Energy transition and the Global South

Art: Valeria Petrone

Investors seeking clean energy investment opportunities around the world will benefit from the clean energy needs and potential projects of developing countries presented at the World Economic Forum’s annual meeting in Davos, Switzerland, last month. We are looking at new initiatives that could help draw attention to the

The WEF outlined the creation of a new platform designed to support developing economies. The Network to Mobilize Clean Energy Investment for the Global South brings together more than 20 CEOs and government ministers from countries including Colombia, Egypt, India, Malaysia, Nigeria and South Africa to accelerate clean energy capital. We plan to cooperate with this goal. solutions in emerging market contexts,” according to the announcement.

The WEF will also “exchange best practices to attract sustainable flows of clean energy capital” with collaborative approaches that include “innovative policies, new business models, de-risking tools and financing mechanisms”. I explained about the place.

Whitney Sweeney, director of sustainability investing at New York City-based Schroders, said efforts like the WEF’s platform can help investors better understand and potentially reduce investment risks and ultimately We expect that there is a possibility that interest in clean energy investment will increase. In developing countries.

“It’s still early and the details are a little hazy, but it’s definitely a positive step towards accelerating the speed and scale of the energy transition,” Sweeney said. “Of course there are opportunities, but there are always risks when talking about emerging markets, because while the potential for high returns exists in emerging markets, there are also risks such as political instability, regulatory changes, and currency fluctuations. Because it also comes with it.”

WEF aims to triple investment

Although investment in clean energy has increased in recent years, it is geographically concentrated in developed countries and China, with developing countries accounting for less than one-fifth of global clean energy investment, Sweeney said. he points out. According to the WEF, such investments in developing countries in the Global South will triple by the early 2030s, from the approximately $770 billion annually concentrated in such countries to an estimated $2 trillion annually. It would need to be in the range of $200 billion to $2.8 trillion.

While the details have not yet been outlined, the WEF also released a report called “Building trust through a fair and inclusive energy transition” at the same time as the announcement of the new platform. He emphasized the importance of investing intensively in communities. It can have maximum positive impact. ” and rethinking “established financing and investment approaches not only to address energy poverty in developed countries, but also to bridge the gap between available capital and the needs of emerging and developing countries.” I also asked them to do something. The report also suggested that the creation of “regulatory and fiscal policies and targeted interventions that respond to the needs of vulnerable communities” may be needed.

“A successful energy transition will rely heavily on inclusivity,” Sweeney said.

Addressing risk is also part of the new platform’s objectives, said Samaira Zubair, president and CEO of African Finance Corporation, who chairs the network along with Egypt’s Minister of International Cooperation Rania Almashat. .

“The perception that the risks are high has long held back investment in emerging markets, particularly Africa. But from where I sit, it is clear that investment in emerging markets, particularly Africa, will not only bring benefits, but accelerate development impact. , there is no shortage of risk mitigation measures or profitable projects,” Zubair said in a prepared statement. “Mobilizing investment for the energy transition is now more urgent. It is time to shift the narrative around clean energy financing in the Global South from an aid case to a viable investment opportunity. Without it, the world will not reach net zero.”

Minimize increased risk

Bruce Asher, a professor at Columbia Business School and dean of the Tamer Center for Social Work, agrees that developed countries are far ahead in both current emissions reductions and further limiting emissions, and that developing countries Recognizes the need to focus on increasing investment in the country. emissions.

“The challenge is that commercial capital is not available for decarbonization in developing countries,” Asher says. “The risk is greater in developing countries because they have higher sovereign risk, especially currency risk.”

When it comes to climate change solutions, most clean energy investments are long-term in nature, so commensurate long-term currency risk is paramount for investors to address, Usher says. He said one of the challenges in developing markets is that the risks such as sovereigns and currencies can be higher, as well as the lack of experience for most commercial institutions. He sees opportunities for blended finance and public-private partnerships to help allay concerns, with such initiatives emerging from new platforms that could help attract capital while mitigating risk. It is not clear exactly how the new platform will work, but he suggested that, for example, it could allow for foreign currency guarantees to be tied to the duration of investments in renewable energy projects.

“Once these tools become available, they open up some exciting opportunities, so I’m going to keep an eye on them,” Asher says.

Tags: African Finance Corporation, Bruce Asher, clean energy, climate change, emerging markets, energy transition, Rania Almashat, Samaira Zubair, Schroders, Tamer Center for Social Enterprise, Whitney Sweeney, World Economic Forum