Unlocking Private Climate
Finance in Emerging Markets
Private Sector Considerations for Policymakers

Mr. António Guterres
Secretary-General
United Nations
760 United Nations PlazaNew York, NY 10017

Dear Mr. Secretary-General,
This Climate Finance Leadership Initiative (CFLI) report, our second, highlights
the policies that governments in emerging markets can advance — with support
from business and the international community — to facilitate the mobilizationof private sector investment in clean energy, low-carbon mass transit, climatefriendly water and waste systems, green buildings, and sustainable land use.
Data and the experience of emerging markets shows us that these policies work.
Supporting investment in sustainable infrastructure, by strengthening conditions
for private finance, is critical in the run-up to COP26, helping to build momentum
and set the stage for a successful summit that further accelerates global progresson climate change.
The year since our last report has been marked by extraordinary turmoil andhardship. The COVID-19 pandemic continues to take an enormous toll aroundthe world in lives lost and in economic harm, and public finances are under
tremendous stress, particularly in the emerging market countries that are thefocus of this report. However, the economic recovery from the pandemic is also an
unprecedented opportunity to speed our progress fighting climate change, because
investments that reduce greenhouse gas emissions and build resilience are also
powerful drivers of job creation and inclusive economic growth. Leaders from acrossthe global financial services sector recognize this opportunity, and the more we doto support investment and public-private partnership, the faster and stronger therecovery will be.
With this in mind, we have partnered with the Association of European Development
Finance Institutions and the Global Infrastructure Facility to address these issues inthis report, and help unlock private climate finance in emerging markets. All of theorganizations taking part in this effort are committed to taking action on their own,
and to helping find solutions that advance our shared goals.

Thank you for your support for this initiative, and for your strong leadershipand advocacy on climate finance.
Sincerely,

Michael R. Bloomberg
Founder

Tobias C. Pross
Chief Executive Officer

Thomas Buberl
Chief Executive Officer

Nick O’Donohoe
Chief Executive Officer

Bruno Wenn
ChairmanFrancesco Starace
Chief Executive Officer
and General Manager

Linda Broekhuizen
Chief Executive Officer a.i.

David M. Solomon
Chairman and Chief
Executive Officer

Jason Zhengrong Lu
Head of Global
Infrastructure Facility

Noel Quinn
Executive Director andGroup Chief Executive

Christiane Laibach
Chief Executive Officer

Shemara Wikramanayake
Managing Director
and Chief Executive Officer

Tellef Thorleifsson
Chief Executive Officer

Sabine Gaber
Member of the
Executive Board

Michael Wancata
Member of the
Executive Board

Maria Håkansson
Chief Executive Officer

Table of Contents
1

Section 1.
Preamble

5

Section 2.
The State of Energy Transition Finance in Emerging Markets

6

Key trends in energy transition and sustainable finance9	Lessons from the impact of COVID-19 on energy transition investmentsin emerging markets

11 Section 3.

The Role of Enabling Environments in Low-Carbon Transition

12 Primer: High-level, cross-cutting enabling environment factors
18 Primer: Clean energy systems
35 Primer: Sustainable urban transport
39 Primer: Waste and the circular economy
41 Primer: Green buildings
43 Section 4.

Call to Action

44 Section 5.

Private Sector Considerations for Policymakers

45 Consideration 1: High-level, cross-cutting enabling environment factors
49 Consideration 2: Clean energy systems
54 Consideration 3: Sustainable urban transport
56 Consideration 4: Climate-smart water and waste
59 Consideration 5: Green buildings and streetlighting
61 Consideration 6: Sustainable land use
65 Appendix: Glossary

Table of Figures
6

Figure 1: Global energy transition investment

6

Figure 2: Emerging markets investment by sector

7

Figure 3: Emerging markets’ new asset finance for renewable energy projects, by income group8

Figure 4: Number of emerging markets with new asset finance for renewable energy projects

8

Figure 5: Global sustainable debt issuance8

Figure 6: Emerging market top sustainable debt issuers

9

Figure 7: Emerging markets sustainable debt themes

10

Figure 8: Global energy transition investment relative to GDP by income group

13

Figure 9: Numbers of countries with national net-zero targets

13

Figure 10: Global greenhouse-gas emissions covered by net-zero targets

13

Figure 11: Number of emerging markets with national net-zero targets

13

Figure 12: Emerging markets greenhouse-gas emissions covered by net-zero targets

14	Figure 13: Climatescope renewable energy policy score vs. five-year clean energy asset financein emerging markets
14

Figure 14: G20 Zero-Carbon Policy Score for road transport vs. 2020 investment in electrified transport

15

Figure 15: Mexico new clean energy investment (left) and Climatescope rank (right)

16

Figure 16: Brazil new clean energy investment (left) and Climatescope rank (right)

