestmentin2019-2020Figure2.2Globallandscapeofrenewableenergyfinance,2019-2020(USDbillion)Note:CSP=concentratedsolarpower;DFI=developmentfinanceinstitution;PV=photovoltaic,$=USD.46GLOBALLANDSCAPEOFRENEWABLEENERGYFINANCE2023462.1InvestmentsbytechnologyBetween2013and2022,solarandwindtechnologiesconsistentlyattractedthelargestshareofinvestmentinrenewablesbyawidemargin,asshowninFigure2.3.In2020,solarPValoneattracted43%ofthetotal,followedbyonshorewind(at35%)andoffshorewind(atarecord12%).2Solarthermalattractedjust4%oftotalinvestments.Theattractivenessofsolarandwindoverotherrenewableenergytechnologiescanbetracedbacktotheirincreasingmaturity,efficiencyadvancesandcontinueddeclinesintechnologycosts(withtheexceptionofthetemporaryincreasesexperiencedin2021and2022),inpartduetothegreaterpolicysupportthesetechnologieshavereceivedcomparedtotheothertechnologies.Inaddition,theshorterleadtimesofthesetechnologiesandthemodularanddistributednatureofsolarPVmakethemthemostsuitabletechnologiestodeliverspecificobjectives.OnshorewindOshorewindSolarthermalincludingCSPSolarPVBiofuelsHydropowerUnknownMarineBiomassGeothermalShareofannualrenewableenergyinvestments()Figure2.3Shareofannualrenewableenergyinvestments,bytechnology,2013-2022Note:Note:CSP=concentratedsolarpower;PV=photovoltaic.Source:CPI(2022a).Investmentsfor2021and2022representpreliminaryestimatesbasedondatafromBNEF(2023b).AsBNEFdatahaslimitedcoverageoflargehydropowerinvestments,thesewereassumedtobeUSD7billionperyear,equivalenttotheannualaverageinvestmentover2019-2020.2TheanalysisofrenewableenergyinvestmentsinthischapterismainlybasedondatafromtheCPIGlobalLandscapeofClimateFinancedatabasecoveringinvestmentsmadeupto2020.Investmentsfor2021and2022arepresentedaspreliminarydatafromBloombergNewEnergyFinance(BNEF).ClareLouiseJackson©Shutterstock.com47Thelandscapeofrenewableenergyfinancefrom2013to20222.1.1SolartechnologiesInvestmentinsolartechnologiesreachedacombinedtotalofUSD162billionin2020,an11%increasefrom2019,butstillslightlylowerthanaverageinvestmentsintheprecedingtwoyearsof2017-2018.However,solarinvestmentsshotupinthepasttwoyears(basedonpreliminarydatafromBNEF)reachingUSD226billionin2021(analmost40%increasefrom2020)andUSD308billionin2022(afurther36%increasefrom2021),asshowninFigure2.4.Increasedmaturityanddecliningcostshelpedattractinvestmentsinsolartechnologies,particularlyinsolarPVdeployment,whichaccountsforaround90%oftotalsolarinvestmentsbetween2013and2020,withtheremaininggoingtosolarthermal(includingconcentratedsolarpower[CSP])(Figure2.4).Byenduse,themajorityofsolarinvestmentswenttopowergenerationduringthatperiod,withasmallfraction(9%)targetingheatgenerationtechnologies,namelysolarwaterheaters.ChinaandtheUnitedStatesconsistentlyattractthemajorityofannualsolarinvestments,withtheircombinedsharemakingupabout50%ofallsolarinvestmentssince2013.Reductionsanddelaysinsolarinvestmentshaveoccurredinsomemajorcountries,includingJapanandIndia(down54%and29%between2019and2020,respectively),partlyduetopolicychangesandtheimpactsoftheCOVID-19pandemicinthesetwocountries.However,thesereductionswereoffsetbyinvestmentgrowthinChinaandtheUnitedStates(36%and13%,respectively,between2019and2020),aswellasinVietNam,wheresolarinvestmentsgrewninefoldfrom2019,drivenbyaFiTprogramme(Box2.2).Intermsofinstalledcapacityinthepowersector,during2013-2021,714gigawatts(GW)ofsolarPVandCSPwereaddedglobally,withcapacityadditionsincreasingbyanaverage19%eachyear(Figure2.4).3Forheating,mostofthesolarthermalinstallations(excludingCSP)weremadepriorto2013(almost400gigawattsthermal[GWth]outofthetotal522GWthinstalledby2021hadcomeonlinebefore2013),assolarwaterheaters,especiallysmall-scalesystems,reachedmaturityearlierthanothersolartechnologies.In2021,large-scalesolarheatingsystemsfordistrictheatingandforresidential,commercialandpublicbuildings(>350kilowattthermal[kWth])wereadded,mainlyinChina,Europe,TürkiyeandMexico.Meanwhile,interestinsolarthermalsystemsforindustrialprocesseshasgrownsteadilyaroundtheglobe(WeissandSpörk-Dür,2022).3Dataoninstalledcapacityfor2022werenotavailableatthetimeofwriting.MyCreative©Shutterstock.com48GLOBALLANDSCAPEOFRENEWABLEENERGYFINANCE20232.1.2WindtechnologiesInvestmentinonshoreandoffshorewindreachedacombinedtotalofUSD161billionin2020,a4%increasefrom2019,andpreliminarydatafromBNEFshowthatinvestmentsreachedUSD176billionperyearonaveragebetween2021and2022,a9%increasefrom2020,asshowninFigure2.5.USDbillionAnnualcapacityaddition(GW)SolarPVSolarthermalincludingCSPFigure2.4Annualinvestmentsvs.capacityadditionsforsolarenergytechnologies,2013-2022Note:Adecreaseininvestmentsinagivenyearmaynottranslateintoadecreaseinthecapacityinstalledinthatsameyear;in2016,forexample,investmentswentdownyetcapacityaddedwentup.Thisisinpartduetocostdecreasesandinpartduetothetimelagbetweenthefinancingandcompletionofaproject.Thelagisestimatedtobeabout0.5yearsforsolarPV,and2yearsforsolarthermal,althoughsomeprojectscantakelongertobecommissioned.CSP=concentratedsolarpower;GW=gigawatt;PV=photovoltaic.Source:CPI(2022a)andIRENA(2022c).Investmentsfor2021and2022representpreliminaryestimatesbasedondatafromBNEF(2023b).49Thelandscapeofrenewableenergyfinancefrom2013to2022During2013-2022,onshorewindaccountedfor80%oftotalinvestmentinwindtechnologies.In2019,onshorewindinvestmentsawa32%increasefrom2018toreacharecordhighofUSD133billionbeforedeclining9%in2020toUSD120billionandrisingagaintoanaverageofUSD140billionin2021and2022,accordingtopreliminarydata.Meanwhile,offshorewindinvestmentreachedUSD40billionin2020,nearlydoublingthe2019amount,whilepreliminarydatashow2021-2022investmentstobeUSD37billion,a7.5%decreasefrom2020butstill68%higherthan2019.USDbillionAnnualcapacityaddition(GW)OshorewindOnshorewindFigure2.5Annualinvestmentsvs.capacityadditionsforwindenergytechnologies,2013-2022Note:Adecreaseininvestmentsinagivenyearmaynottranslateintoadecreaseinthecapacityinstalledinthatsameyear;in2017,forexample,investmentswentupyetcapacityaddedwentdown.Thisisinpartduetocostdecreasesandinpartduetothetimelagbetweenthefinancingandcompletionofaproject.Thelagisestimatedtobeabout0.9yearsforonshorewindand2yearsforoffshorewind,althoughsomeprojectscantakelongertobecommissioned.GW=gigawatt.Source:CPI(2022a)andIRENA(2022d).Investmentsfor2021and2022representpreliminaryestimatesbasedondatafromBNEF(2023b).50GLOBALLANDSCAPEOFRENEWABLEENERGYFINANCE2023PoliciesinChinadrovetherecentincreaseinwindinvestments,asprojectdevelopersacceleratedinstallationtomeetthedeadlinesfortheFiTsforonshorewindendinginAugust2021andforoffshorewindattheendof2021(FitchRatings,2021;Jaghory,2022).Foroffshorewind,whileChinaaccountedfor48%oftotalinvestmentin2020,majorincreaseswerealsorecordedinEurope,mainlyintheNetherlandsandtheUnitedKingdom.Technologicalimprovementssuchaslargerturbines,specialisedlogisticsandmanufacturing,andstandardisationhavehelpeddrivedowncostsandenabledmoreinstallationsindeeperwaterfartherfromshore(IRENA,2022c).Intermsofcapacity,during2013-2021,557GWofonshoreandoffshorewindwereaddedglobally,withcapacityadditionsincreasingbyanaverageof19%eachyear.In2021,whileonshorewindcapacityadditionsdeclinedby31%,newoffshorecapacitymorethantripled(Figure2.5).4Loweronshorecapacityadditionsin2021wereduetoadeclineininstallationsinthetwolargestmarketsforonshorewind–ChinaandtheUnitedStates.InChina,thedropwasmainlyaconsequenceofrecord-highinstallationsin2020(+50GW),asthedeadlinetoqualifyfortheonshorewindFiTwassetattheendoftheyear.IntheUnitedStates,supplychainproblemsledtosomeprojectsbeingdelayedorpostponedinthesecondhalfof2021(GWEC,2022).2.1.3OtherrenewableenergytechnologiesOverthe2013-2022period,whileinvestmentsinsolarandwindincreased,combinedinvestmentsinotherrenewableenergytechnologiesdeclined,asshowninFigure2.6.Thesetechnologiesincludehydropower(includingpumpedhydropower),biomass,biofuels,geothermalandmarineenergy.5Between2017and2022,thetotalinvestmentinthesetechnologiesdeclinedby45%,fromUSD35billiontoUSD17billion.Moreover,theirshareintotalannualinvestmentsdroppedfrom11%in2017to3%in2022(preliminarydata).Asthesetechnologieshavedifferentcharacteristics,therearedifferentreasonsthathavecontributedtothelackofinvestmentgrowth.Forhydropower,particularlylarge-scaleplants(withcapacitygreaterthan10megawatts),manyofthelocationsavailableforconstructionarealreadyutilised,especiallyincountriesthatrelyheavilyonhydropower,withpotentialnewareasusuallylocatedinlessaccessiblelocations,makingconstructionsignificantlymoreexpensive.Inaddition,theconstructionofnewlargehydropowerplantsmayencounteroppositionfromlocalpopulationsandenvironmentalgroups.Comprehensivemitigationmeasuresmaybeneededtomanagepossiblenegativesocialandenvironmentalimpacts(IRENA,2023b).Thefutureuseofmodernbiomassforelectricityandheatgenerationdependsheavilyontheavailabilityoflow-costfeedstock.Forbiofuels,investmentsdependonpolicyincentivessuchasblendingtargets,whichhavechangedovertheyears,influencedbymarketfundamentals(feedstockandoilprices,distributioncosts,customers’disposableincomesandpreferences).4Dataoninstalledcapacityfor2022werenotavailableatthetimeofwriting.5Trackedinvestmentsincludeonlyinvestmentsinenergyproductionfacilities(e.g.theyexcludeinvestmentsneededtosecureandtransportfeedstockorconstructionequipment).Formoredetails,pleaseseethemethodologydocument(Appendix).51Thelandscapeofrenewableenergyfinancefrom2013to2022Whileatriplingofinvestmentsinbiofuelandbiomassin2021isapositivedevelopment,policiesdrivingtheseinvestmentsshouldbedesignedtoensuretheirsustainableuse(IRENA,2022e).Marineenergyisstillconsideredtooexpensive,owingtoitslimitedeconomiesofscale(mostprojectsbeinglimitedtodemonstrationscale)andtechnicaldifficulties(IRENA,2020b).Forgeothermal,thehighcostofsurfaceexplorationanddrillinghasbeenthemainobstacletofunding(IRENA,2017).USDbillionAnnualcapacityaddition(GW)HydropowerBiomassBiofuelsGeothermalMarineFigure2.6Annualinvestmentsvs.capacityadditionsforrenewableenergytechnologiesotherthansolarandwind,2013-2021Note:Adecreaseininvestmentsinagivenyearmaynottranslateintoadecreaseinthecapacityinstalledinthatsameyear;in2017,forexample,investmentswentup,yetcapacityaddedwentdown.Thisisinpartduetocostdecreasesandinparttothetimelagbetweenthefinancingandcompletionofaproject.Thetypicallagis1.7yearsforbioenergy,2yearsforgeothermal,2.3yearsforsmallhydropowerand2yearsformarine.GW=gigawatt.Source:CPI(2022a)andIRENA(2022d).Investmentsfor2021and2022representpreliminaryestimatesbasedondatafromBNEF(2023b).AsBNEFdatahaslimitedcoverageoflargehydropowerinvestments,thesewereassumedtobeUSD7billionperyear,equivalenttotheannualaverageinvestmentin2019and2020.52GLOBALLANDSCAPEOFRENEWABLEENERGYFINANCE2023Hydropowerandbiomasshaveconsistentlyreceivedthelargestshareofinvestmentsaftersolarandwindtechnologies,althoughinvestmentamountshavefluctuatedovertime.Whiletherewasanincreaseinhydropowerannualinvestmentin2017duetoamajorcommitmentfromtheChinaDevelopmentBank(ChenX.etal.2020),annualinvestmentinhydropowerhaslevelledoffsincethen,rangingbetweenUSD7andUSD9billion.Intermsofcapacityadditions,about201GWoftotalhydropowercapacitywasaddedbetween2013and2021,thethirdhighestamongrenewableenergies.2.2Investmentsbyapplication(powervs.enduses)Investmentsinrenewableenergyforendusesneedtobeurgentlyscaledup,inparallelwitheffortstowardsrenewableenergypowergenerationandend-useelectrification.Whileannualrenewableenergyinvestmentshavebeengrowingovertime,thesehavebeenconcentratedinthepowersector.Between2013and2020,powergenerationassetsattracted,onaverage,90%ofrenewableinvestmentseachyear,andupto97%in2021and2022.Investmentsinenduses,i.e.directapplications,whichincludeheatgeneration(e.g.solarwaterheaters,geothermalheatpumps,biomassboilers)andtransport(e.g.biofuels)arelagging.Overtimethisgaphasincreased,asshowninFigure2.7.In2020,renewableenergyforend-useapplicationsreceivedlessthan5%ofthetotal(orUSD17billion),downfrom8.5%in2013(orUSD20billion).Itshouldbenoted,however,thatalargeshareofinvestmentsinend-useapplicationsismadeatthehouseholdorfirmlevel(e.g.biomassboilers,geothermalheatpumps),anddataonsuchinvestmentscanbelimited,affectingtheoverallinvestmentfiguresprovidedthroughoutthisreport(seeBox2.1).USDbillionUnknownPowerEnd-useFigure2.7Annualrenewableenergyinvestmentbyapplication,2013-2022Source:CPI(2022a).Investmentsfor2021and2022representpreliminaryestimatesbasedondatafromBNEF(2023b).Investmentinlargehydropowertechnologyin2021wasestimatedasanaverageof2019-2020investments.Thecategory“Unknown”includesinvestmentsthatcouldnotbeattributedtoeitherthepowersectororenduse.53Thelandscapeofrenewableenergyfinancefrom2013to2022Thisleavesasubstantialportionoftheglobalenergysystemheavilyreliantonfossilfuels,asin2019theshareofrenewablesinthetotalfinalenergyconsumptionwasonly11.2%forheatingandcooling,and3.2%fortransport(REN21,2022).Eventhoughpoweraccountsforhalfofthetotalenergyconsumptionby2050accordingtoIRENA's1.5°CScenario,andtherehavebeenmeasurestoencourageelectrificationforendusessuchaselectricvehiclesandheatpumpsinsomecountries(chieflymembersoftheOECD),supportformorewidespreadadoptionofdirectusesofrenewableswillbeneededtoacceleratethedecarbonisationoftheentireenergysystem(IRENA,2022a).BasedonIRENA’s1.5°CScenario,directapplicationsforenduseswillbecrucialtoreplacefossilfuelsintheindustrial,residentialandtransportsectors.Investmentsinrenewablesforendusesneedtoincreasesignificantly,fromUSD13billionin2022toanaverageofUSD269peryearbetween2023-2030(Table1.1).Toachievethis,deploymentpoliciessuchastargets,mandates,financialincentives,andenablingpoliciessuchasawarenesspromotion,andfundingforresearchanddevelopmentandpilotprojects,amongothers,willbeneeded.TheanalysisofglobalrenewableenergyfinanceflowsisbasedondatadrawnfromtheClimatePolicyInitiative’sGlobalLandscapeofClimateFinancedatabase,whichcapturesprimaryinvestmentinelectricityproductionandend-useapplicationsmadeinthetechnologieslistedbelow.Thedatabasedoesnotincludeinvestmentsinprivateresearchanddevelopmentorinvestmentsinmanufacturingfortheproductionofrenewableenergytechnologies(e.g.newtypesofwindturbines).Formoredetails,seethemethodologydocument(Appendix).Box2.1ScopeofCPIdata:Powergenerationvs.end-useapplicationsElectricityproductionEnd-useapplicationsBioenergyBiomass-,biogas-orbiofuel-firedpowerplants(includingwaste-firedpowerplants);combinedheatandpowerplants(powerportion)Biofuelproductionfortransportation(i.e.gasoline/petrol,diesel,naturalgassubstitutes);combinedheatandpowerplants(heatportion)DoesnotincludebiomassboilersSolarphotovoltaic(PV)UtilityscaleandrooftopsolarPVNotapplicableSolarthermal(includingCSP)ConcentratedsolarpowerSolarwaterheatersGeothermalConventionalgeothermalpowerplant;combinedheatandpowerplants(powerportion)Combinedheatandpowerplants(heatportion)DoesnotincludegeothermalheatpumpsHydropowerSmall-andlarge-scalehydropowerplantsNotapplicableOffshorewindOffshorewindpowerplantsNotapplicableOnshorewindOnshorewindpowerplantsNotapplicableMarinePowerplantsbasedonoceantechnologies,e.g.wave,tidal,oceancurrents,saltgradientNotapplicable54GLOBALLANDSCAPEOFRENEWABLEENERGYFINANCE20232.3Investmentsbyregion2.3.1InvestmentbyregionofdestinationTheEastAsiaandPacificregioncontinuestoattractthemajorityofglobalrenewableenergyinvestment.CountriesoftheregionreceivedUSD137billionin2019andUSD170billionin2020(or42%and49%ofglobalrenewableenergyfinancingforthoseyears)(Figure2.8).Preliminarydatafor2021and2022indicatethattheshareofinvestmentsgoingtotheEastAsiaandPacificregionsurpassed50%in2021,risingtotwo-thirdsoftheglobaltotalin2022,ledbyChina.Chinaattractedthelion’sshareofinvestmentintheregion(84%in2019and79%in2020).Between2013and2020,Chinaaloneattracted23-39%ofglobalrenewableinvestmentseachyear,mostofthemraiseddomestically.China’sstoryisoneofimmensegovernmentambitiontocontainpeakemissionsby2030andachievecarbonneutralityby2060(EnergyPost,2022).EuropeEastAsiaandPaciﬁcNorthAmerica(excludingMexico)EurasiaSouthAsiaSub-SaharanAfricaOthersLatinAmericaandtheCaribbeanFigure2.8Investmentinrenewableenergybyregionofdestination,2013-2022Note:“NorthAmerica(excludingMexico)”includesBermuda,CanadaandtheUnitedStates.“Others”includetheMiddleEastandNorthAfrica,OtherOceania,Transregional,OtherAsiaandUnknown.Formoredetailsonthegeographicclassificationusedintheanalysis,pleaseseemethodologydocument(Appendix).Source:CPI(2022a).Investmentsfor2021and2022representpreliminaryestimatesbasedondatafromBNEF(2023b).55Thelandscapeofrenewableenergyfinancefrom2013to2022Concernsaboutclimatechange,energysecurityandairpollutionhaveledthecountrytoinvesthistoricsumsinrenewableenergydeploymentanddevelopment(Chiu,2017);USD792billionwasinvestedinrenewableenergyprojectsin2013-2020,asinvestmentsgrew17%ayearonaverage.Nearly99%ofthiswasfundeddomestically.Also,considerablepublicinvestmenthasgoneintocreatinganenablingenvironmentfordeploymentatthisscale,andthepaceofthisinvestmenthasacceleratedsharplyinrecentyears.In2022,ChinainvestedmorethanUSD274billion(anamountgreaterthanallglobalinvestmentsmadein2013),upfromUSD176billionandUSD115billionin2021and2020,respectively.ConsistentstronginvestmentsinwindandsolarputChinaontracktomeetitstargetofhaving1200GWofinstalledcapacityinthesetechnologiesby2030(CarbonBrief,2021),assetoutinthe14thFive-YearPlanannouncedin2022.Asuiteofpolicies,includingvalueaddedtaxexemptionsonrenewableenergygeneration,incometaxexemptionsforrenewableenergydevelopersandguaranteedpurchaseofrenewableenergybyutilitieshavebeeninstrumentalinthisgrowth.China’stargetedpolicieshavehadsubstantialeffectsoninvestment.The2014announcementofaFiTforoffshorewindwasfollowedbyafivefoldincreaseininvestmentinthissectorin2015(Figure2.9)(BNEF,2022a).Annualinvestmentgrewby20timesinthefewyearsbetween2014and2019.Likewise,onshorewindinvestmentinChinasurgedin2019and2020asdevelopersrushedtoinstallprojectsbeforetheexpirationofanationalFiTattheendof2020(REN21,2022).USDbillionPrivatePublicFigure2.9Publicandprivateinvestmentsinoffshorewind,China,2013-2020Source:CPI(2022a).56GLOBALLANDSCAPEOFRENEWABLEENERGYFINANCE2023InvestmentinrenewableenergyhasgrownsignificantlyinVietNam,whichovertookJapantobecometheregion’ssecond-largestdestinationofcapitalin2020,largelyduetoexpiringFiTapplications(Lorimer,2021).DomesticprivateinvestmentinsolarPVisanimportantpartoftheregionalstory.From2013to2020,investmentgrewbyanaverageof219%peryear,risingfromonlyUSD47milliontonearlyUSD18.7billion.PrivatedomesticinvestmentinsolarPVaccountedfor58%oftotalfinancingoverthisperiod.Spurredbylowerinterestrates,favourablepolicyandstronggrowthinpower-hungryindustries,solarPVprojectsinVietNamadded19GWofcapacityin2019-2020(Climatescope,2022a).However,aftertheFiTexpired,investmentsdeclinedquickly–fromaboutUSD18.7billionin2020toaboutUSD9.7billionin2021,tolessthanUSD4.7billionin2022.Box2.2examinesthegrowthofinvestmentsinVietNamingreaterdetail,andcomparesthistrendwiththatofneighbouringThailand.NorthAmerica(excludingMexico)sawthesecond-highestinvestmentinrenewables,attractingUSD68billionin2019andUSD53billionin2020(equivalentto21%and15%oftheglobaltotal,respectively).MuchofthiswasfocusedontheUnitedStates,andtheshareoffundinggoingtotheregionhasgraduallydeclinedinrecentyearsduetoadropindomesticUSinvestments(BNEF,2022c).Accordingtopreliminarydata,investmentsintheregionincreasedtoalmostUSD66billionin2021andthendecreasedtoUSD59billionin2022(BNEF,2023b).TheimminentclosingoftheProductionTaxCreditintheUnitedStatesmayhavebeenonecauseforthefallininvestments–mostlyonshorewind-from2019to2020.The2022InflationReductionActintheUnitedStatesintendedtospuranewwaveofdomesticinvestment.NewtaxcreditsandUSD30billionintargetedgrantsandloansforcleanenergygenerationandstoragewereearmarkedfortherenewableenergysector.Thisis11timeshigherthanthetotalUSD2.6billionindirectgovernmentfinancingseenfrom2013to2020.TheearmarkedUSD60billioninsupportofmanufacturingoflow-carboncomponents,includingsolarpanelsandwindturbines,seekstofurthercrowdinprivateinvestment(USCongress,2022).InvestmentsintheUSrenewableenergysectorareexpectedtoreachUSD114billionby2031,drivenbythemomentumoftheInflationReductionAct(PVMagazine,2023).EuropeattractedUSD54billionin2019andUSD67billionin2020(16%and19%oftheglobaltotal,respectively).PreliminarydatasuggestinvestmentsreachedUSD77billionin2021,butdroppedtoUSD61billionin2022(BNEF,2023b).In2020,investmentsintheregiongrewbyarecord24%comparedto2019,drivenprimarilybyanalmostfourfoldincreaseininvestmentsintheUnitedKingdomandanalmostthreefoldincreaseintheNetherlands,comparedto2019.Thisincreasewasdrivenbyanalmostfourfoldincreaseinoffshorewindinvestments–fromUSD4billionin2019toUSD17billionin2020–whileinvestmentsinsolarPVandonshorewindremainedstable.OffshorewindinvestmentinEuropecontinuestobeledbytheUnitedKingdom,theNetherlandsandGermany.IntheUnitedKingdom,theRenewablesObligationoncompaniestosourceanincreasingshareoftheirenergyneedsfromrenewables,anditssuccessor,theContractforDifferencemechanism,havedecreasedinvestorrisk,loweredthecostofcapitalandpromptedasurgeinprivateinvestment(McNally,2022).57Thelandscapeofrenewableenergyfinancefrom2013to2022VietNam’srapidindustrialisationhaspromptedasurgeinenergydemand.Muchofthisindustrialgrowthhasbeenfuelledbyforeigndirectinvestment,ascompanieslooktodiversifytheirsupplychainsawayfromChina.Rooftopsolarinstallationsinindustrialparkshavegrowntomeetthesecompanies’requirementsforrenewableenergy(andmoreclimate-friendlyproducts).Thecountryhasincentivisedthegrowthofrenewableenergygenerationviafeed-intariffs(FiTs)inthesolarindustry.Tariffsforonshoreandoffshorewindweremademoregenerousin2018afterpoorinitialuptake(BNEF,2022b).Coalisstilltheprimarysourceofelectricityproductioninthecountry,thoughslowdevelopmentofnewplantsledthegovernmenttopivottosolar(andlaterwind)alongwithgastomeetitsrisingenergyneeds(GovernmentofVietNam,2016).Incontrast,investmentinneighbouringThailandhasbeenanaemic(Figure2.10).Thiscanbepartlyexplainedbydifferencesinthetwocountries’stagesofeconomicgrowth,andenergymixes,amongotherfactors.Whileendowedwithsimilarnaturalresources,economicgrowthinthe1990shelpedThailandsetupawell-functioningandrobustpowersupply.Asubsequentdeclineineconomicgrowthratesslowedenergydemandsignificantly,andThailand’sdemandnowlagsthatofitsrapidlyindustrialisingneighbour.In2020,duetorestrictionsassociatedwithCOVID-19,Thailand’sinstalledcapacityexceededdemandby40%.Governmentambitionsaretheothersideofthestory.Thailand’sPowerDevelopmentPlanaimsfora10GWexpansioninsolarPVcapacityby2037,whereasVietNamhastargetedanadditional18GWofsolarPVcapacityby2030andanother18GWfromwindpower(BNEF,2022b).WithrenewableenergygrowthinThailandremainingtepidfortheforeseeablefuture,privateenergygiantssuchasSuperEnergyCorphavebeenincreasinglyturningtoforeignmarkets,includingVietNam,tofuelgrowth.BothcountrieshaveusedgenerousFiTstohelpgrowthesupplyofrenewableenergy.However,VietNam’shighenergydemandandambitiousrenewableenergytargetshavemadeFiTsamoreeffectivepolicytool.VietNamservesasapositivemodelforothercountriesexperiencingsimilargrowth.Box2.2RenewableenergytrendsinVietNamandThailandUSDbillionThailandVietNamFigure2.10RenewableenergyinvestmentsinVietNamandThailand,2013-2020Source:CPI(2022a).58GLOBALLANDSCAPEOFRENEWABLEENERGYFINANCE2023TheNetherlands’feed-inpremiumsschemeandenergytaxexemptionforrenewableenergygeneratorshavealsopromptedrapidgrowthintheindustry,whichledthecontinentinoffshorewindinvestmentin2020(Climatescope,2022b).GermanyhasalsochosentopursueaFiTandnationalandstategrantstoaccelerategrowthinrenewableenergygeneration(BNEF,2022d).Acrossthecontinent,net-zerocommitmentsandextensivepoliciestophaseoutfossilfuelsaredrivinggrowthinrenewableenergy.TheGreenNewDealcommitsmembersoftheEuropeanUnion(EU)toreducingnetemissionsbyatleast55%by2030comparedto1990(EuropeanCommission,2022).Buildingonthis,theEuropeanCommissionpresentedaGreenDealIndustrialPlanfortheNet-ZeroAgeinFebruary2023,whichwouldprovideinvestmentaidandtaxbreakstowardstechnologicaldevelopment,manufacturing,productionandinstallationofnet-zeroproductsingreensectorsincludingrenewablesandhydrogen(Bloomberg,2023;EuropeanCommission,2023).TheplanlookstomobiliseEUR225billioninloansfromitsexistingRecoveryandResilienceFacility,andanadditionalEUR20billioningrants(EuropeanCommission,2023).Theplancamesoonaftertheannouncementofthe2022InflationReductionActintheUnitedStates,asEuropelookstostaycompetitiveinthenet-zeroage.AforthcomingNet-ZeroIndustryActseekstostreamlinepermittingprocesses,withtheviewtospeeddevelopmentandreducecosts.Afterarockystart,theEuropeanEmissionTradingschemeprovidesthelargestandoneofthemostfunctionalcap-and-tradesystemsofanyeconomicbloc.Regionshometoabout120developingandemergingmarketscontinuetoreceivecomparativelylowinvestments,attractingacombinedinvestmentofUSD59billionandUSD51billionin2019and2020,respectively.Amongthese,LatinAmericaandtheCaribbeanattracted6.1%(2019)and4.9%(2020)ofglobalinvestments,followedbySouthAsia,theMiddleEastandNorthAfrica,EurasiaandSub-SaharanAfrica.Acrosstheseregions,thebulkofrenewableenergyinvestmentsiscapturedbyonlyahandfulofcountries:Brazil,ChileandIndia(Figure2.11).USDbillionMexicoOtherSouthAfricaPakistanBrazilIndiaChileTürkiyeUnitedArabEmiratesFigure2.11Renewableenergyinvestmentsindevelopingandemergingmarkets,bytopcountries,2013-2020Source:CPI(2022a).59Thelandscapeofrenewableenergyfinancefrom2013to2022In2022,morethan50%oftheworld’spopulation,mostlyresidingindevelopingandemergingcountries,receivedonly15%ofglobalinvestmentsinrenewables.Further,theshareofrenewableenergyinvestmentsgoingtothesecountrieshasbeengraduallydecliningyearonyear(e.g.from27%in2017to15%in2022).Inabsoluteterms,annualinvestmentshavebeendecliningprecipitouslysince2018atanaveragerateof36%.Countriesdefinedas“leastdeveloped”bytheIntergovernmentalPanelonClimateChangeattractedonly0.84%ofrenewableenergyinvestmentsonaveragebetween2013and2020.Lookingatinvestmentsonapercapitabasisfurtherrevealsthedisparityininvestments.InEastAsiaandPacific,investmentpercapitaincreasedby51%between2015and2021fromUSD70/personin2015toUSD105/personin2021.ThebulkoftheincreasetookplaceinChina,whileJapanexperienceda45%declineoverthesameperiod.Excludingthesetwocountries,theregionexperiencedamorethan6-foldincreaseledbycountriessuchasVietNamandRepublicofKorea.InSouthAsia,investmentspercapitadeclinedby6%between2015and2021,howeverthetrueextentofthedeclineismaskedbyIndiawhichsawinvestmentpercapitagrowby34%inthesameperiod.ExcludingIndia,investmentpercapitadeclinedby61%fromUSD12/personin2015toUSD5/personin2021.Table2.1Investmentpercapitabyregionandpopulationgrowth,2015-2021Basedon:InvestmentdataisfromCPI(2022a)andBNEF(2023b)andpopulationdatafromWorldBank(n.d.)RegionInvestmentpercapita(USD/population)Populationgrowth20152021Percentagechange(%)Percentagechange(%)EastAsiaandPacific7010551%3%(excl.ChinaandJapan)1064551%6%(excl.China)457566%5%China8412448%2%Japan255140-45%-1%SouthAsia87-6%7%SouthAsia(excl.India)125-61%9%India6834%6%NorthAmerica(excludingMexico)12717941%4%Europe1221275%1%Eurasia223-87%2%LatinAmericaandCaribbean4231-25%5%Sub-SaharanAfrica63-44%17%Others(incl.Eurasia,OtherAsia,MENA,andOceania)2011-43%8%Percentagechangeininvestmentpercapita(%)>10%0%<10%<0%60GLOBALLANDSCAPEOFRENEWABLEENERGYFINANCE2023ThemoststrikinggrowingdisparityisbetweenNorthAmerica(excludingMexico)andEurope,andSub-SaharanAfrica.In2015,renewableenergyinvestmentpercapitainNorthAmerica(excludingMexico)andEuropewasalmost23timeshigherthanthatofSub-SaharanAfrica.In2021,investmentpercapitainEuropewas41timesthatinSub-SaharanAfrica(whichin2021felltojustUSD3/personfromUSD6/personin2015),andNorthAmericawas57timesmore(Table2.1).IRENAanalysedthefinancelandscapeofAfricainitspublication,Renewableenergymarketanalysis:Africaanditsregions(IRENA,2022f).ThereportshowedthatoftheUSD2.8trillioninvestedinrenewableenergygloballybetween2000and2020,only2%–equivalenttoUSD60billion,excludinglargehydropower–wenttoAfrica,despitethecontinent’senormouspotentialandneeds(Figure2.12).Moreover,thereportshowedthat75%oftheinvestmentsmadebetween2010and2020wenttojustfourcountries:SouthAfrica,Morocco,EgyptandKenya.Thesecountriesofferrelativelyfavourablerisk-returnprofilesowingtotheirpolicyandinstitutionalenvironment,regulations,accesstofinanceandmarketcharacteristics(e.g.size,prospectsandstability).LookingatAfricanregions,NorthAfricawasthesecond-largestrecipientofrenewableenergyinvestmentsonthecontinentduring2000-2020,afterSouthernAfrica(Figure2.12).MoroccoandEgyptreceivedthemajorityoffunding(47%and45%,respectively),primarilyforsolarPV(57%)andonshorewind(22%).TheNorthAfricanregionbenefitsfromgreaterprivatesectorparticipationthanisseenelsewhereonthecontinent.In2020,privateactorsprovided65%ofallrenewableenergyfinanceinNorthAfrica,upfromonly11%in2013.2000-20092010-2020Cumulative2000-2020587USDbillionGlobalAfrica2254USDbillion2841USDbillionNorthAfricaWestAfricaEastAfricaCentralAfricaSouthernAfricaUSD1.9billionUSD0.5billionUSD2.0billionUSD0.1billionUSD0.3billionUSD17.5billionUSD3.9billionUSD9.7billionUSD1.3billionUSD22.4billionUSDbillioncurrent3%CentralAfrica20%EastAfrica32%NorthAfrica38%SouthernAfrica7%WestAfrica60USDbillion4.8USDbillion0.8%ofglobalinvestment55USDbillion2.4%ofglobalinvestment60USDbillion2%ofglobalinvestmentFigure2.12CumulativerenewableenergyinvestmentinAfricaandglobally,2000-2020Source:IRENA(2022f).61Thelandscapeofrenewableenergyfinancefrom2013to2022TheshareofglobalrenewableenergyinvestmentsgoingtoSub-SaharanAfricaremainssmall.TheregionreceivedlessthanUSD41billioncumulativelyduring2000-2020–thatis,lessthan1.5%oftheamountinvestedgloballyduringthatperiod.Investmentsintheregionhavebeenonadownwardtrend(fromUSD5.3billionin2019tolessthanUSD3.6billionin2022),despitethefactthattheworldemergedfromthepandemicsupposedlyrecognisingthecriticalroleenergyplaysinenablinghealthcare,sanitation,telecommunicationsandresilientlivelihoods.However,inreality,theinequalityinthespreadofinvestmentsbetweentheGlobalNorthandtheGlobalSouthonlyincreased.InSouthernAfrica,SouthAfricawastheprimarydestinationofthisfinancing,havingreceivedUSD17billionduringthisperiod,or40%oftotalinvestmentintheregion.MuchofthiscameintheformofprivatedomesticinvestmentinsolarPVandwindprojects,totallingUSD3.9billionandUSD4.2billionovertheperiod,respectively.Thepre-eminenceofSouthAfricaintheregioncanbeexplainedbyitsrelativelymaturerenewableenergymarket–perceivedasrelativelylessriskybyinvestors–andaburgeoningcommitmenttodecarbonisingthenationalenergysystem.TheRenewableEnergyIndependentPowerProducerProcurementProgram,introducedin2011,aswellasSouthAfrica’sIntegratedResourceplanandIntegratedEnergyPlanexplicitlytargetamorediverseenergymix,andhaveprovidedconfidenceforprivatesectorinvestorsbeyondthatofferedbyotherlargeeconomiesinSub-SaharanAfrica(Climatescope,2022c).Lookingahead,SouthAfricaisamongthefirstcountriestobenefitfromtheJustEnergyTransitionPartnership(JETP)funding(seeBox4.1).InEastAfrica,Kenyadominates,receiving49%ofoverallinvestmentsintheregion,withprivatesourcesofcapitalplayinganincreasinglylargerroleinrecentyears.FiTs(thoughfacedwithabacklogofapplications),alongwithgrowingdemandasthecountryaimsfor100%electricityaccess,havecontributedtothisincrease.InotherEastAfricanmarkets,renewableenergyinvestmentscontinuetobelowandfinancedprimarilythroughpublicsources,whichaccountedfor57%ofinvestmentsintheregionduring2013-2020,themajoritycomingfrombilateralandmultilateraldevelopmentfinanceinstitutions(DFIs)(51%).ThesituationissimilarinWestAfrica,where61%ofrenewableenergyinvestmentsduring2013-2020camefrompublicsources,abouthalfofthembackedbybilateralandmultilateralDFIs.Halfofallrenewableenergyinvestmentsintheregionwenttojusttwocountries–Nigeria(29%)andSenegal(21%).Intermsoftechnologies,investmentsweremainlyinsolarPV(55%)andonshorewind(13%)projects.CentralAfricareceivedthelowestlevelsofinvestmentofanyregiononthecontinent,despitethedireneedtoexpandenergyaccess.About56%offinancingcomesfrompublicsources,thoughsomemarketsareabletoattractasignificantproportionofinvestmentfromprivatesources,namelyAngola(57%)andChad(79%).TheneedforincreasedinvestmentinrenewableenergyinSub-SaharanAfricabecomesevenclearerasmuchoftheregionstrugglestoreachuniversalaccesstoelectricity.Providingelectricitytothe600millionAfricansthatlackitiscrucialtothecontinent’sdevelopment.However,theUSD9billioninrenewableenergyinvestmentsthatthecontinentattractedonaveragein2019/20remainsfarshortoftheestimatedUSD133billionneededannually(CPI,2022b).62GLOBALLANDSCAPEOFRENEWABLEENERGYFINANCE20232.3.2InvestmentbyregionoforiginDuring2013-2020,themajorityofrenewableenergyinvestments(83%)weremadedomestically,i.e.fundedthroughin-countrysources.TheshareofdomesticinvestmentswashigherinregionswithmaturerenewableenergymarketssuchasEastAsiaandPacific(96%),NorthAmerica(excludingMexico)(87%)andEurope(85%)(Figure2.13).Bycontrast,only61%ofinvestmentflowingtotheMiddleEastandNorthAfricaand50%toSub-SaharanAfricaoriginatedfromdomesticsources,highlightingthedependencyofthesemarketsoninternationalcapital.TheCOVID-19pandemic,aggravatedbytherecenteconomicandenergycrises,hashadespeciallydamagingeffectsonemerginganddevelopingeconomiesintermsofimpactsonconsumers’income,companies’balancesheetsandpublicfinances.Thismakesitlikelythatthesemarketswillcontinuetorelyoninternationalpublicandprivatefundinginthecomingyears.Giventheprevalenceofdomesticinvestments,thedistributionofrenewableenergyinvestmentbysourceregionmatchesthedistributionbytargetregion(Figure2.14).TheEastAsiaandPacificregioninvestedmostheavily,accountingfor44%and51%oftotalinvestmentsin2019and2020,respectively.Chinaaloneprovided82%(2019)and79%(2022)ofthis.NextwereinvestorsbasedinEurope(providing22%ofinvestmentsin2019and2020)andinNorthAmerica(excludingMexico)(20%in2019,15%in2020).EastAsiaandPaciﬁcEurasiaEuropeLatinAmericaandtheCaribbeanMiddleEastandNorthAfricaNorthAmerica(excludingMexico)SouthAsiaSub-SaharanAfricaOthersUnknownInternationalDomesticFigure2.13Cumulativedomesticandinternationalinvestmentinrenewableenergy,byregionofdestination,2013-2020Note:“NorthAmerica(excludingMexico)”includesBermuda,CanadaandtheUnitedStates.“Others”includeUnknown,OtherOceania,TransregionalandOtherAsia.Formoredetailsonthegeographicclassificationusedintheanalysis,pleaserefertothemethodologydocument(Appendix).Source:CPI(2022a).63Thelandscapeofrenewableenergyfinancefrom2013to2022Whenlookingatinternationalflowsoffinance,thelargestamountoffinancingflowsbetweencountrieswithinEurope.AscanbeseeninFigure2.15,thereisarobustcross-bordermarketonthecontinent.Europealsoinvestsheavilyinotherregions,namelyNorthAmerica(excludingMexico)andLatinAmericaandtheCaribbean.EurasiaSouthAsiaSub-SaharanAfricaOthersEuropeEastAsiaandPaciﬁcNorthAmerica(excludingMexico)LatinAmericaandtheCaribbeanFigure2.14Investmentinrenewableenergybyregionoforigin,2013-2020Note:“NorthAmerica(excludingMexico)”includesBermuda,CanadaandtheUnitedStates.“Others”includeUnknown,theMiddleEastandNorthAfrica,OtherOceania,TransregionalandOtherAsia.Formoredetailsonthegeographicclassificationusedintheanalysis,pleaserefertothemethodologydocument(Appendix).Source:CPI(2022a).MiddleEastandNorthAfricaSub-SaharanAfricaOtherAsiaOtherOceaniaTransregionalUnknownEurasiaSouthAsiaEastAsiaandPaciﬁcNorthAmerica(excludingMexico)EuropeLatinAmericaandtheCaribbeanInternationalﬂowsout(USDmillion)Internationalﬂowsin(USDmillions)Figure2.15Regionalprovidersandreceiversofinternationalrenewableenergyinvestments,2013-2020Source:CPI(2022a).64GLOBALLANDSCAPEOFRENEWABLEENERGYFINANCE20232.4InvestmentsbyfinancialinstrumentThisanalysisconsidersthreetypesoffinancialinstruments:project-levelfinancing(debtandequity),balancesheetfinancing(debtandequity)andgrants.6Theshareofequityfinancingfellfrom77%in2013to43%by2020,globally.Therein,balancesheetfinancing(equityportion)accountedfor55%ofequityinvestment,onaverage,whileproject-levelequityaveraged45%overtheperiod(seeFigure2.16).Conversely,theshareofdebtfinancingincreased–from23%in2013to56%in2020.ThisislikelylinkedtothematurationandconsolidationofmajorrenewabletechnologiessuchassolarPVandonshorewindthatareabletoattracthighlevelsofdebt,aslendersareabletoenvisionregularandpredictablecashflowsoverthelongterm,facilitatedbypowerpurchaseagreements(PPAs)andotherpolicysupport(e.g.FiTs)inmanycountries.Goingforward,widespreadmobilisationoflow-costdebtwillbecriticalfordeploymentofcapital-intensiverenewableenergyprojects,whileequityfinancingwillalsoremainkey,particularlytokickstartrelativelylessmaturetechnologies,andfinanceprojectsinrelativelyhigh-riskorcredit-constrainedcontexts.Intermsoffinancingstructures,projectfinancinghasbeendecliningsince2013,whilebalancesheetfinancinghasshowngrowthinrecentyears.Theshareofprojectequityfellfrom40%in2013to10%in2020whilethedebtandequityportionsofbalancesheetfinancingconstituted30%and31%,respectively,oftotalcommitmentsby2020.Projectfinancetransfersrisksfromthelendertotheprojectdeveloperandinsurancestructuresthroughnon-recoursefinancing,basedontheprojectedcashflowoftheprojectoveraspecificperiod.Balancesheetfinance,ontheotherhand,involvesusingretainedearningsfrombusinessactivitiestofinanceassetsonacompany’sbalancesheet,anindicationoftheextenttowhichacompanyself-financesitsassets.Astherenewableenergysectorhasmatured,andprojectdevelopershavegrowntheirportfolios,balancesheetfinancinghasbecomeaviablestructurewhenthecostofnon-recoursefinancebecomesmoreexpensive,andrisksarewellunderstoodandmitigated.Italsoallowsthecompanytotransfergainstoequityshareholders.6Project-levelfinancing:debtorequityinvestmentrelyingonaproject’scashflowforrepayment.Balancesheetfinancing:directdebtorequityinvestmentinarecipiententitybyacompanyorfinancialinstitution.Grants:transfersmadeincash,goodsorservicesforwhichnorepaymentisrequired.65Thelandscapeofrenewableenergyfinancefrom2013to2022In2019/2020,7overhalfofsolarPVinvestment(57%)waschannelledviaequitywhileinvestmentinonshorewindwasstilldominatedbydebt(69%)(seeFigure2.17).ThelowershareofequityinonshorewindrelativetosolarPVcouldrelatetothelargerroleplayedbystate-ownedfinancialinstitutionsindevelopingwindprojects–suchinstitutionsgenerallypreferdebtlending.7Therewasnosignificantchangebetween2019and2020inthedistributionoffinancialinstrumentsbytechnology;therefore,theaverageoverthetwoyearshasbeenused.UnknownProject-levelequityGrantBalancesheetﬁnancing(equityportion)Project-levelmarketratedebtLow-costprojectdebtBalancesheetﬁnancing(debtportion)Figure2.16Investmentinrenewableenergy,byfinancialinstrument,2013-2020UnknownProject-levelmarketratedebtProject-levelequityBalancesheetﬁnancing(equityportion)Balancesheetﬁnancing(debtportion)OtherProject-levelmarketratedebtProject-levelequityBalancesheetﬁnancing(equityportion)Balancesheetﬁnancing(debtportion)OnshorewindSolarPVFigure2.17SolarPVandonshorewindinvestmentsbyinstrument,2019/2020averageNote:1square=1%;PV=photovoltaic.“Other”includesunknown+thenegligibleamountsofgrant/low-costprojectdebt.Source:CPI(2022a).Source:CPI(2022a).66GLOBALLANDSCAPEOFRENEWABLEENERGYFINANCE2023Theshareofconcessionalfinance(grantsandlow-costprojectdebt8)remainedsmall,accountingforonly1%oftotalrenewableenergyfinancein2020.Scarceconcessionalfinance–mostoftenprovidedbygovernmentsandmultilateral,bilateralornationalDFIs–isnotmakingitswaytolessmaturemarkets,whichmeanstheenergytransitionisnotabletoadvanceinmanydevelopingcountries(Chapter4).Governmentsprovidedthemajorityofgrant-basedfinance(55%),withDFIstogethercontributing93%oftotallow-costprojectdebtcommittedforrenewableenergybetween2013and2020.Oftheconcessionalfinancethatcouldbetrackedtospecificcountries,68%wasdirectedtolow-andlower-middle-incomecountries.9Withinthatpoolofgrantsandlow-costdebt,30%flowedtotheleast-developedcountries.10Itisnowwidelyacknowledgedthatblendedfinance–thestrategicuseofconcessionalfinancetomobiliseadditionalprivatecapital–isakeytoolforeasinginvestorconcernsandsupportinglong-termmarketgrowth,especiallyformoreniche,lesscommercialrenewableenergytechnologies(MutambatsereanddeVautibault,2022).Indeed,DFIs(particularlymultilateraldevelopmentbanks)haveanimportantroletoplayinde-riskingrenewableenergyprojectsfornewmarketsortechnologies.ThistopicisdiscussedinChapter4.Amongregions,LatinAmericaandtheCaribbeanhadthelargestshareofconcessionalfinance(37%);otherdevelopingregionshadamoreevenspread.Theshareoflow-costprojectdebtwasalsolargestinLatinAmericaandtheCaribbean(43%oftotallow-costdebt),whileSub-SaharanAfricareceivedthemostgrantfinancing(29%oftotalgrantsbetween2013and2020).TheseregionaltrendsareexplainedbytherelativedominanceofDFIsprovidinglow-costdebtinLatinAmerica,andamixofDFIsandgovernmentsprovidinggrantsinSub-SaharanAfrica.Grantfinanceisessentialforbuildingapipelineofbankableprojects,helpingprojectsreachalevelofmaturitythatmightattractinvestors,launchingpilotprojects,aswellashelpingtofundnon-profit-drivenactivitiessuchasgeothermalexplorationdrillingorthedecommissioningoffossilfuelplants(IRENA,2016a).Lookingatallfinancialinstruments(concessionalandnon-concessional)byregion,publicspending(particularlymultilateraldevelopmentfinance–seeSection2.5.2)dominatedinmostdevelopingmarkets,hencetheirhighersharesofdebtlending.AgroupofcountriesinCentralAsia–Kazakhstan,KyrgyzstanandTajikistan(classifiedasOtherAsiainthisreport)–hadthelargestportionofdebtlendingovertheperiod2013-2020(69%),followedbyLatinAmericaandtheCaribbeanandSub-SaharanAfrica(eachat58%)(Figure2.18).InEuropeandNorthAmerica,ontheotherhand,privatefinancedominated(seeSection2.5),withhighinvestmentfromcommercialfinancialinstitutionsandcorporations,resultingintheemergenceofequityfinanceintheseregions.ProjectstaggedasTransregionalwereheavilydominatedbyequityinvestments(85%).Oceaniaalsohadahigherproportionofequityinvestmentsthanotherregions(65%),duetotherelativelylargerroleofhouseholdsandindividualsinfinancingrenewableenergy.8Low-costprojectdebtreferstodebtwithinterestrateslowerthanthemarketrate,andlongerloantenortoprovideprojectdeveloperswithmoretimeforrepayment.Whetherdebtisconsideredlow-costormarket-pricedisdeterminedbydataprovidersinthisanalysis.9AspertheWorldBank’s(2021)countryincomeclassification.10AspertheUnitedNation’slistofleast-developedcountries.67Thelandscapeofrenewableenergyfinancefrom2013to2022Privateactorsprovidedthevastmajority(87%)ofequityfinancing;thepublic-privatesplitfordebtwasmorebalanced(seeFigure