[Episode #189] – Financing the Transition
According to the International Energy Agency (IEA), almost all of the growth in global clean energy spending is happening in advanced economies and China, while the two-thirds of the global population that live in emerging market and developing economies are receiving less than one-fifth of the total. The reason? The high cost of capital.
But why is the cost of capital so much higher in emerging economies than in advanced economies? Why is it still so much harder and more expensive to finance clean energy projects than it is to finance fossil fuel projects in those countries? And what can be done about it?
In this episode, we speak with a solar project developer working in Costa Rica to try to answer these questions. Building on our previous discussion from Episode #21, we try to explain why so little progress has been made, especially by the multilateral development banks (like the World Bank), in reducing the cost of financing for renewable energy projects in emerging economies. We review the different roles that various financial institutions play in financing the energy transition, and we ask what needs to change to unlock the flow of capital into energy transition solutions (especially distributed solar). We also put the risk and reward of investing in those projects in a fresh context, and call upon banks of all kinds to start acting in more creative and ambitious ways to take bolder action and get capital deployed where it is most needed, and where it can do the most good.
Geek rating: 6