16

Figure 17: Evolution of high-income (DXY) and emerging market (MSCI) currency indices, 2020-21

16	Figure 18: Evolution of emerging market currency index (MSCI) and select emerging market
currencies, 202019	Figure 19: Status of clean power targets in emerging markets and policy support, compared to shareof renewables in generation and size of power system
19	Figure 20: Features of power purchase agreements in emerging markets: standardization, durationand currency
20

Figure 21: Volume of renewable energy corporate PPAs signed by end 2020, relative to size of power market

20

Figure 22: Share of countries with deregulated retail tariffs

21

Figure 23: Levelized bids for auctions in select markets by project commissioning year, 2016-24

21	Figure 24: Awarded and announced volumes of clean energy auction capacity in 15 emerging markets
compared with OECD countries, by technology
22

Figure 25: Clean energy investment in South Africa and REIPPP auction status

23

Figure 26: Grid extension costs and electrification rates

23

Figure 27: Chile wind and solar generation vs spot prices of both national grids

24	Figure 28: Available grid capacity and approved capacity of renewable energy projects in selected
Vietnam provinces
26

Figure 29: Historical and forecast additions of pumped hydro projects, 1960–2030

26

Figure 30: Lithium-ion battery pack price

27

Figure 31: Utility-scale storage forecast in largest EMEA markets

28

Figure 32: Number of people who lack electricity access, by region

28

Figure 33: Rural electrification program is under way, 201928

Figure 34: Mobile pay-as-you-go services are widely available, 2019

29

Figure 35: Electrification technology used, 2020–2030

29

Figure 36: Estimated capital expenditure by electrification technology, 2020–2030

29

Figure 37: Correlation between utilization rate and ARPU

30

Figure 38: Battery technologies used for installed mini-grids

31

Figure 39: Potential mini-grid sites are specified by electrification program, 201931

Figure 40: Mini-grid developers benefit from clear rules on arrival of the main grid, 201931

Figure 41: Example of options available to mini-grid operators upon grid arrival

34

Figure 42: Policy considerations mapped for the clean energy sector

35

Figure 43: Global two-wheeler sales

35

Figure 44: Global two-wheeler fleet by market

36

Figure 45: Two-wheeler adoption in selected markets, 2010–2019

37

Figure 46: India’s state-level policies for electric mobility

37

Figure 47: Purchase price of electric and internal combustion passenger vehicles in Thailand

39

Figure 48: Elements of a circular economy

39

Figure 49: Waste hierarchy

40

Figure 50: Country scores – circular economy

41

Figure 51: Global final energy demand from buildings by region, 2000–2050

41

Figure 52: Final energy demand for buildings by end-use in 2050, and type of climate

41

Figure 53: Production of district heating in 2015 by fuel source, globally

42

Figure 54: Total electricity consumption of air conditioners by country

Table of Tables
25

Table 1: Intermittent renewables’ impact on the grid

38

Table 2: State level e-bus targets and incentives

Section 1.
Preamble
Section 2.
The State of Energy Transition Financein Emerging Markets
Section 3.
The Role of Enabling Environments
in Low-Carbon Transition
Primer: High-level, cross-cutting enabling
environment factors
Primer: Clean energy systems
Primer: Sustainable urban transport
Primer: Waste and the circular economy
Primer: Green buildings
Section 4.
Call to Action
Section 5.
Private Sector Considerations for Policymakers
Consideration 1: High-level, cross-cutting
enabling environment factors
Consideration 2: Clean energy systems

Section 1. Preamble
In the recovery from COVID-19, private investors and developers see a powerful opportunity
to accelerate investment in the transition to low-carbon economies in emerging markets.
Public and private sector engagement, creating investment-friendly business environments,
and building pipelines of bankable sustainable infrastructure opportunities are all importantto realize this promise and mobilize private finance. Public finance institutions are actively
engaged with policymakers on policy adjustments to attract greater private climate finance.
Yet, thus far, a clear and unified private finance voice has been absent from the conversation.
With this in mind, we—the Climate Finance Leadership Initiative (CFLI), the Association ofEuropean Development Finance Institutions (EDFI), and the Global Infrastructure Facility(GIF)—set out to raise the profile of enabling environment priorities and convened anindustry-led effort to:•	Identify the most fundamental and cross-cutting factors enabling domestic
and international private climate finance in emerging markets;•	Open new engagement channels with key decision-makers to identify policy
improvements that will help stimulate private investment; andConsideration 3: Sustainable urban transport
Consideration 4: Climate-smart water
and waste
Consideration 5: Green buildings
and streetlighting•	Catalyze essential collaboration between private finance, public finance,and policymakers to significantly expand pipelines of sustainable infrastructure
investment opportunities.

Consideration 6: Sustainable land use

Private Sector Considerations for Policymakers

1Section 1.
Preamble
Section 2.
The State of Energy Transition Financein Emerging Markets
Section 3.
The Role of Enabling Environments
in Low-Carbon Transition
Primer: High-level, cross-cutting enabling
environment factors
Primer: Clean energy systems
Primer: Sustainable urban transport
Primer: Waste and the circular economy
Primer: Green buildings
Section 4.
Call to Action
Section 5.
Private Sector Considerations for Policymakers
Consideration 1: High-level, cross-cutting
enabling environment factors
Consideration 2: Clean energy systems
Consideration 3: Sustainable urban transport
Consideration 4: Climate-smart water
and waste
Consideration 5: Green buildings
and streetlighting
Consideration 6: Sustainable land use

Development of the Private Sector
Considerations for Policymakers

Use Case for the Private Sector
Considerations for Policymakers

Based on the experience of private sector lenders,banks, and investors (hereby jointly referred to as“investors”) that have deployed billions in sustainableinfrastructure across high-income and emerging
economies over the past decade, we developed a setof key considerations to strengthen enabling
environments for private climate finance. Feedback
and additional input were gathered through a public
consultation process that ran from November 10,
2020, to January 15, 2021. The resulting Private
Sector Considerations for Policymakers (the “Policy
Considerations”) highlight the enabling environment
factors that have the potential to:

The Policy Considerations are meant as a starting point
for productive public-private dialogue on strengthening
enabling environments for private climate finance.

•	Catalyze new private climate finance at scale;•	Improve the cost and speed of negotiations
between parties on specific investments;•	Address areas where market- and sector-specificguidance is fragmented; and•	Align with current global and national policy
priorities to accelerate the transition toa low-carbon economy.
The Policy Considerations focus both on broad,cross-cutting enabling environment factors, as wellas on sector-specific factors in clean energy systems,
sustainable urban transport, climate-smart water
and waste, green buildings and streetlighting, andsustainable land use.
Given the early stage of adaptation and resilience asa stand-alone asset class for investors, factors specificto climate adaptation and resilience have instead been
integrated throughout these Policy Considerations.
There is significant work underway across public andprivate sectors to better define adaptation and resiliency
as an asset class, which will pave the way for future
Policy Considerations in these areas.

Private Sector Considerations for Policymakers

Just as local climate action is so vital to achieving theUN’s climate targets, policy solutions to facilitate moreprivate investment in sustainable infrastructure must
be tailored to local markets and sector dynamics. Still,as investors, the CFLI and its partners regularly see theneed for a clear, comprehensive, and overarching set of
Policy Considerations to prompt early discussion withgovernments and developers and guide preliminary
negotiations around new investments.
With that in mind, the Policy Considerations aremeant to be broad enough to offer a menu of potential
policy-change opportunities to all countries, regardlessof their current investment environment, or position on
the path to a low-carbon, resilient economy. The Policy
Considerations can also be read separately, focusing noton the comprehensive list, but on the sector and subsector considerations most relevant to a particular market
or institution. Sector-specific Policy Consideration “tearsheets” can be downloaded at www.bloomberg.com/cfli.
The Policy Considerations are by no means aprescriptive set of expected policy changes or
mandatory investment criteria. In fact, no country
in the world has fully addressed all of these factors.
The aim of this report is to highlight the successes
different enabling environment mechanisms have hadin accelerating the transition across a diverse range of
economies, in support of the Policy Considerations.
The international development finance community—
including multilateral and regional development banks,bilateral agencies, and international organizations—aredeeply engaged in strengthening enabling environmentsfor private investment in sustainable infrastructure acrossemerging markets. As an industry-led initiative, thePolicy Considerations aim to reinforce those efforts, andprovide a direct signal to all stakeholders of importantfactors from a private finance viewpoint.

2Section 1.
Preamble
Section 2.
The State of Energy Transition Financein Emerging Markets
Section 3.
The Role of Enabling Environments
in Low-Carbon Transition
Primer: High-level, cross-cutting enabling
environment factors

Addressing these barriers to investment in a way thatdrives sustainable and inclusive growth will requirelong-term commitment and deep public-private
collaboration. There is now enough experience globallyto show that tackling such issues can unlock private
capital at the scale and speed required to deliver lowcarbon, climate-resilient development and contribute to
the achievement of the Sustainable Development Goals
and commitments under the Paris Agreement.

Over the coming months, the CFLI and its partners will
launch a series of platforms to lift up these investment
policy solutions, reinforce the excellent work many
governments, donors, and development banks are doingin this area, and undertake ambitious new programs ofinvestment to reassure governments that capital will flow.
These efforts will focus on specific countries and sectors
to drive change and demonstrate the nuanced, contextspecific nature of the change required.