2.19).Corporationsandhouseholds/individualsprovidedasubstantialportionofequityfinancing(together,83%during2013-2020)whilemostdebtlendingwasprovidedbycommercialfinancialinstitutions,state-ownedfinancialinstitutionsandmultilateral/nationalDFIs(togetherproviding63%ofdebt).Section2.5considersinvestmentsbysourceoffinance.OtherAsiaLatinAmericaandtheCaribbeanSub-SaharanAfricaSouthAsiaEurasiaEastAsiaandPaciﬁcMiddleEastandNorthAfricaEuropeNorthAmerica(excludingMexico)OtherOceaniaTransregionalOtherDebtEquityFigure2.18Renewableenergyinvestmentbyregionandtypeofinvestment(debtvs.equity),2013-2020DebtEquity2013-2020,USDbillionPublicPrivateHouseholds/IndividualsState-ownedFISOENationalDFIMultilateralDFIMultilateralclimatefundsGovernmentExportCreditAgencyBilateralDFIInstitutionalinvestorsFundsCorporationCommercialFIPrivatePublicFigure2.19Debtandequityinvestmentbytypeofinvestor,2013-2020Note:DFI=developmentfinanceinstitution;FI=financeinstitution;SOE=state-ownedenterprise.Source:CPI(2022a).Source:CPI(2022a).68GLOBALLANDSCAPEOFRENEWABLEENERGYFINANCE2023Innovative,context-specificinstrumentsandfinancingstructuresareneededtoscaleupandaccelerateinvestmentinrenewableenergyandaddressinvestmentbarriers,especiallyinregionsandtechnologiesstillperceivedasrisky.ThesearediscussedinChapter4.Themarketforfixed-incomesecuritiesisalsoexpandingandholdsgreatpotentialforchannellingconsiderablecapitalintoenergytransition–relatedtechnologies,includingrenewableenergy.Thesetypesofinstruments,includinggreen,social,sustainableandsustainability-linkedbonds,arediscussedindetailinthedeepdiveSectiononsustainablefixedincomemarket.Deepdive:Sustainablefixed-incomemarketThefixed-incomemarkethasenormouspotentialtoredirectglobalcapitaltowardsaddressingclimate-relatedchallenges.EstimatedtoholdaboutUSD123trillionofassetsasoftheendof2020,withannuallong-termissuancesofaboutUSD27trillion(SIFMA,2021),fixed-incomesecuritiescangoalongwaytowardsmeetingthecapitalrequirementsoftheglobalenergytransition.Alreadyawidelyknowninstrumentinthefinancialindustry,greenbondshaveexperiencedsignificantgrowthoverthepastdecade(about103%ayearin2011-2021),increasingfromaboutUSD800millionofissuancesin2007toaboutUSD545billionofissuancesin2021–anall-timeannualhighdespitepandemic-inducedeconomicchallenges.ThecumulativevalueofgreenbondissuancesbroketheUSD1trillionthresholdattheendof2020andstoodataboutUSD1.64trillionasoftheendof2021(EnvironmentalFinance,2022b)(Figure2.20).USDtrillionFigure2.20Greenbonds’cumulativeissuances,2007-2021Source:EnvironmentalFinance(2022b).69Thelandscapeofrenewableenergyfinancefrom2013to2022Inadditiontothegrowthintheamountofcapitalraised,thegreenbondmarkethasgreatlydiversifiedintermsoftypesofissuers,markets’geographicreach,aswellasthenumberofuse-of-proceedscategories.Earlyon,greenbondswerealmostentirelysupportedbydevelopmentbanks,suchastheEuropeanInvestmentBankandtheInternationalFinancialCorporation,whichremainimportantinregionsnewtogreenbonds.Buttheinstrumentquicklyevolved.Corporatesnowdominateissuances(accountingfor37%ofcumulativeissuancesin2007-2021),followedbyfinancialinstitutions(22%),agencies(17%),sovereigns(10%),developmentbanks(8%)andmunicipalissuers(7%).Intermsofitsgeographicreach,thegrowthinAsia-Pacifichasbeenparticularlystrong;theregionnowrankssecondintermsofoverallcumulativeissuances(23%in2007-2021)–aheadofNorthAmerica(22%),butbehindEurope(45%).Renewableenergycontinuestodominatetheuse-of-proceedscategoriesforgreenbonds.About62%ofallgreenbondissuances(inUSD,2007-2021)includerenewableenergy,whileabout15%ofgreenbondsareearmarkedsolelyforrenewableenergy,followedbygreenbuildings(11%)andcleantransport(5%)(EnvironmentalFinance,2022b).Inadditiontogreenbonds,otherformsofsustainablefixed-incomeofferingsarebecomingincreasinglycommoninthefinancialmarket.Green,social,sustainableandsustainability-linkedbonds(GSSSbonds)reachedacumulativevalueofaboutUSD2.6trillionasoftheendof2021.Greenbondsaccountforthelargestshareofthemarket(63%ofcumulativeissuances),followedbysocialbonds(17%),sustainablebonds(16%)andsustainability-linkedbonds(4%).Intermsofannualissuances,greenbondsrecordedUSD545billionin2021,followedbyUSD207billionworthofissuancesforsocialbonds,USD190billionforsustainablebonds,USD92billionforsustainability-linkedbondsandanotherUSD2billionforbondsthatspanmultipleGSSScategories(Figure2.21).ThisrepresentedanannualrecordfortheGSSSmarket,whichgrewby74%from2020to2021(EnvironmentalFinance,2022b).Eveninemerginganddevelopingmarketsthegrowthhasbeensurprisinglypositive.WhiletheystilllagbehindtheannualandcumulativeissuancesofdevelopedeconomiesofEurope,Asia-Pacific(mostlyChina)andtheAmericas,issuancesofGSSSbondsinemerginganddevelopingeconomiesreachedUSD159billion,nearlytriplethe2020volume(AmundiandIFC,2022).70GLOBALLANDSCAPEOFRENEWABLEENERGYFINANCE2023Socialbondsareintendedtofinanceactivitiesthatsupportpositivesocialoutcomes,suchasaffordablehousingandaccesstoessentialservices,includingbasicinfrastructureandfoodsecurity.SometimesalignedwiththeSocialBondPrinciplesoftheInternationalCapitalMarketsAssociation(ICMA),socialbondsareoftenaimedatdisadvantagedsegmentsofthepopulation–thoselivingbelowthepovertyline,minorities,displacedpersonsandpeoplewithdisabilities,amongothers.Over2900socialbondshadbeenissuedbytheendof2021,withanestimatedvalueofaboutUSD427billion,predominantlybydevelopmentandmultilateralbanks,suchastheAfricanDevelopmentBank,AsianDevelopmentBank,EuropeanBankforReconstructionandDevelopment,NewDevelopmentBankandInternationalFinanceCorporation(EnvironmentalFinance,2022b).Amongcountries,Franceinparticularhasbeenactiveinthissegmentwithlargeissuancesfrombanks,suchasSociétéGénéraleandCréditAgricole,forexample,aswellasitsgovernmentagencies,suchasUnédic,theFrenchunemploymentagency,andCaissed’AmortissementdelaDetteSociale(CADES)thatissuessocialbondstohelpfinancetheFrenchsocialsecuritysystem(NatWest,2022).USDtrillionSustainability-linkedMultipleGSSSGreenSocialSustainableFigure2.21GSSSbonds’annualissuances,2007-2021Note:“MultipleGSSS”referstobondsdeemedtobelongtomultipleGSSScategoriesatthesametime(i.e.greenandsocialbond,socialandsustainability-linkedbond,etc.)Source:EnvironmentalFinance(2022b).71Thelandscapeofrenewableenergyfinancefrom2013to2022Inthepastfewyears,COVID-relatedbondshavefocusedonthosemostnegativelyaffectedbythepandemic.AnotableexampleistheEuropeanCommission’sissuanceofsocialbondsundertheSupporttomitigateUnemploymentRisksinanEmergency(SURE)programme,intendedtosupportshort-termemploymentschemesinEUmemberstates.FromOctober2020untilMay2021,theCommissionissuedEUR89.64billionofsocialbondsinsevenissuances,makingthistheworld’slargestsocialbondscheme,withplansforfurtherissuancesuptothetotallimitofEUR100billion(EU,2022).SustainabilitybondstypicallyfinanceactivitiesthatsupportbothsocialandgreenoutcomesandarealignedwithICMA’sSustainabilityBondGuidelines.Over2700sustainabilitybondswereissuedbytheendof2021,withanestimatedvalueofaboutUSD405billion(EnvironmentalFinance,2022b).Themostcommonissuersaredevelopmentbanks,inparticulartheInternationalBankforReconstructionandDevelopment(thelendingarmoftheWorldBankGroup),theEuropeanInvestmentBankandtheAsianInfrastructureInvestmentBank(EnvironmentalFinance,2022b).Amongcountries,theUnitedStatesisparticularlyactiveinthissegment,mostlythroughgovernmentagencies,suchastheNewYorkStateHousingFinanceAgency,whichhasissuedsustainabilitybondstoraisecapitalforthedevelopmentofaffordablehousinginthestate.Sustainability-linkedbondslinkthebond’scoupon(annualorsemi-annualfixedpaymenttothebondholder)totheissuer’sachievementofselectedsustainabilitygoals.Forexample,theissuermaysetatargettoloweritsgreenhousegasemissions,itswateruseoritswaste,byacertainpercentageasofaspecificdeadline,andintheeventthetargetisnotachievedthecouponpaymentisincreasedbyapre-specifiedamount.ItalianenergyproducerEnelissuedthefirstsustainability-linkedbondin2019(raisingUSD1.5billionfrominstitutionalinvestors),whichhadaconditionthatEnelwouldmeetatargetofhaving55%ofitsinstalledelectricitycapacitysuppliedbyrenewablesby2021;ifthetargetwentunmet,thecouponwastoincreaseby25basispoints(or0.25%)(Enel,2019).AlmostentirelyissuedbycorporationsandasarelativelynewadditiontotheGSSSmarket,sustainability-linkedbondshavejustcrossedtheUSD100billionthresholdintermsofcumulativenotionalspreadover190issuancesasoftheendof2021(EnvironmentalFinance,2022b).Inadditiontolong-termfixed-incomemarketinstrumentslikeGSSSbondsandloans,short-termdebtinstrumentspresentanothercapitalpoolthatcanhelpfinancetheenergytransition.ValuedataboutUSD55trillionglobally,short-termdebtcanbeusedforpre-financingortheoperatingexpendituresofcompaniesandincludesinstrumentssuchascreditfacilities,short-termbankloans,exportfinanceandlettersofcredit,amongothers(CBI,2022).72GLOBALLANDSCAPEOFRENEWABLEENERGYFINANCE2023GrowingtheGSSSmarketfurtherrequiresco-ordinatedactionsandsupportivepoliciestoacceleratethemomentumofgreenfinance.Theseinclude:•Sustainedgovernmentsupportandincentivisationofsustainablefinanceinitiatives,suchasclearandlong-termclimate-alignedprogrammesandbudgets,provisionoffinancialhelptocoverhighertransactioncostsincurredbytheissuersofgreeninstrumentsandlowercapitalrequirementsforgreendebt/loans,aswellashavinggovernmentbodiesthemselvesactivelyissuegreendebtinstrumentsofvariousforms.•Continuousactiveinvolvementbydevelopmentbanksinkick-startingGSSSbondsinmarketswheretheirissuancesarestilllagging,viademonstrationissuances,co-issuancesandprovisionofseedcapital,aswellasprovisionoffinancialandtechnicalassistancetonewGSSSissuers.Fordevelopmentbankstode-riskprojectsusingriskmitigationinstrumentscontinuestobecruciallyimportanttohelpbuildapipelineofbankablegreenassets.•GreatereffortsamongindustryparticipantstoadoptrigorousandbestpracticesintheissuanceofGSSSinstruments,includingthird-partyverificationandcertification,properring-fencingofthecapitalraised,andreportingoncapitaluseandenvironmental/socialbenefits.73Thelandscapeofrenewableenergyfinancefrom2013to20222.5InvestmentsbysourceIn2020,theprivatesectorcontinuedtoprovidethelion’sshareofinvestmentsinrenewableenergy,committingUSD240billion(or69%oftheglobaltotal),a7%increasecomparedto2019.Public-sectorfinanceprovidedUSD108billioninthesameyear(31%ofthetotal),2%lessthanin2017-2019(Figure2.22).Theglobalshareofpublicversusprivateinvestmentsvariesbytechnology.Typically,lowersharesofpublicfinancearedevotedtorenewableenergytechnologiesthatarecommerciallyviableandhighlycompetitive,whichmakesthemmoreattractiveforprivateinvestors.Thankstosupportivepolicies,in2020,solarPVwasabletoattractprivatefinanceamountingto83%oftotalcommitments(Figure2.23).Arelativelyhighshare(72%)ofprivateparticipationwasalsofoundinbioenergy(i.e.biomassandbiofuels).Althoughmorethan60%ofonshoreandoffshorewindisfinancedbyprivateinvestors,publicfinancecontinuestoplayalargeroleinpromotingthesetechnologies.OnepossibleexplanationforthistrendistheconcentrationofwindinvestmentinChina,mostofitfromstate-ownedfinancialinstitutionsandstate-ownedenterprises(Section2.5.2).Attheotherendofthespectrum,geothermalandhydropowerreceivethelargestsharesofpublicfinance;only32%and3%ofinvestments,respectively,camefromprivateinvestorsin2020.Alargerneedforpublicfinanceinhydropowerislinkedtolargeupfrontinvestments(overabilliondollars),highconstructionrisks,theneedforlong-tenorloans(asprojectscantakeoveradecadetocomplete),complexandlengthypermittingprocedures,andhighcostsandsocialandenvironmentalrisks,allofwhichcansignificantlyhampertheabilityofprivatesectorinvestmentstofinancelargehydropowerprojects(IRENA,2023b).PrivatePublicFigure2.22Publicandprivateinvestmentinrenewableenergy,2013-2020Source:CPI(2022a).74GLOBALLANDSCAPEOFRENEWABLEENERGYFINANCE20232.5.1PrivateinvestmentsIn2020,commercialfinancialinstitutionsandcorporationscontinuedtobethemainprivatesectorproviders,togetheraccountingfor85%oftotalprivatefinanceforrenewables.Inabsoluteamounts,commercialfinancialinstitutionscommittedUSD104billion(6%morethanin2019),whilecorporationsinvestedUSD99billion(up7%).Upuntil2018,privateinvestmentscamepredominantlyfromcorporations(onaverage,65%during2013-2018),butin2019and2020corporations’sharedecreasedto41%peryear,whileahighershareofinvestmentswasfilledbycommercialfinancialinstitutions(43%)(Figure2.24).Thiswasmainlyduetoariseintheseinstitutions’commitmentstoonshorewindandsolarPVintheUnitedStatesandonshorewindinChina,coupledwithadropincommitmentsmadebycorporationsinsolarPVinChina.Householdsandindividualsaccountedfor13%ofprivaterenewableenergyinvestments,providingUSD32billionperyearin2020(upfromUSD26billionin2019).InvestmentsbyhouseholdsandindividualswereconcentratedonsolarPV(85%in2020)withtherestbeinginvestedprimarilyinsolarwaterheaters(15%).HouseholdsinmanycountriesareincreasinglyfavouringrooftopsolarPVsystems,drivenbythefallingcostsofsolarPV,andhighand/orrisingresidentialelectricityprices(Taylor,2022).InAustralia,forinstance,morethan30%ofallhomeshadinstalledarooftopsolarPVsystemwith3millionsystemsinstalledcountrywidebyearly2022(GovernmentofAustralia,2022).ThecountrynowhasthehighestsolarPVcapacitypercapita,globally(IRENA,2022d;WorldBank,n.d.).PrivatePublicSolarPVBioenergySolarthermalincludingCSPOshorewindOnshorewindGeothermalHydropowerFigure2.23Shareofpublic/privateinvestmentsbyrenewableenergytechnology,2020Note:Noinvestmentsinmarinetechnologiesin2020werecapturedinthedata.CSP=concentratedsolarpower;PV=photovoltaic.Source:CPI(2022a).75Thelandscapeofrenewableenergyfinancefrom2013to2022Householdsandindividualsalsoplayanimportantroleinfinancingdirectapplicationsofrenewableenergy.In2020,theyprovidedclosetoone-thirdoftotalrenewableenergyfinancingforenduses,withtheremainingtwo-thirdsbeingprovidedbygovernmentsandcorporations.Theroleofinstitutionalinvestors11inprovidingdirectfinancingfornewrenewableenergyassetsremainedlimited.In2020,theyaccounted,onaverage,foronly1%ofprivateinvestmentsinrenewables,providingUSD2.5billion.Thisrepresenteda26%increasecomparedto2019(USD2billion),buta41%dropovertheaverageUSD4.3billioninvestedin2017-2018.Wheninvestinginrenewables,institutionalinvestorsgenerallyshowapreferenceformoreestablishedtechnologiessuchassolarPVandonshorewind–which,together,accountedfor74%and84%oftheirinvestmentsin2019and2020,respectively.Overhalfoftheinvestmentsmadeinthetwoyears2019-2020wasconcentratedintheUnitedStates(USD1.3billion),followedbyChina(USD495million)andSweden(USD334million).Box2.3providesadeepdiveanalysisintotheroleofinstitutionalinvestorsandfundsindrivingprivatefinanceintotherenewableenergysector.InstitutionalinvestorsCommercialFIHouseholds/IndividualsFundsCorporationFigure2.24Privateinvestmentinrenewableenergybyinvestor,2013-2020Note:FI=financeinstitution.Source:CPI(2022a).11Institutionalinvestorshereincludepensionfunds,insurancecompanies,endowmentsandfoundations,sovereignwealthfunds,assetmanagersandinvestmentcompanies;thisdiffersfromthedefinitionusedinBox2.4.76GLOBALLANDSCAPEOFRENEWABLEENERGYFINANCE2023TheNetherlands’feed-inpremiumsschemeandenergytaxexemptionforrenewableenergygeneratorshavealsopromptedrapidgrowthintheindustry,whichledthecontinentinoffshorewindinvestmentin2020(Climatescope,2022b).GermanyhasalsochosentopursueaFiTandnationalandstategrantstoaccelerategrowthinrenewableenergygeneration(BNEF,2022d).Acrossthecontinent,net-zerocommitmentsandextensivepoliciestophaseoutfossilfuelsaredrivinggrowthinrenewableenergy.TheGreenNewDealcommitsmembersoftheEuropeanUnion(EU)toreducingnetemissionsbyatleast55%by2030comparedto1990(EuropeanCommission,2022).Buildingonthis,theEuropeanCommissionpresentedaGreenDealIndustrialPlanfortheNet-ZeroAgeinFebruary2023,whichwouldprovideinvestmentaidandtaxbreakstowardstechnologicaldevelopment,manufacturing,productionandinstallationofnet-zeroproductsingreensectorsincludingrenewablesandhydrogen(Bloomberg,2023;EuropeanCommission,2023).TheplanlookstomobiliseEUR225billioninloansfromitsexistingRecoveryandResilienceFacility,andanadditionalEUR20billioningrants(EuropeanCommission,2023).Theplancamesoonaftertheannouncementofthe2022InflationReductionActintheUnitedStates,asEuropelookstostaycompetitiveinthenet-zeroage.AforthcomingNet-ZeroIndustryActseekstostreamlinepermittingprocesses,withtheviewtospeeddevelopmentandreducecosts.Afterarockystart,theEuropeanEmissionTradingschemeprovidesthelargestandoneofthemostfunctionalcap-and-tradesystemsofanyeconomicbloc.Thesuccessoftheenergytransitiondependsontherenewableenergysector’sabilitytoattractcapitalflowsinunprecedentedamounts.Institutionalinvestorsainparticularcanplayapivotalroleinthisregard.Whilealreadyvast,theassetbaseofinstitutionalinvestorscontinuestogrow,thankslargelytothegrowthofstockmarketsoverthepastfewyears.IRENA’s(2020)analysisofover5800investorsbelongingtoa“core”group,composedofpensionfunds,insurancecompanies,sovereignwealthfunds,andendowmentsandfoundations,estimatedtheirassetsataboutUSD87trillion(2018-2019average)(IRENA,2020c).ThisnumberhassincegrownbyaboutUSD20trilliontoreachUSD107trillion.PensionplansareestimatedtohavegrowntheirassetsfromUSD44trillionin2018-2019(annualaverage)toaboutUSD56.5trillionin2021(ThinkingAheadInstitute,2019,2022).InsuranceassetsgrewfromUSD33trillionin2018-2019toaboutUSD40trillionin2020(Statista,2022;ThinkingAheadInstitute,2019).Similarly,the100largestsovereignwealthfundsgrewfromUSD8trillionin2018-2019toaboutUSD10trillionasofmid-2022(SWFI,2022).EndowmentsandfoundationsholdanotherUSD1.2trillionofassets(SWFI,2022).Intermsoftheirdirectfinancingofrenewableenergyprojects,however,activitiesofthe“core”groupofinstitutionalinvestorsremainedrelativelysubdued.Whileannualinvestmentinrenewableenergyprojectshashitonerecordhighafteranotheroverthepastfewyears,reachingUSD347billionin2020andanestimatedUSD417billionin2021,directinstitutionalinvestmentsintorenewableenergyprojectshoveredataboutUSD1billionperyearinthe2013-2020period–lessthan1%ofthetotalinvestment(seeFigure2.25).Analysisofinstitutionalinvestors’behaviourinrelationtorenewables-basedprojectsrevealsacontinuedpreferencefor“triedandtested”modesofoperation.MostinstitutionalinvestmentsflowintothedevelopedmarketsofNorthAmerica(anaverage31%ofallinstitutionalinvestmentsinrenewableprojectsover2013-2020),Europe(27%),andEastAsiaandPacific(14%),wheretherealorperceivedrisksarelower.Suchinvestorscontinuetoseeklargetransactionsizestolowertheiroveralltransactioncosts.Thesearemostoftendeliveredviawindprojects(averageof34%foronshorewindand9%foroffshorewindover2013-2020),followedbysolarPV(28%).Intermsofinvestmentinstrumentsdeployedbyinstitutionalinvestorsfordirectassetfinancing,project-leveldebtistheirpreferredmode(43%ofinstitutionalinvestmentsover2013-2020),followedbyproject-levelequity(33%).Box2.3TheroleofinstitutionalinvestorsUSDmillionEndowmentsandfoundationsInsurancecompaniesSovereignwealthfundsPensionplansFigure2.25Annualfinancialcommitmentinrenewableenergyprojectsmadebyinstitutionalinvestors,2013-2020Source:CPI(2022a).77Thelandscapeofrenewableenergyfinancefrom2013to20222.5.2PublicinvestmentsTodate,onlyahandfulofpublicfinancialinstitutionshavecommittedtoaligningtheirinvestmentswiththeParisAgreement.Arecentreport(CPI,2022c)analysedthe70largestpublicfinancialinstitutionsrepresenting95%ofthetotalassetsheldbypublicfinancialinstitutions(equivalenttoUSD20.4trillion).Thereportfoundthatonly20suchinstitutionshavesetnet-zerotargets.Nationalandsubnationaldevelopmentbanks,inparticular,lagbehindtheirpeersintermsofsettingclimatefinancetargets.Institutionalinvestorscontinuetobefarmoreactiveintherefinancingandacquisitionstagesofexistingrenewableenergyassets,achievedviainstrumentslikelistedcommonstockshares,bonds(includinggreenandotherGSSS[green,social,sustainableandsustainability-linked]bonds,discussedinBox2.3)orfundshares,tonameafew.Whilerefinancingdoesnotprovideinvestmentforanewasset,itisstillimportantfortherenewablesmarketsasithelpsoriginalfinanciers“recycle”theircapitalintonewrenewableprojectsandmayalsoreducetheiroverallfinancingcosts.Institutionalinvestorshaveincreasedtheiractivitiesinthislaterfundingstage,accountingfornearlyone-quarterofenergyprojectacquisitionsandfinancingin2019,comparedtolessthanone-fifthin2010.Forrenewableenergyinparticular,thistranslatestoaboutUSD12billioninvestedin2019(IEA,2020).Examplesincluderefinancingofthe588megawatts(MW)BeatriceoffshorewindfarmintheUnitedKingdomandtheacquisitionofthe402MWVejaMateoffshorewindfarminGermany(IEA,2020).Thecaseforinstitutionalinvestorstoincreasetheirfocusonrenewableenergyinvestmentsremainsstrongandincreasinglyurgent.Manyinstitutionalinvestorshavecommittedtoaligningtheirassetswithglobalclimatetargetsviaagrowingnumberofglobalalliances,suchastheGlasgowFinancialAllianceforNetZero(GFANZ),forexample.Renewablescontinuetoholdotherimportantbenefitsforsuchinvestors.Inthecontextofaglobaleconomicslowdown,theimportanceofassetdiversificationbecomesmorepronounced,asdoconcernsaboutreducingvolatilityanduncertaintyrelatedtofossilfuelprices.Also,theneedtopreservelong-termvalueforassetholdersthroughsustainableinvestmentsandtoaddressgrowingpublicscrutinyofactionstomitigateclimatechangewillonlybecomemorepressingovertime.Rampingupinstitutionalinvestmentsinrenewablescontinuestodependonloweringbarrierstoentrytothissegmentandonco-ordinatedactionamonginvolvedstakeholders.Prioritiesinclude:•Policymakers’continuedandtransparentsupportoftheintegrationofrenewableenergyinoveralldevelopmentandsustainabilitytargets.