IEEJ：July 2021© IEEJ2021

World Energy Investment / Financing Clean Energy
Transitions in Emerging and Developing Economies
Michael Waldron, Head of Energy Investment Unit
IEEJ Global Energy Webinar, 13 July 2021

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Global energy investment is set to rebound in 2021

Billion USD (2019)

Total global energy investment
2 500
Buildings
2 000Transport
1 500

Industry

1 000

Energy infrastructure

500

Power generation

2017

2018

2019

2020

2021E

Fuel production

While investment is set to return to near the pre-crisis level, the composition has shifted towards the power and enduse sectors, and away from fuel production; investment gaps remain largest in emerging and developing economies
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Upstream investment is shifting towards state-owned companies

Billion USD (2019)

Upstream spending by selected company types
160

Majors140
Chinese NOCs

120
100

Russiancompanies

80

Middle EastNOCs

60
40202015

2016

2017

2018

2019

2020

2021E

Upstream oil and gas investment is set to rise about 10% in 2021, but spending remains well below pre-crisis levels;
while cost control is pervasive, some NOCs are looking to invest counter-cyclically and gain oil and gas market share
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Clean energy investment is on a moderate upswing

Billion USD (2019)

Global investment in clean energy and energy efficiency
800

45%
40%

600

CCUS
Low-carbon fuels
Renewables for end-use

35%
400
30%
200

25%

Energy efficiency andelectrification
Battery storage
NuclearRenewable power

2017

2018

2019

2020

2021E

20%

% clean energy in total (right axis)

The impact of stimulus plans is increasingly visible in buildings efficiency, low-carbon hydrogen and CCUS, whileelectrification, especially EVs, remains a major driver; but, clean energy spend is well short of a sustainable recovery
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Our global future hinges on emerging and developing economies
The role of emerging and developing economies in key demographic and investment indicators
Global population(7 billion)

Emerging &Developing
Economies

Total energy investment(USD 1.9 trillion)

Emerging &Developing
Economies

Clean energy investment(USD 750 billion)

Emerging &DevelopingEconomies

With two-thirds of the global population, emerging and developing economies have vast potential for economic andenergy demand growth, but there is a major gap between future needs and todays energy investment flows
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Today’s development pathway points to higher emissions

Gt CO2

Energy-sector CO2 emissions in the Stated Policies Scenario
20

100%

1575%

1050%

525%

2010

2020
Emerging and developing economies

2030
Advanced economies

2040

Share of EMDE

2040
2020
2010

China

Per capita emissions in emerging and developing economies are among the world’s lowest, but these countries are
set to account for the bulk of emissions growth unless sufficient action is taken to transform their energy systems
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A surge in clean energy investment is needed to change course

USD billion (2019)

Annual clean energy investment in emerging and developing economies compared withprojections in the Net Zero Emissions (NZE) by 2050 Scenario
1 250

100%

1 00080%75060%

50040%

25020%

2016
Clean power20172018

Energy efficiency and end-use

2019

2020

2026-30
NZE

Low-emissions fuels and carbon capture

Share of total investment

Clean energy investment has been stuck at less than $150 billion in recent years, but needs to expand by more thanseven times, to above $1 trillion, in order to put the world on track to reach net-zero emissions by 2050
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In transitions, a shift to more capital-intensive energy systems
Electricity supply costs in emerging and developing economies, historical and in IEA climate-driven scenario
By volume

By share

100%

2010

80%
60%

2020

40%
2030

20%
0.2
Grids

0.4

0.6
0.8
USD billion (2019)

Power plant capital recovery

2010

2020

2030

Power plant fuel and operating

In clean energy transitions, energy systems become more reliant on power and end-use technologies with higher
upfront capital requirements but lower operating expenditures. Keeping financing costs low is critical to affordability
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With falling renewables costs, investments are more affordable
Investment in solar PV and wind in emerging and developing economies and expected generation output
Output from new capacity

80

TWhUSD billion (2019)

Investment

80

60

60

404020202010

2015

2020
Solar PV

Key issues for investment
Presence of long-term strategies
and competitive procurement plans
Availability of bankable contracts
and management of payment risks
that facilitate low-cost debt finance
Access to land and enabling
infrastructure