Primer: Clean energy systems
Primer: Sustainable urban transport
Primer: Waste and the circular economy
Primer: Green buildings
Section 4.
Call to Action
Section 5.
Private Sector Considerations for Policymakers
Consideration 1: High-level, cross-cutting
enabling environment factors

Acknowledgement
On November 10, 2020, we released the first iteration of the Policy Considerations, commencing a 60-day
consultation period. In addition to public consultation, we conducted direct outreach, inviting more than
6,000 diverse stakeholders across business, government, and civil society to share feedback, which informed
the development of this final version of the Policy Considerations.
We would like to thank all who participated in the consultation process and provided feedback to help ensurethat the Policy Considerations represent a unified, private sector perspective on current barriers to climate
finance in emerging markets.

Consideration 2: Clean energy systems

We greatly appreciate the contributions provided by the following individuals in developing the Policy Considerations:

Consideration 3: Sustainable urban transport

Ahamed Wadood, Aviserv

Fuat Savas, J.P. Morgan

Consideration 4: Climate-smart water
and waste

Dazzle Bhujwala, Ceres

Kelley Hamrick, Tom Hodgman, and Charlotte
Kaiser, NatureVest

Consideration 5: Green buildings
and streetlighting
Consideration 6: Sustainable land use

Simon Thompson, Chartered Banker InstituteJames Boyle, City of London Corporation
John Finnigan and Geoff Hickman, Citibank
Jake Cusack, CrossBoundary
Andy Herscowitz, U.S. International Development
Finance Corporation
Bettina von Hagen, EcoTrust Forest Management
Abiodun Kila, Entrepreneur
Andy Sloan, Guernsey FinanceJamie Martin, Vikram Raju, and Jessica Whitt,Morgan Stanley

Atma Khalsa, PNE AG
Mike Claridge, Ian Jolly, and Nick Rohatyn,
The Rohatyn Group
Alex Doyle, Pamela Ferro, Hayley Lyons, Tendai
Mabikacheche, Darshini Ravindranath, and
Edward Webber, U.K. Department for Business,
Energy & Industrial Strategy
Carlos Sanchez, Willis Towers Watson
Stephen Hammer, World Bank Group
Kate Newman, Joanne Lee, Michele Thieme,
Jesse Fahnestock, Ambika Sharma, and Ryan
Bartlett, World Wildlife Fund

Jacqueline Musiitwa, Hoja Law Group
Shari Friedman, Alzbeta Klein, Elizabeth Lewis,
Erika Rhoades, and Vladimir Stenek, International
Finance Corporation

Private Sector Considerations for Policymakers

3Section 1.
Preamble
Section 2.
The State of Energy Transition Financein Emerging Markets
Section 3.
The Role of Enabling Environments
in Low-Carbon Transition
Primer: High-level, cross-cutting enabling
environment factors
Primer: Clean energy systems
Primer: Sustainable urban transport
Primer: Waste and the circular economy

About this report
This report aims to provide insights on the unique context of an accelerating, but uneven transition to a lowcarbon economy in which the Policy Considerations are being released. Sustainable investment over the last
decade, and the success stories of countries leading in the introduction of sustainable policies, highlight thepotential strong enabling environments and policy can play in mobilizing investment across the main sectors
covered by the Policy Considerations. Sharing guidance and data on best practice in mobilizing sustainable
investment in infrastructure is the goal of the insights and primers that accompany the Policy Considerations.
The main sections of the report are structured as follow:

Section 2: The State of Energy Transition Finance in Emerging Markets 
Section 3: The Role of Enabling Environments in Low-Carbon Transition 

Primer: Green buildings
Section 4.
Call to Action

1: High-level, cross-cutting
enabling environment factors

4: Climate-smart water
and waste

Section 5.
Private Sector Considerations for Policymakers

PRIMER

PRIMER

Consideration 1: High-level, cross-cutting
enabling environment factors

POLICY CONSIDERATIONPOLICY CONSIDERATION

2: Clean energy systems

5: Green buildings
and streetlighting

Consideration 5: Green buildings
and streetlighting

PRIMER

PRIMER

Consideration 6: Sustainable land use

POLICY CONSIDERATIONPOLICY CONSIDERATION

3: Sustainableurban transport

6: Sustainable land-use*

Consideration 2: Clean energy systems
Consideration 3: Sustainable urban transport
Consideration 4: Climate-smart water
and waste

PRIMER

POLICY CONSIDERATIONPOLICY CONSIDERATION

Scope
The analysis of this report primarily focuses on the countries included in three of the World Bank’s four country
income groups for the 2021 fiscal year: upper-middle, lower-middle and low income. The insights and bestpractices presented in this report draw from the experience of a diverse group of emerging markets, representing
different regions, stages of the energy transition, and economic development. Many of the lessons learned sharedin this report are universal; however, the focus has been put on solutions that can be implemented right awayand deliver impact at scale, especially in rapidly growing middle-income emerging economies.
*The Sustainable Land-Use Policy Considerations do not have a primer as most experiences with developing scalable solutions for private financemobilization in the sector are still at an early stage.