•Improvedprovisionofriskmitigationsolutionsforregionsthatcontinuetobeseenashighrisk.Publiccapitalproviders,suchasdevelopmentfinanceinstitutions,canplayanimportantroleinthisregard.•Adoptionofco-financingandblendedfinancestructuresthatallowforthesharingofknow-howandthatcanalsoreducethecostoffinancinginnewmarkets.•Continuouscreationofbankablegreenassetpipelinesandtrulygreenmarketinstrumentsthatcanchannelinstitutionalcapitaltowardsrenewableassets(e.g.listedequities,indices,fundsandfixedincomeinstruments)containingmoregreen(sustainableorESG[environmental,socialandgovernance])assets.•Developmentofinternalexpertisefordirectinvestmentinprojectsorindirectinvestmentthroughgreeninstruments,consideringtheoverallimpactofclimatechangeonportfolios.aTheanalysisinthisboxlooksata“core”groupofinstitutionalinvestorscomposedofpensionfunds,insurancecompanies,sovereignwealthfunds,andendowmentsandfoundations.Itexcludesassetmanagersandinsurancecompanies.78GLOBALLANDSCAPEOFRENEWABLEENERGYFINANCE2023In2020,publicinvestmentsinrenewableenergyassetstotalledUSD108billion(31%ofallinvestments),up4%from2019(Figure2.26).Giventhatthemajorityofrenewableenergyinvestmentsaremadedomestically(Section2.3),andintheabsenceofanymeaningfulinternationalcollaborationdespitepledgessuchastheUSD100billionayearmadeininternationalforums,itisnotsurprisingthatstate-ownedfinancialinstitutions(SOFIs),nationalDFIsandstate-ownedenterprises(SOEs)werethemainsourcesofpublicfinanceforrenewables.FundingfromgovernmentsremainedstableatUSD6.5billionin2020,or6%oftotalpublicfinanceforrenewables.Overhalfofthis(55%)wasinvesteddomesticallyinChinaforsolarwaterheaters.Whilegovernmentsarenotamongthemainprovidersofcapitalfornewrenewableenergyassets,muchoftheirspendinggoestofundrenewableenergysupportschemessuchasgrantsandsubsidies.Thisisinadditiontotheregulatedpayments–orpublicPPAs–thatareusedasthemainprocurementmethodinsomecases,andthatareneededtoaddressinadequateorganisationalstructures(marginalpricing)–bothofwhicharetopicsbeyondthescopeofthisanalysis.12LookingatthelifetimepublicexpenditureforPPAs,FiTs,feed-inpremiums(FiPs),contractfordifference(CfD)schemes,etc.wouldgiveamoreholisticviewofgovernments’roleinsupportingthedeploymentofrenewables,especiallywhenthetariffspaidtoproducers–inadditiontothecostofrunningthesystem-arelowerthanwhatiscollectedbyconsumersandthedifferenceispaidthroughagovernmentsubsidy(seeSection4.4).MultilateralclimatefundsPublicfundExportCreditAgencyState-ownedFIGovernmentBilateralDFIMultilateralDFISOENationalDFIFigure2.26Publicinvestmentinrenewableenergybyinvestortype,2013-2020Note:DFI=developmentfinanceinstitution;FI=financeinstitution;SOE=state-ownedenterprise.Source:CPI(2022a).12Formoredetailsaboutthecoverageofthedatabase,pleaseseetheMethodologydocument(Appendix).79Thelandscapeofrenewableenergyfinancefrom2013to2022In2020,state-ownedfinancialinstitutions(SOFIs)provided,onaverage,USD52billion(or48%oftotalpublicfinance),increasingtheircommitmentsby35%comparedto2019.About83%ofinvestmentsfromtheseinstitutionsin2020wasdirectedtowardsprojectsinChina,primarilyforonshorewind(42%),solarPV(22%)andoffshorewind(19%).Commitmentsfromstate-ownedenterprises(SOEs)recordedasteepdeclinein2019and2020,reachingUSD11billionperyear(10%oftotalpublicfinancing),downby53%comparedtotheaverageUSD23billioninvestedannuallyin2017-2018.SimilartoSOFIs,SOEsprovidedcapitalalmostexclusivelyforonshorewind(40%,mainlyinvestedinChina),offshorewind(30%,mainlyintheNetherlands)andsolarPV(29%,mainlyinChina).NationalDFIswerethesecond-largestsourceofpublicinvestmentin2020,providing25%ofthetotal(orUSD27billion).Theirinvestmentsfocusedononshorewindprojects(49%),hydropower(26%)andsolarPV(16%).ChinaDevelopmentBank,alone,accountedforover90%ofthetotalin2020,investingprimarilyinChina.NationalDFIswerethesingle-largestprovideroffinanceforhydropowerprojects,accountingfor65%ofcumulativeinvestmentsinthistechnologyduring2013-2020,and81%ofannualinvestmentsin2020.ThistrendwaslargelydrivenbytheChinaDevelopmentBank,whichcommittedUSD5.2billionandUSD6.9billionforhydropowerprojectsin2019and2020,respectively,90%ofwhichwerelocatedinChina.MultilateralDFIsprovidedUSD9.4billionin2020(or9%oftotalpublicfinance)–inlinewiththeirpastannualcommitments,whichfluctuatedbetweenUSD8.7billionandUSD10.7billionduring2015-2019.Theseinstitutionswereakeyproviderofinternationalfinance,accountingforabouthalfofinternationalflowscomingfromthepublicsector.CommitmentsfrombilateralDFIsin2020fell70%comparedto2019,movingfromUSD7.5billiontoUSD2.3billion.Thisdeclineislargelyattributabletoa96%declineininternationalcommitmentsbytheGermanDevelopmentBank(KfW).Thisdropisremarkable,especiallygiventheneedforasteepincreaseininternationalcollaborationtoachieveajusttransition(seeChapter4).Instead,theworldisfacingadeclineevenofdebtfinancing(whichrequiresrepaymentandinvolvesinterestratesontopofthat).Governmentsandinternationaldonorsplaymajorrolesinenablinginvestmentsinrenewables,especiallyindevelopingcountries,whererealorperceivedriskscontributetothehighcostoffinancingorpreventprojectsfromseeingthelightofday.Infact,multilateralandbilateralDFIstogetheraccountedforonlyUSD11.7billionin2020.Sincegrantsandconcessionalloansamountedto1%ofthetotalrenewableenergyfinanceequivalenttoUSD5billion(Section2.4),thismeansthatevenifallconcessionalfinancingweretobeprovidedbyDFIs,lessthanhalfofthesefundshadpositiveimpactsonthebeneficiaries,whereasformorethanhalf,interestrateswereashighastherestofthemarket.Sincetheinterestratesarethesame,theonlydifferencethatpublicfinancingprovidesismakingfinanceavailable,butatthesamehighcostsforusers.Figure2.27illustratestheportionofDFIfundingprovidedintheformofgrantsandlow-costdebt.80GLOBALLANDSCAPEOFRENEWABLEENERGYFINANCE2023Thestrategicuseofpublicfinanceremainskeyfordeliveringprojectsthatareessentialforsocio-economicdevelopmentincontextswhereprivateinvestorsdonotventure.Suchuseofpublicfinancealsohelpscreateanenablingenvironmentforprivateinvestorsinareaswheretheyareactive,bydevelopinginfrastructureandaddressingtherisksandbarriersthatdeterprivatecapital.Inaddition,publicfundingisneededtoimplementpolicies–capacity-building,education,retrainingandindustrial–thatwouldensureajustandinclusiveenergytransition(seeChapter4).InternationalflowsofpublicfinancetotheGlobalSouthareessentialtothe1.5°CScenarioandrelatedsocio-economicgoals(alongwithprogressivefiscalmeasuresandothergovernmentprogrammessuchasdistributionalpolicy)(IRENA,2022a).However,internationalflowsofpublicfinancehavebeenindeclinesince2018.Box2.4providesadeepdiveintointernationalpublicfinanceflowstodevelopingcountriesinsupportofrenewableenergy,astrackedbyIRENAandtheOECD.13GrantUnknownProject-levelmarketratedebtProject-levelequityLow-costprojectdebtBilateralDFIsMultilateralDFIsUnknownProject-levelmarketratedebtGrantProject-levelequityLow-costprojectdebtBalancesheetﬁnancing(equityportion)Figure2.27PortionofDFIfundingintheformofgrantsandlow-costdebtNote:DFI=developmentfinanceinstitution.Source:CPI(2022a).13IRENAandtheOECDhavebeenappointedtotrackannualprogresstowardsSDGindicator7.a.1on“measuringinternationalfinancialflowstodevelopingcountriesinsupportofcleanenergyresearchanddevelopmentandrenewableenergyproduction,includinginhybridsystems”.Datafor2020willbepresentedintheupcomingreportTrackingSDG7:TheEnergyProgressReport2023.81Thelandscapeofrenewableenergyfinancefrom2013to2022Internationalpublicfinancialflowstodevelopingcountriesinsupportofcleanenergydecreasedin2019forthesecondyearinarow,fallingtoUSD10.9billion.Thislevelofsupportwas23%lessthantheUSD14.2billionprovidedin2018,25%lessthanthe2010-2019average,andlessthanhalfofthepeakofUSD24.7billionin2017.Exceptforlargefluctuationsin2016forsolarenergyand2017forhydropower,flowshaveremainedwithintherangeofUSD10-16billionperyearsince2010(Figure2.28).Afive-yearmovingaveragetrendshowsthataverageannualcommitmentsdecreasedforthefirsttimesince2008by5.5%,fromUSD17.5billionin2014-2018toUSD16.6billionin2015-2019.TheleveloffinancingremainsbelowwhatisneededtoreachSustainableDevelopmentGoal(SDG)7,inparticularfortheleast-developedcountries(LDCs),landlockeddevelopingcountriesandsmall-islanddevelopingstates.Geographically,mostregionssawadecreaseininternationalpublicflowsin2019.FlowsincreasedonlyinOceania,wheretheyroseby72%(USD55.1million).DecreaseswerelesssignificantinSub-SaharanAfrica,wheretheyfell1.7%toUSD4.0billion.FlowstoWesternAsiaandNorthernAfricadecreasedby22%toUSD1.8billion.ThebulkofdecreaseswereconcentratedinEasternandSoutheasternAsia,wheretheyfell66%;LatinAmericaandtheCaribbean,wheretheydroppedby29.8%;andCentralandSouthernAsia,wheretheydeclinedby24.5%.Box2.4InternationalpublicfinanceflowstodevelopingcountriesinsupportofrenewableenergyCommitments(USDbillion)Sub-SaharanAfricaLatinAmericaandtheCaribbeanCentralandSouthernAsiaWesternAsiaandNorthernAfricaUnspeciﬁed,developingcountriesOceaniaEasternandSouth-easternAsiaFigure2.28Annualinternationalpublicfinancialcommitmentstodevelopingcountriesinsupportofrenewableenergyproduction,andresearchanddevelopment,byregion,2000-2019Notes:Multiple/otherrenewablesincludecommitmentswhosedescriptionsareunclearinthefinancialdatabases;commitmentsthattargetmorethanonetechnologywithnodetailsspecifyingthefinancialbreakdownforeach;bioenergycommitments,whicharealmostnegligible;multi-purposefinancialinstrumentssuchasgreenbondsandinvestmentfunds;andcommitmentstargetingabroadrangeoftechnologies.Examplesofthelatterincluderenewableenergyandelectrificationprogrammes,technicalassistanceactivities,energyefficiencyprogrammesandotherinfrastructuresupportingrenewableenergy.Source:IEA,IRENA,etal.(2022).82GLOBALLANDSCAPEOFRENEWABLEENERGYFINANCE2023In2019,24countriesreceived80%ofallcommitments.Nigeria,GuineaandIndiawerethetoprecipients,attractingone-quarteroftotalcommitments.Guineawasalsoatoprecipientin2018,thankstoaUSD1.1billioncommitmenttotheSouapitiHydroProject.Itisalsoimportanttohighlightthedifferenceinflowsdirectedtoemergingmarketsindevelopingcountriesandthosefurthestbehind,ascategorisedbytheUnitedNations.In2021,thesamecountriesbelongedtothegroupsofLDCs,landlockeddevelopingcountriesandsmall-islanddevelopingstates,butcommitmentsdirectedtothesecountriesvariedwidelybygroup(Figure2.29).TheLDCsreceived25.2%ofcommitmentsin2019,anincreasefrom21%in2018,continuinganupwardtrendsince2016butmaskinga9%decreasefromUSD3.0billiontoUSD2.7billioninabsoluteamounts.Amongthe46LDCs,SãoToméandPríncipe,EritreaandKiribatiweretheonlyonesthatdidnotreceiveanyflowsin2019.ChadandTimor-Lestedidreceivefundingin2019,afterreceivingnocommitmentsin2018.Flowstonon-LDCsFlowstoLDCsShareofCommitmentstoLDCsCommitments(USDbillion)ShareofcommitmentstoLDCs()Figure2.29AnnualcommitmentstoLDCsandnon-LDCsinsupportofrenewables,2010-2019Note:LDCs=least-developedcountries.Source:IEA,IRENA,etal.(2022)..83Thelandscapeofrenewableenergyfinancefrom2013to2022Publicfundingforrenewableenergyhasenduredmanychallengesinrecentyearsinadeterioratingglobaleconomiccontext.Figure2.30showsthegrowingproportionofcountriesindebtdistress,orathighriskofdebtdistressinrecentyears.Acombinationofhighpublicdebt,inflationandslowgrowthisaffectingbothdevelopedcountriesandemergingeconomies.Policyresponsestothosechallengeswillimpactcountriesandtheglobalfinancialmarkets’abilitytoaddresstheever-growingclimatefinancingneeds.Assuch,thisnewparadigmrequiresrevisitingtheroleofpublicfunds,includinginternationalflows,toachieveajustandinclusiveenergytransition.Giventheurgentneedtostepupthepaceandgeographicspreadoftheenergytransition,andtocaptureitsfullpotentialinachievingsocio-economicdevelopmentgoals,moreflowsofinternationalfundsareneededthathelpunderinvestedcountriesreapthebenefitsoftheenergytransitionwithoutputtingtheirfiscallyconstrainedeconomiesatafurtherdisadvantage(seeSections4.5and4.6).PercentageofcountriesindebtdistressorathighriskofdebtdistressHighModerateLowIndebtdistressFigure2.30Proportionofcountriesindebtdistress,orathighriskofdebtdistress(asof31March2022)Source:IMF(2022b).GLOBALLANDSCAPEOFRENEWABLEENERGYFINANCE2023THELANDSCAPEOFOFF-GRIDRENEWABLEENERGYINVESTMENTINDEVELOPINGCOUNTRIESPradeepGaurs©Shutterstock.com85Thelandscapeofoff-gridrenewableenergyinvestmentindevelopingcountries03ModernenergyaccessisakeypillarofajustandinclusiveenergytransitiongivenitscentralroleinmeetingtheSustainableDevelopmentGoal7onensuringaccesstoaffordable,reliable,sustainableandmodernenergyforall(SDG7)andcontributingtowardsallotherSDGs.However,despiteprogressinenergyaccess,approximately733millionpeoplehadnoaccesstoelectricityandnearly2.4billionpeoplereliedontraditionalfuelsandtechnologiesforcookingattheendof2020.Moreover,theworldisnotontracktoachieveuniversalenergyaccessby2030.Nearly670millionareexpectedtobewithoutelectricityand2.1billionwithoutaccesstocleancookingundercurrentandplannedpolicies(IEA,IRENA,etal.2022).Scalingupinvestmentsandpolicysupportintheoff-gridrenewablessectorwillbecrucialtoclosingtheaccessdeficit.Off-gridrenewableenergytechnologies–bothstand-alonesystemsandmini-grids–canbeacost-effectivesolutiontoaccelerateelectricityaccessforhouseholdsandbusinessesespeciallyincontextswithinadequatepowerandgridinfrastructure.From2012to2021,thepopulationservedbyoff-gridrenewablesincreasedfrom35millionto213million,asseeninFigure3.1,generatingarangeofsocio-economicandenvironmentalbenefits(IRENA,2022g).In2020-2021,thenumberofpeopleservedbyoff-gridsolutionsreportedadecreaseprimarilydrivenbyimprovinggridaccessratesinSouthAsia(particularlyIndiaandBangladesh)andreducedreplacementratesforsolarlightandsolarhomesystems(SHSs)duetoCOVID-19.Conversely,theadoptionofoff-gridsolutionsinAfricacontinuedtoincreaseduringthisperiodalongwithinvestmentsinthesector.Thischapterprovidesanin-depthanalysisofoff-gridrenewableenergyinvestmentsindevelopingandemergingeconomies,analysingtrendsacrosstechnologies,countries,typesofinvestorsandfinancialinstruments.Itisimportanttonotethatthedatainthischapterrefermainlytocommitmentsmadetoenterprisesoperatingintheoff-gridrenewableenergysectordeliveringelectricityaccesssolutions.Investmentsgoingintotraining,capacitybuilding,planningexercises,grantsforendusers,etc.arecoveredtoaverylimitedextent,althoughtheymakeasubstantialandimportantportionoftheenergyaccessfinancinglandscape(seeBox3.4).86GLOBALLANDSCAPEOFRENEWABLEENERGYFINANCE20233.1Overviewoftheoff-gridfinancinglandscapeBetween2010and2021,theoff-gridrenewablessectorattractedmorethanUSD3billion(WoodMackenzie,2022a).1Althoughoff-gridrenewableenergyinvestmentsstillrepresentasmallportionoftheoverallenergyaccessfinancinglandscape,theyareacrucial,andcost-effective,pieceintheaccesspuzzle.Theyhavethepotentialtobringnewelectricityaccesstoalmost580millionpeopleby2030(UN,2021).Inrecentyears(2013-2019),theyconsistentlymadeuplessthan1%oftheoverallUSD212billioncommittedtotheelectricitysectorinthe20countrieswiththegreatestaccessdeficit2(SEforAll,2021),yethaveenabledaccessforover200millionpeopleindevelopingcountriesglobally.DespitetheCOVID-19pandemicanditseconomicfallout,annualinvestmentsinoff-gridrenewableenergyreachedarecordhighofUSD558millionin2021,asshowninFigure3.2(WoodMackenzie,2022a).RecentgrowthhasbeendrivenbyinvestmentsinSub-SaharanAfrica,particularlyinEastAfrica,andmorerecentlyinWestAfrica.However,currentinvestmentlevelsfallfarshortoftheUSD2.3billionrequiredannuallyinoff-gridsolarproductsalone(notincludingmini-grids)between2021and2030(ESMAPetal.2022a).3MillionsofpeopleSolarmini-gridsSolarlightsSolarhomesystemsHydropowerBiogas(electricity)Figure3.1Populationservedbyoff-gridrenewablepowerindevelopingandemergingeconomies,2012-2021Note:Dataonthenumberofpeoplewithaccesstotheseformsofelectricitysupplyaregatheredbasedonsalesofsolartechnologies,projectreportsandotherpubliclyavailablesources.Source:IRENA(2022g).1Thesedatamainlycovercorporateflows.Otherflowssuchasthosegoingintotraining,capacitybuilding,planningexercises,grantsforendusers,etc.arecoveredtoaverylimitedextent,althoughtheycomposeasubstantialportionoftheenergyaccessfinancinglandscape.2Together,thesecountrieshostmorethan80percentofpeoplewithoutelectricityaccessglobally(SEforAll,2021).Atthetimeofthisanalysis,thesecountriesconsistedof:Angola,Bangladesh,BurkinaFaso,Chad,theDemocraticRepublicofCongo,Ethiopia,India,Kenya,theRepublicofKorea,Madagascar,Malawi,Mozambique,Myanmar,Niger,Nigeria,Pakistan,SouthSudan,Sudan,UgandaandtheUnitedRepublicofTanzania(SEforAll,2021).3Aboutfour-fifthsofthisinvestmentisneededtofundcompanyoperations,whiletheremainingisneededtoclosetheaffordabilitygap,e.g.throughend-usersubsidies(ESMAPetal.2022a).87Thelandscapeofoff-gridrenewableenergyinvestmentindevelopingcountriesOff-gridrenewableenergyinvestmentsinAfricashowedstrongresiliencetothedisruptionscausedbytheCOVID-19pandemic,whichexposedcompaniestoarangeoffinancialandoperationalrisks.Supplychaindisruptionshadaninflationaryimpactonconsumerpricesviaasector-wideincreaseinmanufacturinganddistributioncosts,particularlyforSHSs.Atthesametime,pandemic-relatedeconomicimpactsdepressedhouseholdincomes(ESMAPetal.2022b).Manycustomersdefaultedontheirbills,leavingcompaniestofindnewwaystosecurecashflowswhileasignificantportionoftheircapitalwaslockedinreceivables(IRENA,2022f).Despitethesechallenges,Africashowedstrongsignsofrecoverytorecord-highlevelsofinvestmentsin2021,whileinvestmentsinotherregionshaveyettobouncebacktopre-pandemiclevels.Globally,off-gridrenewableinvestmentsareincreasinglyskewedtowardssevenlargeincumbentcompaniesthathavealreadyreachedscaleandarelookingtofurthersolidifytheirmarketpositionthroughtheirabilitytoattractcapital.Thisdemonstratesthatthesectorismaturingandunlockingfinancingthatcansupportscale.Butthegrowthinearly-stageenterprisefinancinghashaltedsince2020,withequityfinancingparticularlydifficulttoattract(ESMAPetal.2022b).Adiversesetofinvestorshasenteredtheinvestmentlandscapeoverthepastseveralyears,includingprivateequity,impactinvestors,institutionalinvestors(mainlyfoundations)anddevelopmentfinanceinstitutions(DFIs).Yettheoverwhelmingmajorityofinvestmentscontinuetooriginatefromonlyafewmajorplayers.Forinstance,since2017,investmentshaveincreasedbutarenowspreadoutoverfewertransactions.TheaveragetransactionsizegraduallyclimbedfromUSD1.1millionto1.7millionby2020,beforemorethandoublingtoUSD3.7millionin2021(Figure3.2).Whileatrendofgrowingticketsizeisasignofsectorgrowthandmaturity,itmayalsoindicateexistingchallengesforenterpriseslookingforsmallerinvestments.Figure3.3outlinestheinvestmentlandscapeforoff-gridrenewableenergyduring2010-2021,followingthelifecycleofinvestmentsfromsourcestoinstrumentsemployed,regionsandtechnologiestargeted.OverallinvestmentsUSDmillion(constant)Averageticketsize(USDmillion)OverallinvestmentsAverageticketsizeFigure3.2Annualinvestmentinoff-gridrenewableenergyandaveragetransactionsize,2010-2021Basedon:WoodMackenzie(2022a).HariMahidhar©Shutterstock.com88GLOBALLANDSCAPEOFRENEWABLEENERGYFINANCE2023MiddleEastandNorthAfrica-Sub-SaharanAfrica-Transregional-Unknown-USD3098millionOverallinvestmentin2010-2021>90%Public>90%PrivatePublicandprivateSOURCESANDINTERMEDIARIESWhichtypesofinvestorsaresourcesofcapitalforﬁnanceﬂows?INSTRUMENTSWhattypesofﬁnancialinstrumentsareused?REGIONSWhereisﬁnanceﬂowing?TECHNOLOGIESWhicho-gridproductswerefunded?GovernmentagenciesandintergovernmentalinstitutionsDevelopmentFinanceInstitutionsOthers(inclnon-proﬁtimpactfunding)CommercialﬁnancialinstitutionsCorporationsandbusinessassociationsIndividualsInstitutionalinvestorsPrivateequityventurecapitalandinfrastructurefundsUndisclosedGrantsSub-SaharanAfricaEastAfricaWestAfricaMultipleSouthernAfricaCentralAfricaDebtUndisclosedEquityMiddleEastandNorthAfricaMultipleSouthAsiaSoutheastAsiaSolarhomesystemsLatinAmericaandtheCaribbeanSolarlightsOthero-gridsolarMultipleMicrominigridsAncillaryproductsFigure3.3Landscapeofoff-gridrenewableenergyfinance,2010-2021(USDmillion)Note:All‘$’figuresrefertoUSDBasedon:WoodMackenzie(2022a).89Thelandscapeofoff-gridrenewableenergyinvestmentindevelopingcountries3.2Off-gridrenewableenergyinvestmentsbyenergyuseandproduct3.2.1InvestmentsbyenergyuseBetween2010and2021themajorityofinvestmentswenttoresidentialapplications,althoughthesharegoingtocommercialandindustrial(C&I)applicationshasbeenexpandingovertime.Todate,residentialapplicationsattracted54%ofcumulativeinvestmentorUSD1.7billionofoverallinvestmentsduring2010-2021,followedbyC&Iapplicationswhichtookanother14%(USD444million)duringthesameperiod(Figure3.4).Sub-SaharanAfricaattractedmorethan80%oftheinvestmentsinbothcategoriesasthisiswherethelargestaccessdeficitlies,andwherethedemandforoff-gridservicesisthegreatestforbothresidentialandcommercialuses.TheshareofinvestmentsgoingonlytoC&Iapplicationsexpandedfrom8%in2015to32%in2021(Figure3.4),giventhegrowingneedsofoff-gridpopulationsfrombasichouseholdaccessthroughsolarlightsandsolarlanternstomoreenergy-intensiveusesinlocalindustry,miningandagriculture.PoweringC&Iapplicationscanpromotelocaleconomiesbycreatingjobsandspurringeconomicgrowth,whilealsoenhancingfoodsecurityandresilienceagainsttheimpactsofclimatevariabilityonagri-foodchains(IRENA,2016b).Theshareofinvestmentsforresidentialpurposesdeclinedsubstantiallyfrom59%in2020to25%in2021.Atthesametime,multi-purposeinvestments(i.e.investmentssupportingamixofresidential,C&Iorcommunity-basedandotherrelatedeconomicactivities)increasedthreefold,mainlyfocusedonafewlargeoff-gridcompaniesthatarelookingtofurtherscale-upwhilediversifyingtheiroperationsfurtherupstreamtoreachnewmarketsegments(e.g.C&Icustomersandpoweringlocalclinicsandschools)orgeographies.Thisexpansionofservicespartlyexplainsthedecliningshareofinvestmentsgoingonlyintheresidentialsectorin2021.Forexample,ZolaElectricexpandeditscustomerbasetomorethan300000homesandbusinessesacrossAfrica.In2021,thecompanyraisedanotherUSD90milliontofinanceproductdevelopmentandexpansionintonewmarketsacrossAfrica(Kene-Okafor,2021).Off-gridtechnologiesthatpowercommunitiesandtheireconomicactivities(e.g.streetlightsandpowerforschoolsandhospitals)accountedfor3%ofcumulativecommitmentstowardsoff-gridrenewablesin2010-2021.Aswiththeresidentialsector,community-focusedinvestmentsareincreasinglybeingabsorbedbyinvestmentsformultiplepurposes.Finally,supportinfrastructureandserviceshavegrowninrecentyears,attracting3.5%oftotalinvestment.Thisisabroadlydefinedcategorythatincludesinvestmentsinallancillaryproductsandservices–includingstoragesystems,smartmeters,voltageconverters,softwareservicesanddataplatforms–aswellasresearchanddevelopment(R&D).Italsoincludesinvestmentsinfinancialproductsorinnovationsdesignedtoservetheoff-gridrenewableenergysector.90GLOBALLANDSCAPEOFRENEWABLEENERGYFINANCE2023PreviousinnovationsinsupportinfrastructureandservicessuchasInternetofThings(IoT)enabledtechnologies(e.g.smartmeters),blockchainandpay-as-you-go(PAYG)businessmodelshavehelpedfurtherreducecosts,improvereliabilityandexpandtherangeofelectricityservicesprovided.In2021,thisincludedaUSD30millioninvestmentinaninnovativeartificialintelligence(AI)–enabledenergyfinancingplatformcalledNithioFI.Theplatformcollectsessentialinformation,includingconsumerrepaymentdata,tostandardisecreditriskassessments,informduediligenceandenhanceportfolioandimpactmonitoring(UNDP,2022).Itmobilisesoff-gridsolarfinancingatscalethroughitsfinancialintermediary,NithioFIB.V.,tohouseholds,microbusinessesandsmallholderfarmers(PRNewswire,2021).CommercialandindustrialMultiple(incl.residential)ResidentialSupportinfrastructureandservicesCommunitiesandothereconomicactivitiesFigure3.4Annualinvestmentinoff-gridrenewableenergy,byenergyuse,2010-2021Basedon:WoodMackenzie(2022a).4Thisincludeshybridsolarandbioenergywhichattractedaround44%.3.2.2InvestmentsbyenergyproductsandserviceSolarphotovoltaic(PV)productscontinuedtodominatetheoff-gridspace,attracting92%ofoverallinvestmentsin2010-2021.Owingtotheirmodularanddistributedcharacteristics,solarPVtechnologiescanbeadaptedtoawidevarietyofoff-gridapplications(IRENA,2018a).Bioenergyandmini/microhydropowertogethermakeupUSD60millionofcommitmentsmadetodate(totallingmorethanUSD3billion–solessthan2%),distributedamongcountriesacrossEastAfrica(mainlyRwandaforbioenergy),SouthAsiaandSoutheastAsia.491Thelandscapeofoff-gridrenewableenergyinvestmentindevelopingcountriesSHSsattractedUSD1.74billionbetween2010and2021andarethemostfundedtechnology(asseeninFigure3.5).Theirabilitytoprovidereliableaccessthatgoesbeyondlightingtopowerappliancessuchasfans,televisions,refrigeratorsandothers,makesthemimportantforhouseholds.Almost90%ofinvestmentinSHSshasgonetoresidentialuses(Figure3.5).TheremaininghasgonetoC&Iapplicationsandless-energy-intensivecommunityuses,whichinvolveenergyaccessforschools,localclinicsandinformationcentres.ThewidespreaddeploymentofSHSsisenabledbythesuccessofthePAYG(lease-based)financingmodelthathelpslow-incomeconsumersavoidtheupfrontcostsandrisksofinvestinginsolarhomesystemsandappliances(seeBox3.1).Thisinturnhasenabledoff-gridrenewableenergycompaniestofurtherscaleuptheirservicestoalargerpoolofcustomerslookingtosecurereliableandaffordableelectricitywhilemonetisingPAYG-basedsalestoaddresstheirownfundingneeds.Meanwhile,investmentsinmicro/mini-grids(mainlyforcommercialandresidentialapplications)havealsobeensupportedthroughfavourableregulatoryframeworksandpolicysupport.Micro-andmini-gridsgarneredUSD648millionininvestmentsbetween2010and2021(Figure3.5).AccordingtotheWorldBank’sMulti-TierFrameworkformeasuringenergyaccess,5micro-andmini-gridscansimultaneouslysupplymanyhomesandbuildingswithanadequatelevelofenergyaccess(uptoTier5).Becausetheseproductsarerelativelycapitalintensive,theircommercialviabilityrequiresadditionaldemandfromC&Iandcommunity-basedapplicationsontopoflessenergyintensiveresidentialuses.Thisexplainswhyalargeshareoftheseinvestmentsaregoingtoeitherstand-aloneC&Iapplications(39%ofthetotal)ormultipleapplicationswhichincludeC&Icustomers(46%ofthetotal).6Otheroff-gridsolarproductsaccountedforUSD43millionincommitmentsbetween2010and2021.Morethantwo-thirdswenttoC&Iapplicationse.g.tosolarwaterpumpsforirrigationpurposes.Solarrefrigerators–usedbysmallbusinessessuchasbarbershopsandrestaurants–andsolarwaterheaters(e.g.foruseinhotelsinKenya)contributedtoafewsmalldealsinrecentyears(SolarThermalWorld,2017).Investmentsgoingtooff-gridsolarproductsforwidercommunity-basedusesaccountedfor8%ofoverallinvestmentsbetween2010-2021.Thisprimarilyconsistedofsolarstreetlightsandsolarkiosks,targetingcommunitieswithoutelectricityaccess.5Insteadofthebinarydefinitionofaccessthatiswidelyemployedtoday,theMulti-TierFrameworkredefinesenergyaccesstoencompassacomplexspectrumofavailability,capacity,reliability,quality,affordability,formalityandhealthandsafety.TheframeworkranksaccesstoelectricityfromTier0toTier5acrossthesedimensions(ESMAP,n.d.)6Multiplereferstoacombinationofresidential,C&Iandcommunity-basedeconomicactivities.92GLOBALLANDSCAPEOFRENEWABLEENERGYFINANCE20233.3Off-gridrenewableenergyinvestmentsbyregion3.3.1InvestmentsbyregionofdestinationSub-SaharanAfricaremainstheprimarydestinationforinvestmentinoff-gridrenewableinvestments.TheregionattractedatleastUSD2.2billion(equivalentto71%)oftheoverallinvestmentsin2010-2021.Electrificationratesinthesecountriesareamongthelowestintheworld,with568millionpeopleintheregionlackingaccesstoelectricityin2020(IEA,IRENAetal.2022).WithinSub-SaharanAfrica,EastAfricaattracted43%ofthetotalcumulativeinvestment,receivingUSD952million.EastAfricawashometothreeofthetopfiverecipientcountries,namely,Kenya,theUnitedRepublicofTanzaniaandRwanda.Investmentinthesedestinationsbenefitedfromtheexistingmobilemoneyecosystem,whichwasleveragedbythePAYGbusinessmodel(seeBox3.1).Approximately78%ofthetotalcumulativecommitmentsinoff-gridrenewablesin2010-2021(orUSD2.4billion)involvedthefundingofcompaniesorprojectsusingPAYG,withEastAfricaaccountingforUSD917million.USDmillion(constant)InvestmentsinsolarhomesystemsbysectorInvestmentsinmicrominigridsbysectorCommercialandindustrialCommunitiesandothereconomicactivitiesCommunitiesandothereconomicactivitiesMultipleResidentialMicro-/mini-gridsMultipleSolarlightsSolarhomesystemsAncillaryproductsandservicesOthero-gridsolarMultipleCommercialandindustrialResidentialFigure3.5Annualinvestmentinoff-gridrenewableenergy,byoff-gridproduct,andenergyuse,2010-2021Basedon:WoodMackenzie(2022a).93Thelandscapeofoff-gridrenewableenergyinvestmentindevelopingcountriesAtypicalpay-as-you-go(PAYG)structureallowsuserstopurchaseasolarhomesystem(SHS)withaninitialdownpayment,followedbyperiodicpaymentsrangingfromsixmonthstoeightyears.Paymentsarecollectedviamobilepaymentplatforms,whilesmartmetersanddataanalyticsfacilitateoperation,monitoringandotherafter-salesservices(IRENA,2022f).Thisallowsconsumerstoshifttheupfrontcostsofpurchasinganoff-gridenergysystemwhileavoidingriskssuchassystemfailure.Atthesametime,companiescangeneratepredictablecashflowsbasedonexistingPAYGcontracts.ThePAYGmodelhashelpedaddresssomeoftheaffordabilitygapsinthesector,whileenablingcompaniestoservicealargeconsumerbaseandattractfinancing.ArecentexampleofthisisBrighterLifeKenya1Limited,whichisthefirstlarge-scaledemonstrationofreceivables-purchasefinancinginlocalcurrencyinthesector(USDFC,n.d.).TheUSD127millionoff–balancesheetfinancingvehicleisdesignedtoacquirePAYGSHSaccountsreceivablesfromd.light,anoff-gridsolarproductsprovideroperatingacross70countriesandcateringtomorethan100millionpeople.Throughd.light,thefacilityisexpectedtofinancetheprovisionofimprovedenergyaccessto1.9millionpeopleinKenya,createUSD88millionofadditionalincomefortheKenyaneconomyandsave600000tonnesofgreenhousegasemissions.PublicfinancingremainskeyinenablingsuchventuresaspartofthefacilitywasfinancedbyaUSD20millionseniordebtcommitmentfromtheUSInternationalDevelopmentFinanceCorporation,withNorfundprovidinganadditionalUSD15million(Norfund,2021).Box3.1PAYGmodeltoattractfinancingintheoff-gridsolarsectorInrecentyears,WestAfricahasbegunclosingthefinancinggapwithEastAfrica(Figure3.6).During2018-2021,WestAfricasawmoreinvestmentthanEastAfrica.WithPAYGsalesstartingtosurpasscash-basedsales,theregioniswitnessingagrowingecosystemoflocalretailersandinternationalcompanies(ESMAPetal.2022b).NigeriaisdrivingthisgrowthasthelargestsinglerecipientcountrybothinSub-SaharanAfricaandglobally,attractingUSD287millionduring2010-2021.Asidefromalargeuntappedmarketandrisingdieselprices,thisislinkedtotheimplementationoftheNigeriaElectrificationProgrambytheRuralElectrificationAgencywithfundingfromtheWorldBankandtheAfricanDevelopmentBank(ESMAPetal.2022b)andaregulatoryframeworkformini-grids(seeBox3.2).Moreover,BurkinaFasoandMali(twoconflict-affectedstates)haveseenpositivesignsintheiroff-gridsolarsectorasgovernmentsanddevelopmentpartnersarefrequentlysupportingmarketdevelopmentthroughsubsidiesandresult-basedfinancingmechanisms(ESMAPetal.2022b).CentralandSouthernAfricatogetherattractedatotalofUSD93millionduring2018-2021,asinvestmentspickedupoverthisperiod.Giventherelativenascencyofthesetwomarkets,publicpolicyanddevelopmentfinancesupportremainscrucialindrivinginvestments.Forexample,Mozambique’s50%off-gridelectrificationtarget(by2030)hashelpedattractUSD13millionsince2017.Targetedgrantsandresult-basedfinancinginitiativessuchastheBRILHOprogramme(financedbytheUnitedKingdomandSwedishAid)havehelpedcreateanenablingregulatoryenvironment,de-riskinvestments,helpingtoprovideaccesstomorethan306000peopleand5000smallbusinessesthroughthedeploymentofSHSs,greenmini-gridsandimprovedcookingsolutions(SNV,2021).94GLOBALLANDSCAPEOFRENEWABLEENERGYFINANCE2023DuringtheCOVID-19pandemic,off-gridrenewableenergyinvestmentsinSoutheastAsiadeclinedby98%,leavingkeyoff-gridmarketsevenmorevulnerable.Althoughthemajorityofcountriesinthisregionhaveachievedhighornear-universalratesofelectricityaccess,partsofthepopulationsincountriessuchasMyanmarandCambodia(26%and15%,respectivelyin2020)stilllackaccesstoelectricity(WorldBank,2022).WhereastheregionattractedUSD137millioninoff-gridrenewableenergyinvestmentsover2018-2019(ledprimarilybyMyanmar),during2020-2021,investmentsplummetedtoUSD3million,likelyduetothenegativeimpactsoftheCOVID-19pandemicandpoliticaldevelopments(ESMAPetal.2022b).SouthAsiaattractedUSD26millionininvestmentsduring2018-2021,withIndiaattractingmorethan80%ofallinvestmentsintheregion.Oflate,moreinvestmentsarebeingmobilisedforproductiveuseofenergy.UnderitsPM-KUSUMscheme(launchedin2019),theIndiangovernmenthasincentivisedthepurchaseandinstallationofover152000solarwaterpumpsasofOctober2022.Oorja,anIndianpay-per-useservicebasedsolar-poweredirrigation,millingandcoolingcompany,hasattractedsignificantinvestmentsinrecentyears,includingaUSD1millionseedfundingroundin2021,withequityinvestmentfromSchneiderElectricEnergyAccessAsiaandgrantfundingfromWater&EnergyforFoodGrandChallenge(WE4F).Oorja’sservicesareusedby15000farmerswithpotentialforadoptionby130millionhouseholdsinIndiaalone.During2018-2021,LatinAmericaandtheCaribbean7,andtheMiddleEasttogetherattractedonlyUSD21million,equivalenttolessthan1.5%ofcumulativecommitmentsoverthatperiod.Theseregionshaverespectivelyachievedelectricityaccessratesofmorethan90%(WorldBank,2022).SouthAsiaSoutheastAsiaSouthernAfricaOthersEastAfricaWestAfricaCentralAfricaMultipleSouthAmericaFigure3.6Sharesofannualinvestmentinoff-gridrenewablesbysubregionofdestination,2015-2021Basedon:WoodMackenzie(2022a).7Infigure3.6,theLatinAmericaandtheCaribbeanregionconsistsofthesesub-regions:CentralAmerica;SouthAmerica;andtheCaribbean.95Thelandscapeofoff-gridrenewableenergyinvestmentindevelopingcountriesWithsmallersharesofthepopulationlivinginoff-gridlocations,theseregionsrepresentrelativelysmallmarketsfordecentralisedenergysystems.Finally,thePacifichasreceivedminimalinvestments,eventhoughdevelopingcountriesinthisregion,especiallysmallislanddevelopingstates,areprimecandidatesforoff-gridservices,particularlyinremoteareaswherethecostsofextendingthemaingridmaybeprohibitive.However,mini-gridsandSHSsolutionscontinuetolackaccesstoeconomicallyfinancingoptions.Accesstomorepatientandadaptablelow-costfinancingsolutionsisrequiredtoprovideaffordableenergyaccesstoimplementthesesolutionsatscale(Malhotra,2022).Off-gridcompaniesaregraduallyexpandingtheirservicesacrossnewgeographiesastheshareofcommitmentsgoingtomultipleregionshasgrownfrom12%in2015to58%in2021.Venturingintonewmarketsisoftenastrategicsteptocapitaliseonunexploredopportunitiesandharnessfurthergrowth,whileacceleratingtheachievementofuniversalaccesstoelectricity.Country-specificcommitmentswerehighlyconcentrated,with12countriesaccountingfor90%oftheseinvestments.ThemajorityofthesecountriesareinSub-SaharanAfrica.NigeriaandKenyaarethetwocountriesattractingthelargestoff-gridinvestmentsglobally(USD287millionandUSD243million,respectively)over2010-2021.Anenablingpolicyframeworkiscrucialtoattractingoff-gridrenewableenergyinvestments.Figure3.7showsthatcountrieswiththehighest“RegulatoryIndicatorsforSustainableEnergy”(RISE)scoresforelectricityaccessin2019attractedthelargestshareofinvestments.8,9TheRISEscoresforelectricityaccessencompassmultidimensionalaspectsofelectrificationplanningpoliciesandregulations,includingthescopeoftheofficiallyapprovedelectrificationplan,aframeworkformini-grids,aframeworkforstand-alonesystemsandconsumeraffordabilityofelectricity(RISE,n.d.).Bymid-2022,NigeriaandKenyahadsomeofthehighestRISEscoresforoff-gridelectricityaccess(86and83outof100,respectively).Thisindicatesthatbothcountrieshavearelativelymaturepolicyenvironment,eventhoughthereisstillsomeroomforimprovement.Forinstance,Kenyahadanobjectiveofreachinguniversalelectricityaccessby2022,supportedbyitsNationalElectrificationStrategy,andhasdedicatedguidelinesformini-grids,whichwerepublishedundertheprovisionsofthe2006EnergyAct.Areviseddraftoftheseguidelinesisindiscussionandisexpectedtocoveraspectssuchastariffapproval,licensingrequirements,interconnectionarrangements,technicalguidelines,andperformanceandreportingguidelines.Similarly,in2016,Nigeriaenactedadedicatedregulatoryframeworkformini-grids,withsubsequentrevisionstoalsocoveremergingtechnologiessuchasinterconnectedmini-grids(IRENA,2022f).TanzaniaandUgandahavesimilarRISEscoresbutattractlessinvestmentcomparedwithNigeriaandKenya.AlthoughthesetwocountrieshavehigherRISEscoresforgridelectrificationandutilitycreditworthinessandtransparencythanNigeriaandKenya,suchscoresarenotnecessarilyprerequisitesforoff-gridinvestments.Incontrast,countrieslikeMadagascarandMozambiquehaverelativelylowRISEscores,butalsolowinvestments.Box3.2Off-gridrenewableenergyinvestmentsandenablingpolicyframeworks8Forthepurposeofthisanalysis,ahighRISEscoreencompassestheelementsofelectrificationplanning,scopeoftheofficiallyapprovedelectrificationplan,aframeworkformini-grids,aframeworkforstand-alonesystemsandconsumeraffordabilityofelectricity(RegulatoryIndicatorsforSustainableEnergy,n.d.).9Indicatorsonpoliciesandregulationsforgridelectrificationandutilitycreditworthinessandtransparencywerenotused,althoughtheseareapartoftheRISEscoresonelectricityaccess(RegulatoryIndicatorsforSustainableEnergy,n.d.).96GLOBALLANDSCAPEOFRENEWABLEENERGYFINANCE2023USDmillion(constant)RISEscore-electricityaccessNigeriaUnitedRepublicofTanzaniaUgandaEthiopiaGhanaMozambiqueMadagascarKenyaFigure3.7InvestmentwithrespecttoRISEscoresandpopulationsservedbyoff-gridrenewablesinaccess-deficitcountriesinSub-SaharanAfrica,2010-2021Notes:Thesizeofthebubblesrepresentsthepopulationservedbyoff-gridrenewableenergy.Sincethesearerelatedtohouseholdaccess,andthemajorityoftheinvestmentsinNigeriaareformini-gridsforC&Ipurposes,thebubblesarerelativelysmall.Basedon:WoodMackenzie(2022a)andRISE(n.d.).3.3.2Investmentsbyregionoforigin(basedontheinvestor'sprimarylocationofoperations)Aswithoverallrenewableenergyinvestmenttrends,themajorityoftheoff-gridrenewableinvestmentsinemerginganddevelopingeconomiescomprisesofNorth-Southflows,i.e.fromdevelopedcountriestodevelopingandemergingmarkets.Atleast78%ofthetotalcommitmentsbetween2010and2021involvedNorth–Southflows(Figure3.8).Ofthetotalcommitments,EuropeaninvestorscommittedUSD1.46billion,or47%ofthetotal.AnadditionalUSD812millioncamefromNorthAmericaandOceania(26%ofthetotal),whileNortheastAsianinvestors(mainlyJapan)accountedfor2.6%ofthetotalcommitments(i.e.USD78million).South–Southflowsmadeuplessthan20%oftheoverallfinancingbetween2010and2021,althoughtheircontributionhasbeenincreasinggradually.Abouttwo-thirdsofSouth–SouthflowshavecomefrominvestorsbasedinSub-SaharanAfrica–contributingUSD337million,primarilythroughlocalinstitutionalinvestors,andprivateequityfirmsandventurecapitalists.Meanwhile,SoutheastAsia–basedinvestorscontributedUSD92millionoverthesameperiod,equivalentto17%ofSouth–Southflows.ThemajorityofSouth–Southflowsareinvesteddomesticallyand/orinter-regionally,althoughsince2014,someinter-regionalinvestmentshavearisenprimarilyfrominvestorsbasedinSub-SaharanAfrica.97Thelandscapeofoff-gridrenewableenergyinvestmentindevelopingcountriesItshouldbenotedthattheanalysisinthissectionisbasedonwhereaninvestorisdomiciled.Inotherwords,investorsaregivena“North”or“South”classificationbasedontheiroperations’location,asopposedtowherefundingfirstoriginated,sincethisisoftenmoredifficulttotrack,especiallybecausefundingmayhaveoriginatedfrommultiplesources.So,evenincaseswhereaninvestormaybebasedintheGlobalSouth,partofthefundingmayhavefirstoriginatedfromtheGlobalNorth.Giventhislimitation,theactualshareofSouth–Southflowsisprobablysmallerthanindicatedinthissection.USDmillion(constant)EuropeSub-SaharanAfricaNorthAmericaandOceaniaNortheastAsiaOthersOthersSoutheastAsiaOthersNorth-SouthSouth-Southdomesticandinter-regionalSouth-Southinter-regionalFigure3.8Cumulativeoff-gridrenewableenergyinvestmentsbytypeofflowandregionoforigin,2010-2021Note:OthersincludeLatinAmericaandtheCaribbean,theMiddleEast,SouthAsiaandMultiple.ThisexcludesUSD154millionforwhichtheregionoforigincouldnotbeidentified.Alsonotethatforthisanalysis,investorsaregivena“North”or“South”classificationbasedontheiroperations’location,asopposedtowherefundingfirstoriginated,sincethisisoftenmoredifficulttotrack,especiallybecausefundingmayhaveoriginatedfrommultiplesources.Basedon:WoodMackenzie(2022a).3.4Off-gridrenewableenergyinvestmentsbytypeoffinancinginstrumentBetween2010and2021,debtandequityinvestmentscontributedabout47%and48%oftheoverallfinancing,respectively,withanadditional5%contributedbygrants.Whileequityinvestmentswerealmostentirelyutilisedtofinancecompanyoperationsorexpansionofactivities,debt(primarilytermloansandventuredebt/convertibledebt/bonds)isoftendirectedatbothcompaniesandprojects.Bytechnology,debtfinancingconstitutedthemajorityoftheinvestmentsinSHSsandsolarlightsover2010-2021(54%ofthetotal,andrisingovertime)–afindingconfirmedbyESMAPetal.