Emerging Countries Hit by Renewable Energy Delays

Unless renewable energy investors turn their focus to emerging and developing countries, the world will fail to slash carbon emissions and stop climate change, the International Energy Agency (IEA) says in a new report.

Renewable energy has seen solid growth in recent years. By the end of 2020, global renewable generation capacity amounted to 2,799 gigawatts, twice as much as in 2011, and it now accounts for 36.6% of all the electricity produced worldwide.

Much of that growth happened in North America, the European Union, and China. However, less developed countries in Africa, Asia, Eastern Europe, Latin America, and the Middle East currently receive only one-fifth of the world’s clean energy investments—even though they are home to about two-thirds of the world’s population.

Take for instance the Middle East and Africa. Although these regions have some of the best solar irradiation rates, just 10 gigawatts of solar farms have been built there—for comparison, China built solar farms with a total capacity of 48 gigawatts last year alone.

Overall energy investments in these countries have decreased by 20% since 2016 and last year, clean energy investment in emerging and developing economies declined by 8% to less than $150 billion, the report says.

Why are energy investors turning their backs on emerging markets? Unfortunately, there is no easy answer.

On the one hand, emerging markets provide lower returns and carry higher risks and on the other, “many emerging and developing economies do not yet have a clear vision or the supportive policy and regulatory environment that can drive rapid energy transitions,” the report says.

“Broader issues include subsidies that tilt the playing field against sustainable investments, lengthy procedures for licensing and land acquisition, restrictions on foreign direct investment, currency risks, and weaknesses in local banking and capital markets,” the IEA says.

This lack of investment in renewable energy is cited as the main reason why carbon emissions are projected to increase rapidly in these countries.

While annual emissions in advanced economies are expected to fall by 2 gigatonnes over the next two decades and to plateau in China, emissions from emerging and developing economies are forecast to grow by 5 gigatonnes

That’s chiefly because rapidly growing economies in the Asia Pacific are increasingly building coal-fired power plants to produce electricity even though, more often than not, electricity produced by burning coal is more expensive. 

According to the IEA, coal-fired electricity generation is set to increase by almost 5% this year and by a further 3% in 2022 — worth mentioning that coal-power generation is expected to surge by 18% in the U.S. this year, despite government pledges to decarbonize the electricity sector.

The IEA says that in order to slash emissions and tackle climate change, investments in new renewable energy projects in emerging countries need to increase four-fold, to $600 billion a year by 2030; and to $1 trillion a year by 2050.

“Such a surge can bring major economic and societal benefits, but it will require far-reaching efforts to improve the domestic environment for clean energy investment within these countries – in combination with international efforts to accelerate inflows of capital,” the report says.

Renewables, Not Coal

All countries need to see a “dramatic” increase in renewable energy spending to decarbonize their power sectors over the next decade, the IEA says. The European Union, the U.S., and China have ramped up investments in solar and wind farms, but the focus should be on emerging countries too. 

A separate study by Carbon Tracker found that new wind and solar projects would help create jobs, fuel economic growth, and provide electricity to many of the around 800 million people who do not have access to power.

The IEA report outlines a series of “priority actions” for governments, financial institutions, investors and companies to ensure that developing countries obtain the capital they need to finance a clean energy transition. 

It calls on policymakers to strengthen local regulations, scrap subsidies to fossil fuels, ensure transparency, and channel public funds to low-carbon energy production, including biofuels. 

The organization says that, for starters, developed economies need to mobilize $100 billion per year in climate finance to developing countries. Most of that money will come from the private sector and international development organizations. 

“There is no shortage of money worldwide, but it is not finding its way to the countries, sectors, and projects where it is most needed,” said IEA Executive Director Fatih Birol. 

“Governments need to give international public finance institutions a strong strategic mandate to finance clean energy transitions in the developing world.”