Private Sector Considerations for Policymakers

4Section 1.
Preamble
Section 2.
The State of Energy Transition Financein Emerging Markets
Section 3.
The Role of Enabling Environments
in Low-Carbon Transition
Primer: High-level, cross-cutting enabling
environment factors
Primer: Clean energy systems
Primer: Sustainable urban transport
Primer: Waste and the circular economy
Primer: Green buildings
Section 4.
Call to Action
Section 5.
Private Sector Considerations for Policymakers
Consideration 1: High-level, cross-cutting
enabling environment factors
Consideration 2: Clean energy systems
Consideration 3: Sustainable urban transport
Consideration 4: Climate-smart water
and waste
Consideration 5: Green buildings
and streetlighting

Section 2. The Stateof Energy Transition Financein Emerging Markets
Governments around the world are considering how best to reduce emissions with a view
to avoiding catastrophic climate change while continuing to grow their economy. Many havebegun to implement policies to achieve their goals, including setting a growing number of‘net-zero’ targets. This trend has been encouraged by the rapid development and falling costof clean technologies, and the surging interest from investors in sustainable asset classes.
Combined, this momentum in policy, technology, and finance has affected an ever-growing
list of sectors, with energy transition investment and sustainable finance flows hitting newrecords in 2020 despite the disturbances caused by the COVID-19 pandemic.
This section reviews some of the major trends in sustainable investment over the last
decade, highlighting a story of strong growth, but also uneven distribution across regions
and sectors. The data also clearly highlights that a group of leading emerging markets haverecorded large volumes of sustainable investment thanks to reliable enabling environments,
making headway in their transition to a low-carbon economy. The COVID-19 pandemic alsobrought to light the role of strong enabling environments in making the transition to a lowcarbon economy more resilient.

Consideration 6: Sustainable land use

Private Sector Considerations for Policymakers

5Section 1.
Preamble
Section 2.
The State of Energy Transition Financein Emerging Markets
Section 3.
The Role of Enabling Environments
in Low-Carbon Transition
Primer: High-level, cross-cutting enabling
environment factors
Primer: Clean energy systems
Primer: Sustainable urban transport
Primer: Waste and the circular economy
Primer: Green buildings
Section 4.
Call to Action
Section 5.
Private Sector Considerations for Policymakers
Consideration 1: High-level, cross-cutting
enabling environment factors
Consideration 2: Clean energy systems
Consideration 3: Sustainable urban transport
Consideration 4: Climate-smart water
and waste
Consideration 5: Green buildings
and streetlighting
Consideration 6: Sustainable land use

Key trends in energy transitionand sustainable financeIn the past 10 years, annual global energy transition1
investment nearly doubled, from $290 billion in 2011
to $501 billion in 2020 (Figure 1). High-income
markets accounted for just over half of the total
investment over those 10 years, at $2 trillion. While
between 2015 and 2018, emerging markets2 accounted
for an increasingly large share of global investment,
high-income economies have been pulling ahead once
more since 2018. This divergence widened in 2020,
with high-income markets recording a 24% year-onyear increase in investment, while emerging markets
experienced a 21% contraction. A further shrinkage
of investment in China, and greater resiliency andeconomic response to COVID-19 in high-income
countries, have been drivers of this trend. The last
decade of energy transition investment shows a stark
contrast in the experience of countries. While lowermiddle and low-income countries accounted for half of
the world’s population in 2020, they recorded just 5%
and 0.3%, respectively, of annual global clean energy
transition investment over 2011-2020.3
High-income economies are seeing energy transition
investment spread to new sectors. Electric vehicles(EVs) account for an ever-larger share of all investment
and could soon overtake annual funds flowing to clean
energy if current trends persist. In comparison, the vast
majority – 82%, or $1.3 trillion – of emerging markets’

spending on the energy transition has targeted renewableenergy over the past decade (Figure 2). This is also
the only energy transition sector recording significant
expenditures by countries in all income groups, with
114 emerging markets recording renewable energy
investment since 2011. At $2.6 billion, energy storage
was the only other sector in which six emerging markets
other than China and India have recorded significant
levels of investment since 2011. Yet, the lack of scale does
not mean there has been a lack of opportunity. Harder
to capture, small-scale storage investments are growing,particularly in markets where distributed renewables canplay a critical role in improving energy access, such as
Mali and South Sudan.
The other sector to have drawn significant investment inemerging markets is electrified transport, accounting for
15% of 2011-2020 expenditure, at $243 billion. However,as the largest market for electrified transport globally,
China accounts for nearly all of the activity. India hasrecorded lower but steady investment in the sector,
reaching a cumulative $677 million, predominantly
targeting electric buses and e-rickshaws. Not captured
in this high-level figure is the moderate, but growing,
trend of investment in advanced mobility in Southeast
Asian countries, such as electric vehicles in Thailand andMalaysia, or electric two-wheelers in Vietnam.

FIGURE 1:

FIGURE 2:

Global energy transition investment

Emerging markets investment by sector459
434 441$ billion

290
57
213

2011

263 240
78
168

78
143

297
104
164

2014

330

137

164

501

Upper-middle income

378

161

213

177

180

High income

159

Lower-middle income
155

Low income

120

Other/undisclosed
74

181

185

2017

212

238

91

2020

Source: BloombergNEF. Note: Energy transition investment includes renewableenergy, carbon capture and storage (CCS), electrified transport, hydrogen,electrified heat, and energy storage. Renewable energy accounts for 76% of
global investment figures between 2011 and 2020.

2011

91

182

205 205
46

42

57

53

143

146

88

294
74

Renewable energy238$ billion

87

119

2014

154

138

187

2017

Electrified transport
178

Energy storage
Electrified heat45

Hydrogen

126

2020

Source: BloombergNEF. Note: Includes disclosed investment in upper middle
income, lower-middle income, and low-income markets only.

1

 loombergNEF’s (BNEF) “energy transition investment” category includes renewable energy, carbon capture and storage (CCS), electrified transport, hydrogen,Belectrified heat, and energy storage.

2

 merging markets refer to all upper-middle, lower-middle, and low-income markets, whereas developed markets refer to high-income markets, as per the World BankECountry Classification, 2021.

3

Population data, World Bank, accessed on February 10, 2021.

Private Sector Considerations for Policymakers

6Section 1.
Preamble
Section 2.
The State of Energy Transition Financein Emerging Markets
Section 3.
The Role of Enabling Environments
in Low-Carbon Transition
Primer: High-level, cross-cutting enabling
environment factors
Primer: Clean energy systems
Primer: Sustainable urban transport
Primer: Waste and the circular economy
Primer: Green buildings
Section 4.
Call to Action
Section 5.
Private Sector Considerations for Policymakers
Consideration 1: High-level, cross-cutting
enabling environment factors
Consideration 2: Clean energy systems
Consideration 3: Sustainable urban transport
Consideration 4: Climate-smart water
and waste
Consideration 5: Green buildings
and streetlighting
Consideration 6: Sustainable land use

Similarly, India and China are the only two emerging
markets to have made large-scale hydrogen investments
so far, with China being the largest investor over 20112020 globally at $1.8 billion. This picture is set todiversify, with markets such as Chile having outlined
an ambitious 2030 hydrogen target of 25GW, which
has already drawn investor interest.4 On a smaller scale,
Morocco signed a hydrogen partnership with Germany
in 2020, aiming to tap into the country’s abundant clean
energy resources to produce and export clean hydrogen.5
Compared with high-income countries, which areconcentrated mainly in Northern latitudes, electrified
heat is a less relevant sector for many emerging
markets, with efficient cooling being a larger priority.
Correspondingly, China was the only emerging
market to record a significant level of investment inelectrified heat, at $24.5 billion since 2011. However,a handful of emerging markets are making progress on
decarbonizing cooling—notably India, which issued
one of the world’s first cooling plans with mandatorycodes for new buildings; and Brazil, where energy
efficiency standards for air conditioning units aretightened on a regular basis.6,7

Policy, technology maturity, and costdeclines are helping clean energy spread toan ever-larger group of emerging markets
Clean energy has been the main driver of energy
transition activity in emerging markets. Within
this, asset finance of utility-scale renewable energy
projects was in a rising trend until 2017, led by China,
before slipping back (Figure 3). Part of this decline is
attributable to falling technology costs, which mean thatthe deployment of the same capacity requires less andless investment. This effect has been most pronounced
for solar, with the benchmark photovoltaic (PV) module
price falling 89% between 2010 and 2020.8

FIGURE 3:
Emerging markets’ new asset finance for renewableenergy projects, by income group$ billion

187
154
119

74
16
17
39

91

87

12

9
16

24
61

2011

86

20

15
16
116
86

2014

138

23
21

Low income

143 146

21

28

22

15

21

27

94

95

126
18
24

Lower-middle income
Upper-middle income
China

141
101

2017

84

2020

Source: BloombergNEF. Note: Includes disclosed investment in upper middle
income, lower middle income and low income markets only.