(2022b).Ontheotherhand,equityfinancingdominatedthemicro-/mini-gridspace,constituting74%oftheoverallfinancingoverthesameperiod.98GLOBALLANDSCAPEOFRENEWABLEENERGYFINANCE2023Overall,priortotheCOVID-19pandemicof2020,themajorityofoff-gridrenewableenergyfinancingcamefromequityinvestmentsowingtothedominationbyprivateequity,venturecapitalandinfrastructurefundsandthelackofaccesstodebtforthesector.Theshareofequityhasseenarelativedeclineinpartduetotheuncertaintiesposedbythepandemic,andthelimitedtrackrecordofexitsandcapitalrecyclinginthesector,whichmayexplainthelimitednumberofnewequityinvestorsenteringthesectorinrecentyears(seeSection3.5andBox3.3).Atthesametime,thecontributionofdebthasincreasedsharplyoverthepasttwoyears,particularlyasdebt-preferringDFIsbolsteredtheirsupportduringthepandemic(Figure3.9)andmajoroff-gridcompanieswereabletocapitaliseontheirstrongmarketpositiontosecurelarge-sizepredominantlydebt-baseddealsfrombothpublicandprivateinvestors(ESMAPetal.2022b).Inaddition,relativelyestablishedmarketssuchasKenyaandNigeriaareseeingmorelocalcurrencydebtfinancing.During2020-2021,about28%ofdebtwasdenominatedinlocalcurrencies(primarilytheKenyanshilling,followedbytheNigeriannaira),comparedwithjust11%duringthepre-pandemicyears(Figure3.9).ThisincludedaUSD75millionequivalentSustainableFinanceFacilityforGreenlightPlanetKenya(nowknownasSunKing)andtheUSD127millionequivalentfinancingvehiclecalledBrighterLifeKenya1Limited.Althoughthevolumesoflocalcurrencyfinancingwerelowerbefore2020,amorediversemixofcountrieswasreceivingthisfinancing,includingsomerelativelyunderdevelopedmarkets,suchasCôted’Ivoire,Mozambique,RwandaandUganda,amongothers.In2018,forexample,ZolaElectricreceivedanequivalentofUSD9milliontoprovideaccessthroughSHSstoapproximately100000ruralhouseholdsinCôted’Ivoire.10Goingforward,low-costlocalcurrencyfinancingwillbepreferredforthenextphaseoftheoff-gridrenewableenergysector’sdevelopment.Establishedcompaniesarelookingtofinancethenextphaseoftheirdevelopment,whileyoungercompanieswouldbenefitfromthelowcostofcapitaltobuildprofitablebusinessesandattractequityinvestors.Intheabsenceoflow-costfinancing,theburdenmayfalldisproportionatelyonlow-incomehouseholdsascompaniesseektoincreaseprofitability,andmaintainhealthycashflows,toservicetheirdebtobligationsorsatisfytheexpectationsofequityinvestors.Todate,however,localcurrencyfinancingavailablefromlocalcommercialbanksisoftenmoreexpensivethanforeign-currency-denominateddebtavailablefromDFIs,11sincetheformeroftenseethesectorasnascentandriskier,andhavelimitedappetiteforsuchinvestmentsgiventheavailabilityofalternatives,e.g.governmentsecurities(AfDB,2020).OpportunitiesforDFIstopartnerwithlocalfinancinginstitutionstodeliverlocal-currencydebtarealsoemerging.HuskPowerSystems,forinstance,raisedINR310million(USD4.2million)indebttodevelop140mini-gridsinIndiafromthestate-ownednon-bankingfinancinginstitutionIndiaRenewableEnergyDevelopmentAgency(IREDA)utilisingalineofcreditprovidedbyKfW.10Notably,ZizEnergiewastheonlyrelativelyunderdevelopedoff-gridmarkettoreceivealocalcurrencyloanofUSD6millionequivalentfromtheDevelopmentBankofCentralAfricanStates(BDEAC)tofundhybridsolarmini-grids.11Furthermore,AfDB(2020)reportsthatevenwiththeprovisionofguarantees,therearelimitedtonobenefitsonborrowingcosts,althoughthiscanreducecollateralrequirements.99Thelandscapeofoff-gridrenewableenergyinvestmentindevelopingcountriesThe2020-2021periodwasalsomarkedwithsomesizeabledealsunderablendedfinancingmechanism.Atleast26.5%oftheUSD996millioncommittedduringthisperiodwasmobilisedthroughablendedfinancingapproachcomprisingamixofdebt,equityandgrants,aswellasriskmitigationinstruments.ThisincludedtheUSD90millionraisedbyZolaElectricfrommorethaneightinvestors,includingSunFunder,TotalEnergiesVenturesandFMO(aDutchdevelopmentbank),eachbringinginuniqueattributessuitedforvariousrelatedrisksandopportunities.Inthisway,blendedfinancecombinestheuniqueattributesofDFIs,privateinvestorsandgovernmentstoaddressdifferentinvestment-relatedrisks.Thesestructureshavegreatpotentialtoattractprivatefinancierstotransactionsthatbythemselvesmighthavedifficultyobtainingcommercialfinancing(IRENA,2022f).USDmillion(constant)ForeigncurrencydebtEquityGrantLocalcurrencydebtFigure3.9Annualinvestmentinoff-gridrenewableenergy,byfinancinginstrumentandlocalversusforeigncurrencydebt,2013-2021Basedon:WoodMackenzie(2022a).3.5Off-gridrenewableenergyinvestmentsbyfinancingsourceandtypeofinvestorPrivateinvestmentsgrewbyacompoundannualgrowthrate(CAGR)of33%during2014-2019,butthisgrowthwasslightlyreversedin2020-2021duetotheeconomicimpactsoftheCOVID-19pandemic.Privateinvestors’contributionfellfromUSD361millionin2019toUSD277millionin2021.Despitetheirdecliningcontributionsoverthepasttwoyears,privatesourcescontinuetoprovidesubstantialvolumesofinvestmentstothesector.100GLOBALLANDSCAPEOFRENEWABLEENERGYFINANCE2023Overtime,thesectorhasdrawninsubstantialprivatefinancingfromprivateequityandventurecapitalists,aswellasassetmanagerswhoarelookingtodiversifytheirportfolios(Falchettaetal.2022;WoodMackenzie,2019).Privateequity,venturecapitalandinfrastructurefunds12provided32%ofoff-gridrenewableinvestmentsbetween2010and2021,havingcommittedUSD985million.Theirappetiteforventureswithalimitedtrackrecordbuthigh-growthpotentialmakesthesetypesofinvestors(especiallyventurecapitalists)aparticularlysuitablesourceofcapitalfortheoff-gridsector(Figure3.10).In2020-2021,theirshareofinvestmentsfellslightly,likelyduetotheCOVID-19pandemicandthefactthatmostofthemhadinitiallyinvestedthroughequityandhadyettorealisesufficientcapitalgainsthroughsuccessfulexits(Acumen,2019)(alsoseeBox3.3onlimitedexitsandcapitalrecyclingintheoff-gridsector).Alimitedtrackrecordofsuccessfulexitsandcapitalrecyclingmaybedeterringnewequityinvestorsfromcomingin,whichmayfurtherexplainthedecliningshareofequity(asseeninFigure3.9onfinancinginstruments).Institutionalinvestorsprovided19%oftheinvestmentsintheoff-gridspace–equivalenttoUSD583million–althoughthishasprimarilycomefromfoundations,13asopposedtothelikesofpensionfunds,sovereignwealthfundsandassetmanagersthathaveastrongpreferenceforlargertransactionsizesandwell-proventechnologiesandbusinessmodels.In2020-2021,theircontributionsshrankslightly,bothintermsofmagnitudeandshare(Figure3.10).Foundationsareincreasinglyplayinganactiveroleinthesectorbridgingthefundinggapsinthesectorfocusingonend-userandenterprisefinancing,aswellasbroadermarketdevelopment(e.g.capacitybuilding,pilotingnexusapplications).Institutionalinvestorscanhelpbridgesomeofthefundinggapinthesector,althoughthiswillrequireaddressingbarriersrelatedtosmallticketsizes,underdevelopedpolicyandregulatoryenvironments,andmarketuncertainty,whichgiverisetoarangeofrealandperceivedrisks.Thestrategicuseofblendedfinancingmechanismswillbekeyforaddressingthesechallengesandtappinginstitutionalinvestors’balancesheets.Corporationsandbusinessassociations’investmentspeakedin2019atUSD68million,asshowninFigure3.10,buttheywerelessthanhalfofthisamountoverthefollowingtwoyearscombined.Similarly,investmentsfromcommercialfinanceinstitutions(e.g.banks)remainedsporadicthroughoutthisperiod,andtendedtocomefrommulti-nationalcommercialbanksthathavesufficientaccesstoforeignexchange(AfDB,2020).Forexample,in2021,theStandardBankGroupandCiti,twomulti-nationalcommercialbanks,partneredtogetherwiththeCDCGroupandNorfundtoprovideaUSD75millionequivalentlocal-currencyfinancingfacilityforGreenlightPlanetKenya,anoff-gridsolarhomesolutionscompany(BritishInternationalInvestment,2021).12Definitionsofallinvestortypesincludedinthisanalysisareprovidedintheaccompanyingmethodologydocument(Appendix).13Foundations(includingnon-profitssetupbyprivatecompanies)aregivenaprivatedesignationasinthemajorityofcases.Thisrepresentsprivatemoneythatisflowingtooff-gridcompaniesandprojects,althoughtheprimarypurposeoftheseinvestmentsisoftentosupportasocialorenvironmentalcause,asopposedtosolelymakingfinancialreturns,inwhichregardtheybehavelikeapublicinvestmentservingalarger“public”goal.101Thelandscapeofoff-gridrenewableenergyinvestmentindevelopingcountriesUSDmillion(constant)InstitutionalinvestorsPrivateequity,venturecapitalandinfrastructurefundsDevelopmentﬁnanceInstitutionsGovernmentagenciesandintergovernmentalinstitutionsIndividuals(incl.crowdfundingplatforms)CorporationsandbusinessassociationsUndisclosedOthers(incl.non-proﬁt/impactfunding)CommercialﬁnancialinstitutionsFigure3.10Annualcommitmentstooff-gridrenewableenergybytypeofinvestor,2015-2021Note:Definitionsofallinvestortypeincludedinthisanalysisareprovidedintheaccompanyingmethodologydocument(Appendix).Basedon:WoodMackenzie(2022a).Profitableexits(e.g.aneventinwhichaninvestormaysellacompanytorealiseafinancialgain)serveasproofpointsforlater-stagecommercialinvestorstogainconfidenceinthesector,whilealsoallowingearly-stageinvestorstorecycletheircapitalintonew,pioneeringoff-gridcompanies.Thisisacriticalcomponentofbuildingtherobustcapitalmarketneededtosupportcontinuedinnovationandscaleintheoff-gridenergysector.However,therehavebeenfewexitsinoff-gridenergytodate.Someestimatesshowthatbetween2012and2017,onlyUSD50millionoftheUSD1.4billioninvestedviaequitywasreturnedtoinvestors,through12exits.Thisisprimarilyduetoissuesrelatedto:Profitability.Manycompaniesarenotyetprofitabletodate,whichhasdeterredlater-stageinvestorsfromenteringthemarket.Lowprofitabilityisprimarilyduetocomplexbusinessmodelsandhigher-than-expectedoperatingcosts.Highvaluationsofoff-gridcompaniesduetoover-relianceonequityintheearlydaysofthesector.Thishasresultedinamismatchbetweenthevaluationsthatearly-stageinvestorsneedtogenerateareturnandthevaluationthatpotentialinvestorsarewillingtoaccept,inturnlimitingsecondarycapitalfromcomingin.Ascompanieslooktoscaletheiroperations,improvingtheiruniteconomicswillgoalongwayinfacilitatingexitsandcapitalrecyclinginthesector.Morerecently,in2022,ApisPartnerswasabletorealiseafullexitfromitsinitialinvestmentofUSD60million(bothdebtandequity)inSun-King(formerlyknownasGreenlightPlanet)madefiveyearsprior(AfricaCapitalDigest,2022).ThecompanyrecentlyraisedUSD260millioninSeriesDfinancing–thelargestdealseeninthesector–whichenabledtheexitandservesasamodelforothercompaniesandinvestors.Source:Acumen(2019).Box3.3Limitedexitsandcapitalrecyclingintheoff-gridsector102GLOBALLANDSCAPEOFRENEWABLEENERGYFINANCE2023Individuals(high-net-worthindividuals,familiesorhouseholds)investedanaverageofUSD20millionperyearduring2015-2021.Thiswasprimarilythroughdedicatedcrowdfundingplatforms,whereanumberofcompanieslaunchedfundraisingcampaignsespeciallyinthepasttwoyearstorefinanceexistingdebtorcontinueoperating,sincemanycustomersdefaultedonpaymentsordelayedthemduetotheeconomicpressuresofthepandemic(IRENA,2022f).Overall,off-gridrenewableenergyaccesshasreceivedatotalofUSD117millionininvestmentsviacrowdfundingplatformssuchasTRINE,EnergiseAfricaandLendahand,morethan85%ofwhichwasdebt.Asprivateinvestmentactivitydeclinedin2020-2021,publicfinancing(especiallyfromDFIs)providedthesectorwithamuch-neededboost.DFIs’contributionincreasedby67%fromUSD93millionin2019toUSD260millionin2021.Overall,theshareofpublicfinancingincreasedfrom30%during2015-2019to44%during2020-2021(Figure3.11),compensatingfortheshortfallinprivateinvestmentactivity.Althoughaboutafifthofthefinancingduring2010-2021camefrompublicsourcesofcapital,14their“true”contributiongoesbeyondthemereprovisionofcapitalforprojectsbutalsoincreatinganenablingpolicyandregulatoryenvironment,buildingcapacity,bridgingaffordabilitygapsandcreatingmarketawareness(seeBox3.4onthepublicfinancingframeworkforenergyaccess).Todate,publicinvestmenthasbeenessentialtokick-startnewmarketsandadvanceearlyphasesofdevelopment,forinstance,bysupportingpilotprojectsforemergingtechnologiesandbusinessmodels,orbymitigatingearly-stageprojectrisks.Pre-pandemic(-)Increaseinpublicinvestmentshareduringthepandemic(mainlyDFIs)-PublicPrivatePublic/PrivateUndisclosed14%Figure3.11Sharesofannualoff-gridrenewableenergyinvestmentsbypublic/privateinvestor,pre-pandemicyears(2015-2019)versus2020-2021Note:DFI=developmentfinanceinstitution.Basedon:WoodMackenzie(2022a).14Theremainingcomingfrom“public-private”capitalproviders.103Thelandscapeofoff-gridrenewableenergyinvestmentindevelopingcountriesAnestimatedUSD45billioninannualfundingisrequiredtoachieveuniversalenergyaccessby2030,andpublicfinanceisthekeytoclosingthisgap.Besidesde-riskingandcatalysingprivatecapitalintoprojectsandsolutions,publicfinancehasakeyroletoplayininvestmentsinpublicgoodsunaddressedbythemarket(e.g.educationandtraining,awarenessraising,planning),andinensuringaccesstounderservedandmarginalisedcommunitiesandenduserswhere/forwhomaffordabilitygapsarethemostsignificant.PublicfinancingcommitmentsandappropriateinstrumentshavetobescaledsignificantlytoachievetheSDG7goals.Publicfinancingneedsvarydependingonthetechnologysolution(stand-alonesystems,mini-grids,cleancookingsolutions)andthestakeholdersintheecosystem,includingendusersandenterprises.Ensuringaccesstotailoredfinancinginstrumentswillbekeytobuildingsustainablemarketsandcreatinglocalvalue.Existingframeworksdonotadequatelytrackoranalysepublicfinancingforenergyaccesstoascertainwhethersufficientmagnitudeisbeingmobilisedanddeployedthroughtherightinstruments.AnupcominganalysisbyIRENAoffersatool(referredtoastheframework)toguidepolicymakersandpublicfinancerstotrackandoptimisepublicfinancinginadvancingenergyaccess(Figure3.12).Itseeksto1)mapthepublicfinancingneedsacrosstheenergyaccessecosystem;2)identifychallengesinscalingmodernenergyaccessthatpublicfinancemustaddress;and3)understandstakeholderpreferencesacrosspublicfinanceinstruments,intermediariesandrecipients.Box3.4PublicfinancingframeworkforenergyaccessUpfrontgrantsSolutionmanufacturersDistributionandretailenterprisesEndusersCivilsocietyGovernmentagenciesAcademia/TraininginstitutesPotentialinstrumentsUsesofpublicnanceSolutionsIntermediariesSourcesPublicnanceframeworkforexpandingenergyaccessGrantsandsubsidiesDebtEquityRiskmitigationFiscalpolicy&regulationSupplyDemandEcosystemElectricityCleancookingCross-cuttingRecipientsResultﬁnancing-basedNationaldevelopmentbanksGovernmentsMultilaterals/DFIsNationaldevelopmentbanksFoundationsImpactfundsCommunitiesCrowdfundingplatformsSolarhomesystemsMini-gridsProductiveuseGridImprovedcookstovesBiogas/biofuelSolar/electricLPGIntegratedplanningGovernmentinstitutionsCarbonﬁnanceplatformsLocalbanks/MFIsCo-operativesAccelerators/incubatorsNGOs/CBOsSpecialpurposevehicles(SPVs)SubsidiesConcessionaldebtCreditlinesReceivablesﬁnancingConcessionalequityGuaranteesExemptionsortaxreliefPublicprocurementInnovationanddemonstrationProjectpreparationEnterprisegrowthMaintenancesupportDataInstitutionalawarenessandmarketintelligencePolicies,planning,andregulationsCapacitybuildingandimplementationConsumerawarenessandcommunityengagementEnd-useraordabilityDemandstimulationFigure3.12PublicfinanceframeworkforuniversalenergyaccessNote:CBO=community-basedorganisation;DFI=developmentfinanceinstitution;LPG=liquefiedpetroleumgas;MFI=microfinanceinstitution;NGO=non-governmentalorganisation.Source:IRENA(forthcoming).104GLOBALLANDSCAPEOFRENEWABLEENERGYFINANCE2023DFIswerethelargestpubliccapitalproviders,havingcommittedUSD818millionin2010-2021,whichrepresents79%oftheoverallpublicinvestmentsforoff-gridrenewables(or27%oftheoveralltotalinvestments).Notably,DFIs’contributionsinthelasttwoyearsof2020-2021constitutehalfoftheiroverallcontributionssince2010.During2020-2021,theseinvestmentsslightlyexceededthosemadebyprivateequity,venturecapitalistsandinfrastructurefunds(Figure3.10).Somerecentinvestmentsinclude:•InOctober2022,theUSInternationalDevelopmentFinanceCorporation(USDFC)announcedaUSD40millioninvestmentintheEnergyEntrepreneursGrowthFund,afundcreatedbyUKaidandFMO(theDutchEntrepreneurialDevelopmentBank)withanobjectivetoexpand(off-grid)energyaccessinSub-SaharanAfrica.Sinceitscreationin2019,thefundhasinvestedpatientcapitalinoff-gridenergycompanieswithafocusonmezzanineinstrumentscombinedwithtechnicalassistance.Bytheendof2022,thefundwasexpectedtohavecommittedUSD31.5millionacrosstencompanies(USDFC,2022).•In2021,ZolaElectricraisedUSD90million(splitalmostequallybetweendebtandequity)throughablendedfinancingmechanismandsplitbetweenseveralprivateequityfirmsandventurecapitalistsaswellasthelikesofFMOandSunFunder(EnergyCapitalandPower,2021).•In2021,theFacilityforEnergyInclusion(FEI)structureditsinauguraltransactionofaEUR60millionmulti-countryfacilityforActivCoSAStoconstructrenewableenergypowerplantsfortelecommunicationsproviders,inturnreplacingpollutingdieselgenerators(FEI,2021).TheFEIisaspecialisedrenewableenergydebtfundheadedbytheAfricanDevelopmentBank,Norfund,KfWandothers.Thefundhasanobjectiveofenhancingenergyaccessthroughsmall-scaleindependentpowerproducersandmini-gridprojectsinAfrica(GET.invest,n.d.).Inaddition,manyCOVID-relatedrelieffundswereannounced,includingtheElectricityAccessReliefFundmanagedbySocialInvestmentManagementandAdvisors(SIMA).Amongmanyofitsrecentinitiatives,in2020,theUnitedStatesAgencyforInternationalDevelopment(throughitsPowerAfricaprogramme)providedUSD2.6millioningrantmoneytopowernearly300health-carefacilitiesinSub-SaharanAfrica.However,despitetheannouncementofseveralCOVID-relatedrelieffunds,onlyasmallamounthasactuallybeendisbursedtodate.Thismaybearesultofdrawn-outapprovalprocedures,whichcanoftentakeuptoayearformostDFIs(Falchettaetal.2022;WoodMackenzie,2019).Governmentagenciesandintergovernmentalinstitutionsprovidedadditionalpublicfunding,primarilyintheformofgrants.In2021,anoff-gridruralelectrificationprojectwaslaunchedinCambodiawithfundingfromtheGovernmentofAustralia.TheprojectwouldprovideUSD1.54millioningrantsunderthebroaderMekong-AustraliaPartnership(Niseiy,2021).Provisionofmoregrantswillbeessentialinnascentmarketswithsubstantialaccessdeficitsandhigh(realorperceived)risksthatmaydetertraditionalequityanddebtinvestors.105Thelandscapeofoff-gridrenewableenergyinvestmentindevelopingcountriesAlthoughoff-gridrenewableenergyinvestmentscurrentlyrepresentasmallpartoftheoverallenergyaccessfinancinglandscape,theyarecrucialtoclosingtheworld’slargeenergyaccessgap(of733millionpeople)andengenderingjustandinclusiveeconomicdevelopment.CurrentinvestmentlevelsfallfarshortoftheUSD2.3billionneededannuallyinoff-gridsolarproductsalone(notincludingmini-grids)between2021and2030(ESMAPetal.2022b),includingontheconsumersidetoensureaffordability.Improvingaccesstoaffordablefinance,bothupstreamforprojectdevelopersanddownstreamforenergyusers,willbecriticaltoscalingupthepenetrationofoff-gridrenewableenergysolutions.Newfinancingapproachesandinstrumentsarerequiredtothisend,withpublicsectorplayingafarlargerrole(seeChapter4).OddMan©Shutterstock.comGLOBALLANDSCAPEOFRENEWABLEENERGYFINANCE2023CONCLUSIONSANDWAYFORWARDGroundPicture©Shutterstock.com107Conclusionsandwayforward04Globalinvestmentsintheenergytransitionincludingrenewableenergycontinuedtoincreaseinthepastcoupleofyears,despitemacroeconomic,geopoliticalandsupplychainchallenges.Yet,theirscaleandscopeneedtoexpandsignificantlytoachieveclimateandsocio-economicdevelopmentgoals.ThecurrentpaceofinvestmentisnotsufficienttoputtheworldontracktowardsmeetingtheclimateobjectivesoutlinedinIRENA’s1.5°CScenario.Whileglobalinvestmentinrenewableenergyreachedarecordhighin2022(atUSD0.5trillion),itwaslessthanone-thirdoftheaverageinvestmentneededeachyearbetween2023and2030(aboutUSD1.6trillioninrenewablepowerandthedirectuseofrenewables–seeTable1.1)accordingtoIRENA’s1.5°CScenario.Investmentsarealsonotflowingatthepaceorscaleneededtoachievetheimprovementsinlivelihoodsandwelfareunderthe2030AgendaforSustainableDevelopment.Forexample,investmentsinoff-gridrenewableenergysolutionsin2021(atUSD0.5billion)fellfarshortoftheUSD2.3billionneededannuallyinoff-gridsolarproductsalone(notincludingmini-grids)between2021and2030toaccelerateprogresstowardsuniversalenergyaccess(ESMAPetal.,2022a).Moreover,investmentshavebecomefurtherconcentratedinspecifictechnologiesanduses,andinasmallnumberofcountries/regions.In2020,solarphotovoltaicaloneattracted43%oftotalinvestmentinrenewables,followedbyonshoreandoffshorewind(at35%and12%respectively).Tobestsupporttheenergytransition,morefundsneedtoflowtolessmaturetechnologiesandtosectorsbeyondpower(e.g.heatingandcooling,transport,energyefficiencyandsystemintegration).Moreimportantly,morethan50%oftheworld’spopulation,mostlyresidingindevelopingandemergingcountries,receivedonly15%ofglobalinvestmentsin2022.Sub-SaharanAfrica,forexample,receivedlessthan1.5%oftheamountinvestedgloballybetween2000and2020.Investmentsintheregionhavebeenonadownwardtrend(fromUSD5.3billionin2019tolessthanUSD3.6billionin2022),eventhoughtheworldemergedfromthepandemicsupposedlyrecognisingthecriticalroleenergyplaysinenablinghealthcare,sanitationandresilientlivelihoods.Thedisparityinrenewableenergyfinancingreceivedbydevelopedversusdevelopingcountrieshasincreasedsignificantlyoverthepastsixyears.108GLOBALLANDSCAPEOFRENEWABLEENERGYFINANCE2023In2015,therenewableenergyinvestmentpercapitainEuropeorNorthAmerica(excludingMexico)wasalmost23timeshigherthanthatinSub-SaharanAfrica,forexample.In2021,investmentpercapitainEuropewas41timesthatinSub-SaharanAfrica,andinNorthAmericaitwas57timesmore(seeSection2.3).Fortheenergytransitiontohaveapositiveimpact,governmentsanddevelopmentpartnersneedtoplayamoreactiveroleinensuringamoreequitableflowoffinancerecognisingthedifferentendowmentsandstartingconditionsofcountries.Morepublicfundsneedtoflowtoregionsandcountriesthathavealotofuntappedpotentialbutfinditdifficulttoattractinvestment.Thesefundsneedtogointosupportingenergytransitioninfrastructuredevelopment,enablingpolicyframeworksaswellasaddresspersistentsocio-economicgaps.Thischapterbeginswithadiscussiononthelimitationsofusingpublicfundsmainlyforde-riskinginvestmentsandhighlightstheneedforamuchstrongerroleforpublicfinancing.Recognisingthelimitedpublicfundsavailableinthedevelopingworld,theneedforstrongerinternationalcollaborationincludingasubstantialincreaseinfinancialflowsfromtheGlobalNorthtotheGlobalSouthisdiscussed.Thechapterthengoesintothedifferentsources,intermediariesandpolicyinstrumentsthatcanchannelpublicfinancingintotheenergysectorandthewholeeconomy,tosupportajustandinclusivetransition.Thechapterdiscusseshowlendingtodevelopingcountriesmustbereformedandhowthewaypublicinvestmentcanbeusedtocrowdinprivateinvestmentneedstobemoreinnovative.1Investmentshavebeenprimarilyledbytheprivatesectorwhilepublicpolicyandfundshavefocusedonderiskinginvestments.Althoughthisapproachhasproveneffectiveinmanycountries,ithasitslimitations.Privateinvestmentsmadeupalmost70%ofthetotalinvestmentsin2020(USD240billion)1andwentmainlytorelativelyadvancedeconomies.Thedisproportionateflowofinvestmentstowardsmaturetechnologies/applicationsandspecificmarketsreflectsakeycharacteristicofmainstreamprivatecapital:itfavourslower-riskinvestmentsandprioritisesfinancialreturnsoversocial,environmental,andclimate-relatedgains.Assuch,privatecapitaltendstogotocountrieswithlowerrealorperceivedrisks,orintofrontiermarketsonlywheneffectiveriskmitigationfacilitiesareprovided,whilealargeportionoftheworld’spopulationremainsunderserved.Whencapitaldoesflowtohigher-riskenvironments,itgenerallydoessoatamuchhighercost(seeBox4.3).Thismeansthatthelowestincomepopulationsenduppayingthemostfor(oftenbasic)energywhichisuniversallyrecognisedasessentialforalleviatingpovertyandpromotingsocio-economicadvancement.Thisnecessitatesamuchstrongerroleforpublicfinancinginthesecontextsandnotfullyrelyingonprivatecapitalwhichmaykeepwideningthedisparities.1Investmentdatabysourceoffundingareavailableonlyupto2020.109ConclusionsandwayforwardButpublicfundsarelimited,sogovernmentshavebeenfocusingwhatisavailableonderiskingprojectsandimprovingtheirrisk-returnprofilestoattractprivatecapital.Riskmitigationsolutionshavebeenusedtolowertherisksassociatedwithrenewableenergyprojects’abilitytorepayobligations.Suchrisksstemfromuncertaintiesregardinggovernmentactions(political,regulatory,policy),macroeconomicconditions(e.g.currencyrisks),off-takercreditworthiness,forcemajeureevents,andothers.Amongriskmitigationinstruments,sovereignguaranteeshavebeenpreferredforlenderslookingtoobtaina“one-size-fits-all”solutionforcreditrisks.Butsuchguaranteesaretreatedascontingentliabilitiesbyregulators,credit-ratingagenciesandinternationalinstitutionssuchastheInternationalMonetaryFundandmayhamperacountry’sabilitytotakeonadditionaldebtforcriticalinfrastructuredevelopmentandotherinvestments(IRENA,2020a).Moreover,sovereigndebtsarealreadystressedtotheirbreakingpointinmanyemergingeconomiesgrapplingwithhighinflationandcurrencyfluctuationsordevaluationsinthewakeoftheCOVID-19pandemic.In2020,sovereigndebtdefaultshitarecordhigh,threetimesgreaterthanin2019.AmongthedefaultingcountrieswereArgentina,Ecuador,Lebanon,SurinameandZambia(FitchWire,2021);manyothercountriesareathighriskofsovereigndefault.Inthismacroeconomicenvironment,manycountriescannotaccessaffordablecapitalininternationalfinancialmarketsorprovidesovereignguaranteesasariskmitigationinstrument.Giventheurgentneedtostepupthepaceandgeographicspreadoftheenergytransition,andtocaptureitsfullpotentialinachievingsocio-economicdevelopmentgoals,moreinnovativeinstrumentsareneededthathelpunderinvestedcountriesreapthelong-termbenefitsoftheenergytransitionwithoutputtingtheirfiscallyconstrainedeconomiesatafurtherdisadvantage(seeSections4.5and4.6).Moreover,amorecomprehensivewayofdefiningrisk(includingrisksharing)isneeded.Thenarrowfocusontheriskofinvestmentinenergyassetsnotpayingoff-fromtheperspectiveofreturns-to-investorsonly-needstobebroadenedtoincludeenvironmental,planetary,andsocialrisks.Theseincludetheriskofleavingalargepartofthepopulationoutoftheenergytransitionandlockedinunderdevelopment,andtheriskofSustainableDevelopmentGoalsremainingfarfrombeingmet.Thisishowinvestmentrisksmustbeviewedfromtheperspectiveofgovernmentsandtheinternationalcommunity.Andwiththeverylimitedpublicfundsavailableinthedevelopingworld,theinternationalcommunitymuststepup.2Themajorityofpublicinvestmentsaremadefromnationalsourceswithrelativelylittleinternationalcollaboration.Theinternationalflowofpublicmoneytorenewableenergyhasbeenindeclinesince2018.State-ownedfinancialinstitutions(SOFIs),nationaldevelopmentfinanceinstitutions(N-DFIs)andstate-ownedenterprises(SOEs)werethemainsourcesofpublicfinanceforrenewablesin2020,providingmorethan80%ofpublicfinance(whichtotalledUSD108billion).110GLOBALLANDSCAPEOFRENEWABLEENERGYFINANCE2023PublicfinanceflowstotheGlobalSouthareessentialtoachievingthe1.5°CScenarioalongwiththesocio-economicbenefitsthatcanbeachieved(togetherwithprogressivefiscalmeasuresandothergovernmentprogrammessuchasdistributionalpolicy,asoutlinedinIRENA[2022a]).Forinstance,almost80%ofinvestmentsinoff-gridrenewablesbetween2010and2021involvedNorth–Southflows(seeSection3.3.2).However,theinternationalflowofpublicfinancegoingtorenewableenergyhasbeenindeclinesince2018(IEA,IRENAetal.2022).MultilateralDFIsprovidedlessthan2%oftotalrenewableenergyinvestmentsin2020,whilecommitmentsfrombilateralDFIsfell70%from2019toUSD2.3billion,orlessthan0.5%oftotalinvestments.TheminusculesharesofinvestmentcomingfrommultilateralandbilateralDFIsarecauseforconcerngiventhepressingneedtoincreaseinvestmentstodriveajustandequitableenergytransition.Evendebtfinancingatmarketrates(requiringrepaymentwithinterestrateschargedatmarketvalue)isonadeclinewhilegrantsandconcessionalloansamountedtojust1%oftotalrenewableenergyfinance.TheJustEnergyTransitionPartnership(JETP),launchedatCOP26asaninnovativemodelforprovidingfundingbasketsfromdonorcountries–mainlyG7countries–tosupportdevelopingcountriesintheirenergytransitions,butitmainlyprovidesloanswithveryfewgrants(Box4.1).TheJustEnergyTransitionPartnership(JETP)isanexampleoffinancingcooperationmechanismpresentedasapackagetosupportdevelopingcountriesintheirenergytransitionsinajustway.Itaimsforearlyretirementofcoal-firedpowerplantsandmobilisingprivatesectorcapitaltodecarbonisetheeconomywhileensuringajusttransitionforcitizens.TheJETPprovidesfundingbasketsfromdonorcountriesandreliesonself-definedpathwaysdevelopedbybeneficiarycountriestoaddresstheirenergytransitionneeds.Itsemphasisonjusticeincludesafocusonskillstrainingandjobcreationforthoseadverselyaffectedbytheenergytransition.MorethanoneyearintotheimplementationoftheJETP,thefollowingpointswerenoted:ThemajorityofexistingJETPfinancingpackagesconsistofloans.BeneficiariesoftheJETPmuststandfirmontheappropriatefinancingtermstoavoidincreasedsovereignindebtedness.SouthAfrica’sJETPfinancingpackagecomprises81%loansandonly4%grants,whiletherestareguarantees.TheindicativemixforVietNam’sJETPfinancingpackageis1.3%grants,andtheremainderloans(Chinh,2022).Grantsshouldplayabiggerpartofthefinancingpackagesinordertogivebeneficiarycountriesasociallyjustfundingscheme.Theskewedgrant/loanmixcanbeaddressedbyprovidingfundingfromdonorcountrieslargelyintheformofgrants;optingfordebt-for-climateswaps;araisingloanstoprivatesectorentitiescommerciallyinsteadofgivingcompaniesfundingfromtheJETPscheme(Naudé,2022).RelyingsolelyontheJETP’sfinancingsupportwillnotbeenoughtomeeteachbeneficiary’sinvestmentrequirementforajustenergytransition.ThisisevidencedinthecaseofSouthAfrica’sJustEnergyTransitionInvestmentPlan(JET-IP),whichlaidoutaUSD98billionrequirementforitsenergytransition.TheJETPdealwillmakeuplessthan10%with8.5billion.Meanwhile,Indonesia’sUSD20billiondealisonlyasmallfractionofitsindicativerequirementofUSD3.5trillionforasustainableenergyoverhaul.TheIndonesiangovernmentispursuingmultipleenergytransitionpackagesfromdifferentsourcesanddonorssimultaneouslytoattractfunding(Gunfausetal,2022).The“just”elementsarethehardesttoestablishandfinance.ThiscanbeseeninSouthAfrica’sJET-IP,whereeconomicdiversificationandinnovationandskillsdevelopmentmakeuponly0.4%ofthetotalamountplanned.Inaddition,grantsaccountforonly4%oftheJETPfundingpackage,makingSouthAfricavulnerabletorisksassociatedwithprivatisationwhichmightalsoapplyforotherbeneficiarycountries.Box4.1TheJustEnergyTransitionPartnership111ConclusionsandwayforwardPublicfundingforrenewableenergyfinance(andclimatefinancemorebroadly)hasfacedseveralchallengesinadeterioratingglobaleconomiccontext,especiallyinthepastthreeyears.Therecentmacroeconomicandgeopoliticalchallengeshaverequiredbothdevelopedanddevelopingcountriestodivertattentionandfundstowardsadjustmentpoliciestotackleinflation,disruptionsofsupplychains,foodshortagesandslowgrowth,creatingaverychallengingeconomiccontextwhererenewableenergyinvestmentsarecompetingforincreasinglyscarcepublicresources.Renewableenergyinvestmentsarethereforefacingincreasingconstraintsasgovernmentsconsolidateandrebuildthefiscalspaceandtacklehighpublicdebt.Thishasledtoadditionalchallengesinmobilisingpublic,concessionalandblendedfinancing,particularlyinthedevelopingworld.Yet,eveninthiscontext,asshowninIRENA’sreportPost-COVIDRecovery:AnAgendaforResilience,DevelopmentandEquality,energytransitioninvestmentscanpavethewayforequitable,inclusiveandresilienteconomies(IRENA,2020d).Forthat,internationalcollaborationbetweentheGlobalNorthandtheGlobalSouth,andNorth-Southflowsofpublicfinancingwillbekey(seeSection4.4).Suchfinancingcantaketheformofcapitaltransfersthroughofficialdevelopmentassistance(ODA)includingdonationsandgrants,concessionalandmarketratefinancingfromDFIsandexportcreditagencies(ECAs);capitalisationofmultilateralandUN-linkedfunds(suchastheGreenClimateFund)orprogrammesfrominternationalorganisations(suchasIRENA’sEnergyTransitionAcceleratorFinancing–Box4.2)tosupportrenewableinvestmentsinless-developedcountries,includingguarantees;andissuanceofcommercialanddebtobligations(government,N-DFIsandDFIs)suchaspowerpurchaseagreements(PPAs).Carbonemissionpermitsandoff-settingmarketsplayasecondarybutrelevantroleincomplementingfinancing.TheJETP’sproposedreformsalignwithapowersectorrestructuringagendapromotedacrosstheGlobalSouthsincethe1990s,albeitwithunevensuccess(Hadley,2022;Sward,2022;WWF,SACANandIEJ,2022).IRENA’sstudyRE-organisingpowersystemsforthetransitionshowstheneedforadifferentpowersystemorganisationalstructurethatcansupporttheenergytransitionandthepowersystemsofthefuturewhileavoidingpotentialmisalignments(IRENA,2022f;2022h).Toliveuptotheexpectationsofaninnovativefundingmechanism,theJETP’sfinancingpackagesmuststrivetoadoptaholisticapproachandbecountry-owned.Historically,donorshavechosenpiecemealprojectsthatcateredtotheirpreferences,leadingtofragmenteddevelopmentandinvestmentplansacrossdevelopingcountries.TheJETPisexpectedtobecomprehensive,coveringallsectorsandallcitizens.Thus,negotiationsforJETPfinancingpackagesmustnotskewtodonorpreferences,andaccompanyingplansmustbecountryledandcountryowned(Gunfausetal.2022).aDebt-for-climateswapsinvolveabilateralormultilateraldonor,privateinvestor,ornon-governmentalorganisation,writingofforpayingoffaportionofacountry’sforeigndebtinexchangeforthecountryfinancingclimatechangeadaptationandmitigationprojectsusinglocalfunds.Between1991and2003,debt-for-natureswapsgeneratedalmostUSD1.1billionforconservationmeasures,inreturnfordebtwithfacevaluevolumesofalmostUSD3.6billion(Naudé,2022).112GLOBALLANDSCAPEOFRENEWABLEENERGYFINANCE20233Toachieveajustandinclusiveenergytransition,publicfinancing-includingthroughinternationalcollaboration-hasacriticalroletoplayacrossabroadspectrumofpolicies.Publicfundingmustflowintotherenewableenergysector(coveringallsegmentsofthevaluechain),thewiderenergysectorandtheeconomyasawhole,forajustandequitableenergytransition.Publicfundscanbemobilisedandprovidedusingavarietyofinstruments.Figure4.1showsthetypesofinstrumentsthatcanbeusedtochannelpublicfinance,thesourcesofpublicfunds(eithernationalgovernmentorinternationalthroughcollaboration),andtheintermediariesthatcanhelpchannelthem(N-DFIs,localbanks,multilateralandbilateralDFIs,ECAs,specialpurposevehiclesandfundsincludingUN-linkedfundssuchastheGreenClimateFund).Theseinstrumentscanbeexistingornewlydesignedandmayinclude(1)governmentspendingsuchasgrants,rebatesandsubsidies;(2)debtincludingexistingandnewissuances,creditinstruments,concessionalfinancingandguarantees;(3)equityanddirectownershipofassets(suchastransmissionlinesorlandtobuildprojects);and(4)fiscalpolicyandregulationsincludingtaxesandlevies,exemptions,accelerateddepreciation,deferrals,andregulationssuchasPPAs(especiallywhenthetariffspaidtoproducers–inadditiontothecostofrunningthesystem-arelowerthanwhatiscollectedbyconsumersandthedifferenceispaidthroughagovernmentsubsidy).However,suchinstrumentsshouldbeusedwithcautionastonotconcentratethebenefitsamongasmallnumberofplayersintheindustry,andinstrumentsshouldbedesignedinawaythatdistributesthebenefitsinanequitableandfairway.TheEnergyTransitionAcceleratorFinancing(ETAF)platformisaninclusive,multi-stakeholderclimatefinanceplatformmanagedbyIRENAthatfacilitatescapitalmobilisationtofinancefeasiblerenewableenergyprojectsindevelopingcountries.AsofFebruary2023,theplatformhadreceivedpledgesfromfourinstitutions,amountingtoUSD900milliontodeployapproximately1.5GWofrenewableenergyprojectsby2030.TheETAFaimsto:•Facilitateandbuildageographicandtechnologicallydiversifiedpipelineofbankablerenewableenergyprojectsindevelopingcountries;•Providetechnicalassistancetoeligibleprojectstoensurebankabilityregardingeconomic,environmental,andsocialsustainabilityandimplementationreadiness;and•Mobilisefundingresourcesfrominternationalfinancialinstitutions,suchasmultilateraldevelopmentbanks,developmentfinanceinstitutionsandtheprivatesector,tofundeligibleprojects’capitalexpenditures.Source:(IRENA,2022i).Box4.2EnergyTransitionAcceleratorFinancing113ConclusionsandwayforwardAsshowininFigure4.1,publicfinanceflowsviainstrumentsinvariouspolicycategoriesofIRENA’sbroadpolicyframework.Examplesincludethefollowing:a.Underdeploymentpolicies,publicfundscanflowasdirectinvestmentsingovernment-ownedenergytransition-relatedassets,public-privatepartnerships,orindesigningandfundingpoliciesthatcanattractorsupportprivateinvestment(e.g.capitalsubsidies,grantsandtariff-basedmechanismssuchasauctions,FiTsandFiPs).b.Underintegratingpolicies,publicinvestmentscangointoinfrastructureandassetsthatsupporttheintegrationofrenewablesintotheenergysystem(e.g.regionalandnationaltransmissionlines,pumpedhydroelectricenergystoragefacilities).c.Underenablingpolicies,publicmoneycansupportlongtermenergyplanning,capacitybuildingandtraining,researchanddevelopment,aswellastechnicalassistanceofferedviamultilateraldevelopmentbanks(MDBs)andinter-governmentalorganisationssuchasIRENA.d.Understructuralchangeandjusttransitionpolicies,publicfundscangointotheredesignofpowermarketstomakethemmoreconduciveforlargesharesofvariablerenewableenergy,towardsthedevelopmentoflocalindustryandvaluechains,ortowardscompensationforthephasing-outoffossilfuels,aswellaspoliciestoensurethattheenergytransitionpromotesgenderequalityandsocialinclusion,amongmanyotherpriorities.PotentialinstrumentsCategoriesofpoliciesIntermediariesSourcesoffundsGovernmentsNationalInternationalSOFIs/SOEs/NationalDFIsLocalbanks/MicroFinanceInstitutionsCo-operatives/Foundations/NGOsCrowdfundingplatformsDirectinvestmentsingovernment-ownedassets,designingandfundingpoliciesInvestmentininfrastructurethatsupportintegrationofrenewablesintotheenergysystemSupportforlong-termenergyplanning,capacitybuildingandtraining,researchanddevelopment,technicalassistance,etc.PoliciestoaddressmisalignmentsandmarketfailuresGovernmentspendingincludinggrants,rebates,subsidiesDebtincludingexistingandnewissuances,creditinstruments,concessionalﬁnancing,guaranteesEquityanddirectownershipofassetsFiscalpolicyandregulationsincludingtaxesandlevies,exemptions,accelerateddepreciation,andregulationssuchasPPAsMultilateralandbilateralDFIsExportCreditAgenciesGlobalfunds(e.g.GCF,JETP)CarbonFinancePlatformsInternationalandSouth-SouthcollaborationMacroeconomicpolicies(formulateandimplementﬁscal,monetaryandforeignexchangepoliciesthatimpactthedeliveryofpublicfunds)StructuralchangeandjusttransitionpoliciesEnablingpoliciesIntegratingpoliciesDeploymentpoliciesFigure4.1Theflowofpublicfinanceforajustandinclusiveenergytransition114GLOBALLANDSCAPEOFRENEWABLEENERGYFINANCE2023e.TheglobalpolicyframeworkdefinesinternationalandSouth-SouthcollaborationwhichiskeytostructuringandensuringtheinternationalflowsfromtheGlobalNorthtotheGlobalSouth.f.Inaddition,althoughnotdirectlyrelatedtoanyspecificsector,therearemacroeconomicpolicies(fiscal,monetaryandcurrencyexchangepolicies)thataffectthedeliveryofpublicfundstowardstheenergytransition(Table4.1)Someelementspresentedintheframework(Figure4.1)mightoverlap.Forexample,taxincentivesareatthesametimefiscalpolicieswhileactingasdeploymentpolicies,andfundinggridinfrastructurecanbeviewedasanenablingoranintegratingpolicy.Whilefundingcapacitybuildingispartofanenablingpolicy,thesefundsalsofacilitatestructuralchange,beingpartofsocialdevelopmentprogrammes,andeducation,socialprotectionandcompensationpolicies,etc.Thus,therearecomplexinter-linkagesandfeedbackloopsbetweenthedifferentpoliciesandinstruments.Byunderstandingthebroadstructuralworkingsunderlyingtherenewableenergy“economy”,publicpolicyandfinancingcanbestrategicallyusedtoadvancetheenergytransition.4Theavailabilityofcapitalforpublicinvestmentsinrenewableenergywillneedtobeincreased,andlendingtodevelopingnationstransformed.Today’senvironmentcallsforafundamentalshiftinhowlendingismadetodevelopingnations,especiallythoseaffectedbyeconomicandclimatecrises,andhowcountriesintheGlobalNorthsupportcountriesintheGlobalSouthtocopewithandadapttocrisesrelatedtoclimatechange,thecostoflivinganddebt(whichhasbeencompoundedfollowingtheCOVID-19pandemicandclimate-relateddisasters).ThesituationindevelopingcountriesisbeingmademoredifficultamidtighteningmonetarypoliciesandastrengtheningUSdollar.Oneinfivecountriesisexperiencingfiscalandfinancialstress,whichifleftunaddressedwoulddeepenhardship,increasedebtdefaults,wideninequalityanddelaytheenergytransition.TheBridgetownInitiative,proposedatCOP27(Box4.4),offersaroadmapfornavigatingsuchcomplexities.MacroeconomicpoliciesthatimpacttheflowofpublicfinanceFiscalpoliciesSetoutthesizeandscopeofacountry’s“creditline”(governmentfunds)throughspendingandtaxestofinance,incentiviseandguaranteeeconomicactivitiesincludingOfficialDevelopmentAssistanceprogrammes.MonetarypoliciesEstablishthepaceofeconomicactivitiesbycontrollingmoneysupplytotheeconomytoinfluenceinterestrates.Theyinfluencethecostofacountry’s“creditline”,itsstabilityandcreditrating.ForeignexchangepolicyConnectsthecountry’seconomicactivitieswiththerestoftheworldthroughtheexchangerate,indicatingtherelativecomparativeadvantageofacountryvis-à-visitspartnersandcompetitors.Italsoaffectsinternationaltradeandcurrentaccountswhereinvestmentsarerepaid(loans,hardcurrencydenominatedpowerpurchaseagreements,etc).Table4.1Macroeconomicpoliciesthataffectthedeliveryofpublicfunds115ConclusionsandwayforwardMeanwhile,adecisionwasreachedatCOP27toestablishalossanddamagefund,particularlyforthosenationsmostvulnerabletoclimateevents.Detailsregardingtheamountsinvolved,andhowthefacilitywillbesetupandoperationalisedareyettobenegotiated.Thefundisexpectedtoaddressadverseeffectsofclimateimpactssuchasdroughts,floods,risingseasandotherdisasters,whichalsoimpairthedeploymentofrenewableenergy.Barbadosisoneofthemostvulnerablenationstoclimatechange.Toaddressthesevulnerabilities,theisland’sfirstwomanprimeministerMiaMottleyischampioningtheBridgetownInitiative,aproposaltoreformdevelopmentfinanceincludingfromtheWorldBankandtheInternationalMonetaryFund,whichweresetupin1944torepaireconomiesandpromoteco-operationafterWorldWarIIandtheGreatDepressionofthe1930s.Thiscomesatatimewhenrichcountriesareabletoborrowcapitalwithinterestratesofbetween1%to4%whilepoorercountries–whichareseenasriskierinvestments–payinterestratesofaround14%.Withoutaccesstoconcessionalfundingthereisnowaydevelopingcountriescanfightclimatechange.Theinitiativecallsupongloballeaderstoactnowtosavecountries:1.Providingemergencyliquidityandchangingsomeofthetermsaroundhowfundingtodevelopingcountriesisloanedandrepaid.TheinitiativecallsupontheBoardoftheInternationalMonetaryFundto:(i)returnaccesstoitsunconditionalrapidcreditandfinancingfacilitiestopreviouscrisislevels;(ii)temporarilysuspenditsinterestsurcharges;(iii)re-channelatleastUSD100billionofunusedSpecialDrawingRightstothosethatneeditand(iv)operationalisetheResilienceandSustainabilityTrust.AtthesametimetheinitiativeurgesG20memberstoapproveanambitiousDebtServiceSuspensionInitiativeencompassingmultilateraldevelopmentbankloanstothepoorestcountries,andCOVID-relatedloanstomiddle-incomecountries.Theaimistostopdevelopingnationsfromspirallingintoadebtcrisis,especiallywhentheirborrowingisforcedbydisasterslikefloods,droughtsandstorms.2.ExpandingmultilaterallendingtogovernmentsbyUSD1trilliontoaddresssystemicchallengesthataretheheartofthecurrentcrises.MultilateraldevelopmentbankshareholdersareaskedtoincreasetheirriskappetiteandprovidenewguaranteestoexpandlendingtogovernmentsbyUSD1trillion.NewconcessionalloansshouldprioritiseachievingtheSustainableDevelopmentGoalsandbuildingclimateresilienceinvulnerablecountries.3.Activatingprivatesectorsavingsforclimatemitigationandfundreconstructionafteraclimatedisasterthroughnewmultilateralmechanisms.Mostclimate-vulnerablecountriesdonothavethefiscalspacetoadoptnewdebt.Thereisaneedforaglobalmechanismforraisingreconstructiongrantsforanycountryhitbyaclimatedisaster.Sources:BarbadosMinistryofForeignAffairsandForeignTrade(2022);Masterson(2023).Box4.3TheBridgetownInitiativeDavePrimov©Shutterstock.com116GLOBALLANDSCAPEOFRENEWABLEENERGYFINANCE2023Tappingpoolsofpublicfundsforbothdevelopedanddevelopingcountrieswithoutburdeningthefiscalspaceremainsakeypriority.Governmentsshouldadopta“doingmorewithwhatisavailable”approachthroughenhancedcollaborationamongDFIsandMDBs,andbyexploringthefollowingmechanisms:CapitalreleasefrombalancesheetsofDFIs.Balancesheetsofinvestorsandfinancialinstitutionsingeneraldiscloserightsandobligationsconnectedtotheowningandlendingofassets.ItispossibleforDFIstousethoseelementstoraiseadditionalfundsthroughtwomechanisms:(1)postingexistingassetsascollateral(providedtheirvalueisfree-and-clearofanyencumbrancesi.e.whenassetssuchassharesarenotpledgedtoanyotherlenderasfinancialcollateral);and(2)partiallyrepackagingreceivablesfromguaranteedloanrepayments(e.g.loansthatareguaranteedbyinsurers)intonewfinancialstructuredproductsinthemarket.Inpractice,theDFIscouldoffera(highrated)newdebtproduct(e.g.acollateraliseddebtobligation)2guaranteedandmanagedbyabanksuchasanMDBtoqualifiedinvestors(e.g.pensionfunds,insurers,institutionalinvestors,etc.)andtradedoninternationalexchanges.Thenewdebtobligationproduct’sproceedswouldbeusedinnewinvestments.Theprocessisnotnewtolendinginstitutions,butstillpracticedbelowprudentlevelsbypublicfinancialinstitutions,leavingunusedsourcesofpublicfundsthatcouldbecomeavailabletogovernments.Developedcountriesinvestinginrenewableenergycouldfurthermonetisecurrentloanreceivableswhichinturncanbeaccountedasdefactoadditionaldonors’contributionstoODA/DFI/ECAprogrammes.However,theuseofsuchproductsshouldbedonewithrigorousduediligence.ProductinnovationamongMDBs.Multilateralsbenefitfromtheconveningpowergrantedbyshareholdersinbothdevelopedanddevelopingcountries,tocraft,implementandoperateinnovativeframeworkstomobilisecapitalandmitigaterisks.Inparticular,liquidityfacilitiescanbescaleduptoassistrenewableenergyinvestorsfulfillingtheirbusinessobligationsbyensuringanuninterruptedflowofpaymentsfromoff-takerswithoutposingaburdenonthefiscalspaceofdevelopingcountries(local-currency-denominatedPPAscanalsobenefitfromthisfacility).TheseliquidityfacilitiescanevolvetoincorporatetheroleofguarantorsupportedbyMDBsandDFIsincompliancewithguidelinesissuedbymultilateralsandagreedbyshareholders.Thehighlycapitalisedguarantorbecomesasupranationalfacilitytomitigatecreditandforeignexchangerisksforrenewableenergyinvestorsandlenders.MDBs,undertheapprovalofhostgovernments,canallocatefundsandcreditlinestothefacilityuptoprudentlimitsdeterminedbyMinistriesofFinanceandCentralBanks.Box4.4showcasesliquidityfacilitiessupportedbytheWorldBank,theGermandevelopmentbankKfWandtheNairobi-basedAfricanTradeInsurance.2Collateraliseddebtobligationsareasset-backedsecuritiesthatbundletogetheradiversifiedportfolioofinstruments(e.g.loans,bonds).Cashflowsfromunderlyingassetsareusedtorepayinvestors.117ConclusionsandwayforwardTheWestAfricanPowerPool(WAPP)waslaunchedin1999,inspiredbytheEnergyChartandrespondingtoacceleratingelectricityaccessintheEconomicCommunityofWestAfricanStates(ECOWAS).TheMemberStatesadoptedtheEnergyProtocolin2003,followedbytwocriticalenergyprogrammestoaddressenergyshortage,andfast-tracktheenergysecurityandeconomicintegrationofthesub-region.TheWAPPprogrammesetouttopromoteanddeveloppowergenerationandtransmissionfacilities,aregionalelectricitymarketandtheco-ordinationofpowertradebetweentheMemberStates.Theintegrationbenefitsbringtogetherresourcesintheeastandhydropowerinthewest,andmorerecentlyrenewableenergyfromthenortheast(suncorridor).Resourcedevelopmentwascarriedoutbytheprivatesectorandnationalutilities,interconnectedbyprojectsfinancedbytheWorldBankandAfricanDevelopmentBankover20yearsofaninvestmentprogramme.TheWAPPhasfacedsignificantpaymentarrearsandledECOWAStoapproveaDirectiveonSecuritizationofCross-BorderPowerTradein2018.PaymentarrearstriggeredtheinterventionofMemberStatesseveraltimes,jeopardisingtheintrinsicnatureoftheregionalintegrationmarket.Thedirectiveestablishedthesecurityofcross-borderpowertradethroughsecuredsuppliesandpaymentsandenteredintoforceinJanuary2020.Itsteeredfinanceandeconomicministriestopursuethepowersector’sfinancialsustainabilityandcreditworthinessofcounterparties.Thedecisionalsoinvitedmultilateralstosupportimplementationofthedirective,freeingupbudgetaryfundsforotherproductivepurposes.TheWorldBankapprovedaDevelopmentPolicyFinancing(DPF)inJune2020tosupportECOWAS’sdirectiveonthesecuritisationofcontracts.TheUSD300millionfacilitywasestablishedinconsultationwiththeaffectedMemberStatesandincludedgrantsandloans.TheDPFprovidesaccesstocurrencyandpayments,cushioningministriesoffinancetobackutilitiesandfulfilpaymentobligations.BurkinaFaso,Guinea,IvoryCoast,Liberia,MaliandSierraLeonearetheparticipatingconcessionalborrowers.TheDPFisbasedonprioractions(enablingpolicies)connectedtoclearobjectivesandmeasurableindicators.Itsobjectiveisto“increaseenergysecurity,reducevulnerabilitytointernationaloilpricefluctuationsandreducethefiscalburdenoftheelectricitysectorthroughincreasedenergytrade”inthesixparticipatingcountries(WorldBank,2020).TheDPFcreatedadefactoliquidityfacilityforparticipantsovereignstoimproveelectricityexchangewithindicatorsreflectinggovernments’enablingpolicies.ARegionalLiquiditySupportFacility(RLSF)hasalsobeenspearheadedbytheGermandevelopmentbankKfWandAfricanTradeInsurance(ATI).Thisisanotherexampleofafacilitythatprovidesshort-termliquiditysupportforpowerproducersinAfricavialettersofcreditissuedbylocalbankswhoareinturnbackedbytheRLSF.Itcoversshort-termliquidityriskincaseofanoff-taker’snon-paymentofelectricitytothepowerproducer,improvingtheoverallproject’screditworthiness.TheRLSFhastwocomponents–acashcollateralandanon-demandguarantee.Thecashcollateralisusedbyqualifiedbankstoimmediatelypaytheindependentpowerproduceriftheletterofcreditsupportingelectricitypaymentsiscalled.TheGermangovernment,throughKfW,madeEUR31millionavailabletoATIforthispurpose.Theon-demandguaranteehasthesameamountasthecashcollateralcomponentandisprovidedbyATI.Theguaranteeisusedintheeventthecashcollateralisexhausted.Source:Barbalhoetal.(2022);AfricanTradeInsurance(2022).Box4.4LiquidityfacilitiessupportedbytheWorldBankandKfW-ATIBroadeningcapitalisationroutesforMDBs.Capitalcallingfromshareholdershasbeenthecommonapproachadoptedbymultilateralstoexpandtechnicalassistanceandlendingprogrammes-e.g.triennialcapitalreplenishmentbydonorstofundtheInternationalDevelopmentAssociationinvestmentprogrammemanagedbytheWorldBank.ThenewcapitalincreasesMDBs’fundavailabilityandenablesthemtoplacebondsintheglobalcapitalmarket,118GLOBALLANDSCAPEOFRENEWABLEENERGYFINANCE2023therebyraisingadditionalcapital.BondsareplacedasAAA-ratedobligationsguaranteedbyMDBs–defacto,suchinstitutionshaveanenviabletrackrecordrecognisedbycountriesandmarketparticipantsinmanagingrisks-thatcanbeplacedinthemarket,ifappropriatefinancingvehiclesareusedandtargetmarketsareidentified.MDBsshouldnowconsiderrisk-tiereddebtobligationplacementswithadifferentinvestmentgrade(BBB+andabove,e.g.multi-ratedgreenbonds),implyingdifferentlevelofreturnstobondholders.Theinitiativebroadensaccesstotheinvestorbase–frominstitutionalinvestorsandsovereignwealthfundstocorporate/qualifiedinvestors–increasingtheamountofcapitalthatcouldbecomeavailableanddeployedinrenewableenergyinvestments.5Meanwhile,publicfinanceandpolicyshouldcontinuetobeusedtocrowdinprivatecapital.Policiesandinstrumentsbeyondthoseusedtomitigaterisksareneeded.Publicfinanceshouldcontinuetobeusedstrategicallytocrowdinadditionalprivatecapital.Riskmitigationinstruments(e.g.guarantees,currencyhedginginstrumentsandliquidityreservefacilities)willstillplayamajorrole,butpublicfinanceandpolicymustgobeyondriskmitigation.Examplesincludefundingcapacitybuilding,supportforpilotprojectsandinnovativefinancinginstrumentssuchasblendedfinanceinitiatives,etc.Inaddition,policymakersmayconsiderthefollowing:Incentiviseaninvestmentswapfromfossilfuelstorenewableenergybybanksandnationaloilcompanies.SwappingsignificantinvestmentfromfossilfuelstorenewableenergyisnecessaryforachievingIRENA’s1.5°CScenario.SincetheParisClimateAgreement,largemulti-nationalbanksmaintained(andevenincreased)theirinvestmentsinfossilfuels,spendinganaverageofUSD750billiondollarsayear.Onacumulativebasis,theworld’s60largestcommercialbanksinvestedaroundUSD4.6trillioninfossilfuelsbetween2015and2021.Incentivisinginvestorstodivertfundstowardstheenergytransitioncanbedonethroughmeasuressuchasphasingoutoffossilfuelsubsidiesandadaptingfiscalsystemstoaccountfortheenvironmental,social,andhealthimpactsofafossilfuel-basedenergysystem(IRENA,2022a).Thiswillhelpleveltheplayingfieldbetweenfossilfuelsandenergytransitiontechnologies,andfactorintoinvestmentdecision-making.Asupplementalwayofincentivisingthisshiftisthroughhighlightingandrecognisingtheleadershiproleofthoseinstitutionsthatarepavingtheroadthroughinvestmentsintheenergytransition.Morethan30significantfinancialinstitutionsincludingbanks,insurers,assetowners,andassetmanagershavecommittedtostopfinancingfossilfuels.Governmentsandcivilsocietiescantakestepstorewardtheirleadershipandencourageotherinstitutionstotakesimilarsteps.Afterthat,publicpressure,alongwithpolicyandregulation,canfurtherinfluencefinancialdecision-makinginfavourofrenewableenergyandotherenergytransitiontechnologies.(EnvironmentalFinance,2022).119ConclusionsandwayforwardAsfornationaloilcompanies,onthelongrun,thetransitioncouldbefacilitatedifroyalties/government-takeassociatedwithhydrocarbonproduction,forexample,couldbepartiallyoffsetbyroyalties/leviesfromtheuseoflandandoceanareasforrenewableenergyprojects,oncethesectormaturesandnolongerrequiressupport.Asanexample,theexpectedgrowthofoffshorewindassetscouldpotentiallycontributetogeneratingroyaltiestoreplacethosefromfossilfuelsandsupportthereallocationofpublicfundstowardstheenergytransition.Asrenewableenergyisatearlystagesofbecomingthe“newnormal”forenergycompanies,governmentsandprojectinvestorswouldbeabletofullytransitiontoalow-carbonenvironmentwhilesustainingreturns.Mobiliseinstitutionalinvestmentandpromotegreateruseofgreenbondsforrenewables.WithaboutUSD87trillionofassetsundermanagement,institutionalinvestorshaveakeyroletoplayinreachingtheinvestmentlevelsrequiredfortheongoingglobalenergytransition.Greaterparticipationofinstitutionalcapitalwillrequireacombinationofeffectivepoliciesandregulations,capitalmarketsolutionsthataddresstheneedsofthisinvestorclass(e.g.greenbonds),aswellasavarietyofinternalchangesandcapacitybuildingonthepartofinstitutionalinvestors(IRENA,2020d).Greenbondscanhelpattractinstitutionalinvestorsandchannelconsiderableadditionalprivatecapitalintherenewableenergysector,helpingtofillthesignificantoutstandinginvestmentgap.Somerecommendedactionsforpolicymakersandpublicfinanceproviderstofurtherincreasegreenbondissuancesincludetheadoptionofgreenbondsstandardsinlinewithinternationalclimateobjectives,theprovisionoftechnicalassistanceandeconomicincentivesforgreenbondmarketdevelopment,andthecreationofbankableprojectpipelines(IRENA,2020e).Implementregulatorysandboxesforbroadeningaccesstocapitalandcreditinstruments.Regulatorysandboxesdesignedtoservebroadersocialandenvironmentalgoalscanhelpunlockmoreinvestments.Inrecentyearsforexample,retailinvestors(e.g.CharlesSchwabInternational)haveuseddigitaltechnologytoconnectinvestmentopportunitiestobroaderpoolsofcapital,whereaspreviouslythesewereonlyavailabletofinancialinstitutionsandqualifiedinvestors.Manyoftheseinnovationswereinitiatedthrougharegulatorysandboxwhichcreatesaspaceforentrepreneursandcompaniestotestinnovativesolutions,astheyaregranted(temporary)regulatorywaiversandexemptions(EMA,n.d.).Suchanapproachcanbeusedtofurtherexperimentandpilotnewapproachestowardsfinancingrenewableenergy.Byenactingregulatorysandboxesforstart-upsandinvestorsforbothgridandoff-gridinitiatives,newsolutionsmayemergetowardsenablingaccesstopoolsofcapital/creditinstruments.SuchinitiativescanbenefitfromMDBssupport(Barbalhoetal.2022)inconnectionwithotheravailablefundingagenciesatlocal,regionalandgloballevels.Furthermore,companiescanbeinvitedtoparticipateinthesandboxwithaviewtopilotinnovativeconceptsthatfacilitateriskmitigation,includingforeignexchangerisksinelectricityexchanges.Forexample,intheoff-gridrenewableenergysector,theadventofinnovativetechnologies(blockchain,InternetofThings),businessmodels(e.g.PAYG)andfinancingplatforms(e.g.crowdfunding)(seeChapter3)helpedconnectalargerpoolofcustomers,investorsandsolutionproviders.120GLOBALLANDSCAPEOFRENEWABLEENERGYFINANCE2023FacilitatelocalcurrencylendinganddenominatePPAs(atleastpartially)inlocalcurrencies.LocalcurrencyPPAsarehelpfultoaddresstherisksofcurrencydevaluationswhichmayotherwisecripplepoweroff-takers’abilitytomakepaymentstopowerproducersinhardcurrency(suchastheUSD)attimeswhenthedomesticcurrencyplummets.Theapproachhastwosignificantadvantages:mitigateimpactsofforeigncurrencyfluctuationsonPPApaymentsandstimulatelocalfinancialmarketsandinvestorstoengageinrenewableenergyinvestments.Suchanarrangementismorereadilyacceptableifprojectfinanciersarealsodomestic,suchasthenationaldevelopmentbank,locallendersandinstitutionalinvestors–forexample,pensionfundsandinsurancecompanies(IRENA,2020a).MDBshaveparticipatedinsuchendeavourswithconsiderableexperienceinassistingborrowersandlenderstoaddressforeigncurrencyfluctuationthroughliquidityandriskmitigationfacilities(Box4.5).Acomplementarymechanismtoaddressforeigncurrencyrisksistofacilitatelocalcurrencylendingforprojectswithdevelopmentcapitalchannelledthroughintermediariesincludingnationalbanksornon-bankingfinancialinstitutions.Severalcountries,includingBangladesh,BrazilandJordan,havepilotedsuchapproachestocatalyseinvestmentintotherenewableenergysector.Enhancetheparticipationofcorporateactors.Althoughcompaniesthatproducerenewableenergyarealreadyprovidingsubstantialinvestmentinthesector,non-energy-producingcorporationshaveapreeminentroletoplayintheenergytransitionbydrivingdemandforrenewableenergy.Bysettinguptherightenablingframework,policymakerscanencourageactivecorporatesourcingandunlockadditionalcapitalinthesector.Recommendedactionsinclude,forexample,establishingatransparentsystemforthecertificationandtrackingofrenewableenergyattributecertificates,enablingthird-partysalesbetweencompaniesandindependentpowerproducers,andcreatingincentivesforutilitiestoprovidegreenprocurementoptionsforcompanies(IRENA,2018b).TheNanTheun2(NT2)hydropowerprojectinLaoPDRutilisedoneofthemostadvancedcreditenhancementandforeignexchangeriskmitigationstructuresdesignedbymultilateraldevelopmentbanksin2005.ThehydropowerdamdevelopedontheNamTheunRiverhasaninstalledcapacityof1,070megawatts(MW)ofwhich995MWaredestinedforexporttoThailandthroughapowerpurchaseagreementwiththeElectricityGeneratingAuthorityofThailand(EGAT).ThecostoftheprojectamountedtoUSD1.45billion,withUSD1billionofdebtandUSD450millionofequity.Thedebtstructurehadtwotranches:(1)USD500millionobtainedthroughvariousloanswithmultilateral/bilateralagenciesandcommercialfinancialinstitutions;and(2)USD500milliondenominatedinThaibhat(THB)providedbyThaibanks.TheNanTheun2(NT2)hydropowerprojectinLaoPDRmitigatedforeignexchangerisksthroughmarket-basedinstrumentsandliquidityfacilities.EGAT’sPPApaymentforelectricityimportshastwocomponents:theTHB-denominatedtrancheispaiddirectlytoThaibanks,andtheUSD-denominatedportionispaidinaccordancewiththerulesoftheCentralBankofThailand.Inaddition,NT2hasafacilitytomitigateforeignexchangeriskthroughguaranteesofUSD295millionfromexportcreditagenciesandmultilateraldevelopmentbanks,ofwhichUSD90millionisforashort-termrevolvingliquidityfacilityprovidedbytheAsianDevelopmentBankandtheInternationalDevelopmentAssociation.TheMultilateralInvestmentGuaranteeAgencyalsoprovidedUSD45millionofguaranteesasconvertibilityandcurrencytransferabilityinsurance.Source:Barbalhoetal.(2022).Box4.5RiskmitigationinpartiallydenominatedPPAsinlocalcurrency121ConclusionsandwayforwardIncentivisetheparticipationofphilanthropies.AccordingtoOxfam’sreporttitledSurvivaloftheRichest:Howwemusttaxthesuper-richnowtofightinequality,therichest1%ownalmosthalfoftheworld’swealthwhilethepooresthalfoftheworldownjust0.75%(Oxfam,2023).Totapintotheexistingwealth,governmentsshouldlookatincentivisingphilanthropiestomobiliseadditionalfundsintosupportforrenewableenergythatcanhelpfightpoverty,inequality,climatechange,andhumanitariancrises.Philanthropiesareplayinganincreasinglyimportantroleinbridgingfundinggaps,especiallyintheenergyaccesscontext,wherefundshavegoneintomarketdevelopment(e.g.technologyinnovationfunds)anddeliveringfinancingforendusersandenterprisesthroughvariousinstruments,suchasresults-basedgrantsandequity.In2021,individuals,bequests,foundationsandcorporationsgaveanestimatedUSD485billiontocharitiesintheUnitedStatesalone.Theseweredistributedtowardseducation,humanservices,foundations,public-societybenefitorganisations,health,internationalaffairs,environmentalandothersocialservices(GivingUSA2022,2022).Theenergytransitionbeingtiedtoalltheseobjectives,tappingintothesefundscanhelpfillgapsleftbygovernmentstohelppoorerpopulationsgrowwithoutrelyingonfossilfuels(Dennis,2022).DONOT6_STUDIO©Shutterstock.com122GLOBALLANDSCAPEOFRENEWABLEENERGYFINANCE2023Acumen(2019),LightingtheWay:RoadmapstoExitinOff-GridEnergy,Acumen,NewYork,www.acumen.org/energy-exits-report/.AfDB(2020),ExploringtheRoleofGuaranteeProductsinSupportingLocalCurrencyFinancingofSustainableOff-GridEnergyProjectsinAfrica,AfricanDevelopmentBank,Abidjan,Côted’Ivoire,www.greenminigrid.afdb.org/sites/default/files/cepa_report_nov2020_webversion.pdf.AfricaCapitalDigest(2022),"SunKing’sSeriesDgivesApis’s$287mlnFundIapartialexit",AfricaCapitalDigest,www.africacapitaldigest.com/2022/05/02/sun-kings-series-d-gives-apiss-287mln-fund-i-a-partial-exit/(accessed26January2023).AfricanTradeInsurance(2022),“Energysolutions”,www.ati-aca.org/energy-solutions/facilities/regional-liquidity-support-facility/.AmundiandIFC(2022),“RidingtheGreenWave:EmergingMarketGreenBondsReport2021”,InternationalFinanceCorporation,Washington,DC,www.ifc.org/wps/wcm/connect/f68a35be-6b49-4a86-9d65-c02e411de48b/2022.06+-+Emerging+Market+Green+Bonds+Report+2021_VF+%282%29.pdf?MOD=AJPERES&CVID=o5EzvO0.Ashurt(2022),“TheUkraineconflict:Anenergyreset?”,www.ashurst.com/en/news-and-insights/insights/the-ukraine-conflict-an-energy-reset/.BarbadosMinistryofForeignAffairsandForeignTrade(2022),“The2022BridgetownInitiative”,ForeignAffairsandForeignTrade,www.foreign.gov.bb/the-2022-barbados-agenda/(accessed13February2023).Barbalho,A.,etal.(2022),“GestióndelRiesgoCambiarioparalaIntegraciónEléctricaenSIESUR”.Bloomberg(2023),“EUunveilsagreeninvestmentplantocompetewithUSandChina”,www.bloomberg.com/news/articles/2023-02-01/eu-unveils-a-green-investment-plan-to-compete-with-us-and-china(accessed2February2023).BNEF(2023a),“EnergyTransitionInvestmentdatabase”,BloombergNewEnergyFinance,www.bnef.com/interactive-datasets/2d5d59acd9000005(accessed14January2023)(subscriptionrequired).BNEF(2023b),“Renewableenergytransactionsdatabase”,BloombergNewEnergyFinance.BNEF(2023c),“Energytransitioninvestmenttrends2023”,BloombergNewEnergyFinance,www.bnef.com/login?r=%2Finsights%2F30457(accessed1February2023)(subscriptionrequired).REFERENCES123ReferencesBNEF(2022a),“Renewableenergytransactionsdatabase”,BloombergNewEnergyFinance.BNEF(2022b),“Vietnamcountryprofile”,BloombergNewEnergyFinance,www.bnef.com/login?r=%2Fcore%2Fcountry-profiles%2FVNM%2Fcommentary(subscriptionrequired).BNEF(2022c),“U.S.onshorewindbuildtoslowaftertworecordyears”,BloombergNewEnergyFinance,www.bnef.com/login?r=%2Fshorts%2F12775(subscriptionrequired).BNEF(2022d),“Germanyoffshorewindfeed-intariff”,BloombergNewEnergyFinance.BritishInternationalInvestment(2021),“StandardBankGroup,Citi,NorfundandCDCGrouppartnertofund$75millionsustainability-linkedfacilityinEastAfrica”,www.bii.co.uk/en/news-insight/news/standard-bank-group-citi-norfund-and-cdc-group-partner-to-fund-75-million-sustainability-linked-facility-in-east-africa/(accessed5December2022).CarbonBrief(2021),“Q&A:WhatdoesChina’snewParisAgreementpledgemeanforclimatechange?”,www.carbonbrief.org/qa-what-does-chinas-new-paris-agreement-pledge-mean-for-climate-change/.CBI(2022),“Greeningshort-termdebt:A$55trillionopportunity”,ClimateBondsInitiative,www.climatebonds.net/2022/07/greening-short-term-debt-55trillion-opportunity.CER(2022),“TheimpactoftheUkrainewaronglobalenergymarkets”,CentreforEuropeanReform,www.cer.eu/insights/impact-ukraine-war-global-energy-markets.ChenX.etal.(2020),“ChineseOverseasDevelopmentFinancingofElectricPowerGeneration:AComparativeAnalysis”,OneEarth,www.doi.org/10.1016/j.oneear.2020.09.015.Chinh,G.(2022),“Vietnamtoreceive$15.5Baid,loansforgreengrowth-VnExpressInternational”,www.e.vnexpress.net/news/news/vietnam-to-receive-15-5b-aid-loans-for-green-growth-4548667.html(accessed13February2023).Chiu,D.(2017),“Theeastisgreen:China’sgloballeadershipinrenewableenergy”,https://csis-website-prod.s3.amazonaws.com/s3fs-public/171011_chiu_china_Solar.pdf?i70f0uep_pGOS3iWhvwUlBNigJMcYJvX.Climatescope(2022a),“Vietnam”,https://global-climatescope.org/markets/vn/.Climatescope(2022b),“Netherlands”,https://global-clima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