Capital costs slow renewables in developing world

Higher cost of capital in emerging economies for clean energy technologies remains the key challenge for attracting investments to meet the goal set last year of tripling global renewable capacity by 2030.

Developing nations, excluding China, need to spend around $2.4 trillion/yr on clean energy and climate resilience by 2030 to help reduce global warming, according to the UN.

But governmental and development spending will fall short, said Avinash Persaud, the special adviser on climate change to the president of the Inter-American Development Bank.

"There are not enough subsidies in the world to blend 2.4 trillion/yr every year to fund the energy transition," Persaud said today at the Columbia Global Energy Summit in New York.

And characteristics of renewable energies make filling the gap with private-sector financing more difficult than for traditional hydrocarbons.

Some clean energy technologies such as solar plants and wind farms have seen their cost of capital decreasing in more developed regions. But this cost, or the minimum expected financial return to justify an investment, for utility-scale solar PV projects in emerging and developing economies was more than twice that in advanced economies last year, energy watchdog the IEA has said.

The biggest risk for developing clean energy projects in emerging economies stands on currency risks, according to Persaud.

"When an investor in the developed world invests in an oil, gas, coal project in a developing country they know they have an asset that is going to earn them a foreign currency revenue if they need it. They can export that," he said, adding that the case for renewables plants is different, raising the financial risk of projects. Investors in a solar farm are paid by local consumers of the utility in local currency, increasing the hedging cost.

The IEA has estimated that narrowing the gap in the cost of capital between emerging and developing economies and advanced economies by 1pc could reduce financing costs for clean energy by $150 bn/yr.

By Jacqueline Echevarria