2010

2015

2020

Onshore wind

Due to technology improvements and better financing, a dollar spent on solar PV and wind produces one third more
power than a decade ago. Expanding infrastructure and regulatory frameworks are essential to accelerate investment
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The developing world is poised to urbanise and industrialise
Trends in energy end-use in emerging and developing economies in IEA climate-driven scenario
AC ownership15105

2016-20

India

0.8

30.4

20.2

1MexicoKey issues for investment

40.6

2026-30

Indonesia

Industrial production
Gt20

Units per dwellingMillion

Average car sales

Availability of low-cost financing
options for consumers and SMEs
Presence of clear efficiency
performance standards
and buildings codes

2016-202026-30

2016-20

BrazilSouth Africa

CementChemicals

2026-30

Measures that help monetise
energy savings and encourage
the uptake of new fuels

SteelEmerging and developing economies are industrialising and urbanising at a rapid pace, with growing demand formobility, cooling and construction. Annual energy intensity improvements of 4% are essential to develop sustainably
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Producer economies face tough choices in the decade ahead
Average annual net income and import costs of fossil fuels in emerging and developing economies
IEA climate-driven
Historical scenario(2016-2020)(2026-2030)
Net cost (imports)

Net income (domestic production + exports)India
2016-2020

Other Asia
Southeast Asia

Oil

Sub-Saharan Africa

Gas

Latin America

Coal

Eurasia
MENA- 200

- 1000100

200

300

400

500 USD billion (2019)

While major fuel-importing countries stand to benefit from transitions, oil and gas producers face huge pressures ondevelopment models that rely on hydrocarbon revenues. Diversifying the energy and economic base is crucial.
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Laying the groundwork for scaling low-emissions fuels
Change in low-carbon fuel supply in EMDEs in the SDS, 2020-2030

Other Asia
Eurasia
Sub-Saharan Africa
MENASoutheast Asia
India
Latin America
0.5
Fuel use with CO₂ capture

1.0

Transport biofuels

1.5

Biogases

2.0
EJ
Low-carbon hydrogen

There are a variety of pathways to develop low-carbon fuels in EMDEs, each capitalising on the unique set of policy
ambitions, resources and opportunities in each region
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A dramatic mobilisation of private capital is needed for transitions
Primary sources of finance for energy investments in emerging and developing economies
IEA climate-driven
scenario, 2026-2030
2016-2020

PrivateProviderPublicClean energy private

Debt

Instrument

EquityClean energy debt

20%

40%

60%

80%

100%

While public sources are critical to catalyse investment, over 70% of clean energy investments are financed by private
capital in climate-driven scenarios, as clean energy projects increasingly rely on availability of higher shares of debt
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Strong performance of clean energy in global financial markets
Global equity markets portfolio 10-year monthly returns: listed renewable power companies and fossil fuel companies
Arithmetic return (%)

200

RE Global
MSCI ACWIFF Global

150
100
50
0-50
2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021 May

Renewable power companies have outperformed fossil companies and the wider market, and sustainable finance hasboomed; but such trends have not spurred a corresponding acceleration of spending on clean energy projects
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Capital is significantly more expensive for those areas most in need
Indicative cost of capital by economy (nominal base rates plus market risk premium)
2020
20%
7x
15%

10%

5%

Advanced
economies

BrazilIndonesia

South Africa

Nigeria

Although financing costs have come down in many countries, the cost of capital is up to seven times higher inemerging and developing economies, raising the bar for projects to access debt finance and clear equity hurdle rates
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Priority actions to make the 2020s a decade of clean energy
Redouble international
supportStrong strategic mandate for public finance institutions

Better use of blended finance Boost delivery ofGet international capital markets engaged ininternational climate financeclean energy in emerging and developing markets

Tackle cross-cutting
investment issues

Push on clean power& efficiency

Better disclosure of climate risks

Put state-owned utilities on a firmer More robust banking
financial footingGet price signals right and capital markets
Make it easier to prepare clean energy projects
Sustainable energy access for all

Harness investor readiness
Embed efficiency in all new Expand and to back renewable power

More electrified and efficient mobility
buildings and appliances

Get to grips withthe toughest tasks
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Empower local entrepreneurs

modernise grids

Innovative strategies for cement,
Prepare the ground for low-carbon fuels
and industries Leave no one behind as countries leave coal steel, chemicals
A new development model for producer economiesPage 16

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