Mature renewables markets such as China, India,
and Brazil largely shaped the clean energy investment
narrative at the start of the decade, but activity
has since spread to an ever more diverse group of
emerging economies in the past few years. Notable
examples include Chile, Kenya, and Vietnam, whichhave managed to attract a high and steady pipelineof investment by introducing effective policy packages.
Chile, for instance, managed to grow the share ofwind and solar in power generation from 4% to 14%
between 2015 and 2019 by setting an ambitious targetof 60% clean energy generation by 2035, using clearlyscheduled clean energy auctions and a successful net
metering scheme.9 Similarly, Vietnam’s well-structured
national power development plan, in combination with agenerous feed-in tariff, allowed utility-scale solar capacity
to leap from 177MW in 2018 to 5.1GW in 2019, withonshore wind also set on a growth trajectory.10

4

“National Green Hydrogen Strategy,” Ministerio de Energia, November 2020.

5“Morocco, Germany Sign Green Hydrogen Cooperation Agreement,” Kingdom of Morocco, June 10, 2020.

6“India Cooling Action Plan,” Ministry of the Environment, Forect & Climate Change, March 2019.

7

Portaria Nº 234, Official Journal, Brazil, June 29, 2020.

8

“2H 2020 LCOE Update,” BloombergNEF, December 10, 2020.

9

Chile country profile, Climatescope 2020, BloombergNEF.

10

Vietnam country profile, Climatescope 2020, BloombergNEF.

Private Sector Considerations for Policymakers

177

Section 1.
Preamble
Section 2.
The State of Energy Transition Financein Emerging Markets
Section 3.
The Role of Enabling Environments
in Low-Carbon Transition
Primer: High-level, cross-cutting enabling
environment factors
Primer: Clean energy systems
Primer: Sustainable urban transport
Primer: Waste and the circular economy
Primer: Green buildings
Section 4.
Call to Action
Section 5.
Private Sector Considerations for Policymakers
Consideration 1: High-level, cross-cutting
enabling environment factors
Consideration 2: Clean energy systems
Consideration 3: Sustainable urban transport
Consideration 4: Climate-smart water
and waste
Consideration 5: Green buildings
and streetlighting
Consideration 6: Sustainable land use

In terms of investment concentration, solar is theclean energy technology that reaches the widest
array of emerging markets (Figure 4). Between 2011
and 2019, the number of markets securing solar
investment nearly tripled to 61 countries, with 2020coming in a little lower. This trend highlights how
far the commodification of PV panels has come, with
developers in most markets able to import equipment
easily. Wind projects, more reliant on good resources
and infrastructure, have remained fairly concentrated,with an average of 24 emerging markets recording
investment in any one year over the last decade, and2020 showing a noticeable drop to 16.

The sustainable debt boom has not yet
spread to emerging markets
Sustainable debt products11 have been one of the major
growth stories of recent years. However, issuance ishighly concentrated in high-income countries (Figure 5).
Global sustainable debt issuance has experienced
exponential growth, reaching a record $730 billion in
2020, with high-income countries accounting for 77%
of the decade’s headline figure. Emerging markets’
issuance has hovered in the $50-60 billion range inrecent years, with China accounting for the lion’s share,at $165 billion issued between 2011 and 2020 (Figure 6).
However, the number of emerging economies tapping
sustainable markets has more than doubled over the last
decade, with issuers from India and Brazil raising $33
billion and $31 billion, respectively.
This geographic diversification of sustainable debt
issuance was particularly high in 2020, even though
overall emerging market issuance fell 17% year-onyear. A record number of 32 emerging markets, twice
as many as five years prior, recorded sustainable debt
issuance. Noteworthy markets with record-level issuanceincluded Chile, Thailand, Turkey, and Saudi Arabia,
while Latin American and European emerging markets
saw their highest volumes to date. Chile, for instance,
used the issuance of dollar- and euro-denominatedsovereign green bonds to access international capital
markets to help finance its COVID-19 stimulus
package.12 Meanwhile, the Thai government issued
its first sustainability bond in 2020 to fund long-termsustainable infrastructure projects and cushion social
issues resulting from the impact of the pandemic.13

FIGURE 4:
Number of emerging markets with new asset financefor renewable energy projects
Solar
Wind

63
49
22 25

28 24 32 24

2011

38
26

21

2014

32

25

23

61

58

49

25

2017

16

2020

Source: BloombergNEF. Note: Includes disclosed investment in upper-middle
income, lower-middle income, and low-income markets only.

FIGURE 5:
Global sustainable debt issuance$ billion
564

730

High income

83

Upper-middle income

46

Lower-middle income
Low income

56

Supranational/other

308
237
35

31

26

64
44

2011

85
64

145
88

2014

45

47
167

590
472

241

2017

2020

Source: BloombergNEF. Note: Includes green, social, sustainability, andsustainability-linked bonds as well as green and sustainability-linked loans.

FIGURE 6:Emerging market top sustainable debt issuers$ billion
69
58
46

15
5
5

2011

14
4
9

9
5

2014

13
6

34

5

50

6
4
9

5

32

36

11

57

9

16

5
5

2017

5
5
5

35

China
India
BrazilMexicoTaiwanIndonesia
Others21

2020

Source: BloombergNEF. Note: Includes disclosed issuances in upper-middle
income, lower-middle income, and low-income markets only.

11

Includes green bonds, green loans, sustainability bonds, sustainability-linked bonds, sustainability-link loans, and social bonds.

12“Chile obtains historical yields in euro and US dollar Green bond issuances,” Ministerio de Hacienda, January 22, 2020.

13“The Kingdom of Thailand’s Inaugural Sustainability Bond Issuance is well received,” Ministry of Finance, August 14, 2020.

Private Sector Considerations for Policymakers

568

Section 1.
Preamble
Section 2.
The State of Energy Transition Financein Emerging Markets
Section 3.
The Role of Enabling Environments
in Low-Carbon Transition
Primer: High-level, cross-cutting enabling
environment factors

As in developed economies, green bonds are thesustainable debt instrument of choice among emerging
markets, accounting for 58% of the volume in 20112020, at $195 billion. Green loans were second mostpopular, at $109 billion, or 33% of the total. Yetdiversification and sophistication of products are
increasing along global trends, with social, sustainability
and sustainability-linked bonds and loans all playing apart in 2020 (Figure 7).

Consideration 3: Sustainable urban transport

While at their lowest share since 2016, green bonds
in 2020 remained the most popular sustainable debt
instrument in emerging markets, at $29 billion, or
51% of the total. In line with global trends, issuanceof social bonds in emerging markets took off in
2020, showing a 624% increase year-on-year. Social
bonds are playing an important role in financing the
response to the COVID-19 pandemic, including
economic stimulus packages.14 Access to global debt
markets has been a key factor in helping emerging
markets manage the economic shock of COVID-19.15
Investor confidence in the economic outlook of
emerging markets, at a time of low interest rates inhigh-income economies, creates opportunity to raisesustainable debt in developing economies.

Consideration 4: Climate-smart water
and waste

FIGURE 7:

Primer: Clean energy systems
Primer: Sustainable urban transport
Primer: Waste and the circular economy
Primer: Green buildings
Section 4.
Call to Action
Section 5.
Private Sector Considerations for Policymakers
Consideration 1: High-level, cross-cutting
enabling environment factors
Consideration 2: Clean energy systems

Consideration 5: Green buildings
and streetlighting

Emerging markets sustainable debt themes

Consideration 6: Sustainable land use% of total sustainable debt issuanceGreen bondGreen loan

17

100

97

81

20

2014

4

9
28

74

4
10
12
20

82

19

2011

80

21

5
18

76

76

59

51

Sustainability-linked
loan
Sustainability bondSocial bond
Sustainability-linked
bond

26

2017

2020

Source: BloombergNEF. Note: Includes disclosed issuances in upper-middle
income, lower-middle income, and low-income markets only.

Lessons from the impact of
COVID-19 on energy transition
investments in emerging markets
While many sectors of the global economy wereseverely impacted in 2020 by the social distancing
measures adopted in response to COVID-19, energy
transition spending in high-income markets was 50%
above the annual average of the prior five years, withmuch of the growth coming from Europe.16 Two key
factors fueled this surge in activity. First, governments
in high-income economies have tightened nearterm emission reduction targets in recent years, andexpanded them to more and more polluting sectors of
the economy. For example, European car manufacturers
have to sell more EVs in order to meet the lower
emissions-intensity standards that kicked in from2020.17 Second, the energy transition has been a major
focus of the unprecedented countercyclical government
spending plans set up in response to the COVID-19
economic shock. Here too, EVs have benefited, aspurchase incentives are easy to introduce and car
manufacturing plays an important role in the European
economy and in job creation.
The countercyclical role energy transition investment
has played in high-income economies is highlighted
by the fact that its volume as a share of GDP nearly
doubled between 2019 and 2020 (Figure 8). In
comparison, middle- and low-income economies
recorded a large fall in spending, suggesting that inthose markets, the energy transition was not a major
focus of stimulus plans and/or that governments could
not afford an economic response of similar scale. Moreoften than not, governments in these country income
groups have had to focus their limited spending
capacity on immediate, near-time public health andeconomic relief efforts.18 Disruptions to international
trade and travel, combined with the impact of social
distancing measures, also has had an impact on thepossibility to carry out some of the key activities tied
to project investment.

14“Sustainable Debt Breaks Annual Record Despite Covid-19 Challenges,” BloombergNEF, January 11, 2021.

15“The Impact of COVID-19 on Emerging Market Economies’ Financial Conditions,” Board of Governors of the Federal Reserve System, October 7, 2020.

16“Energy Transition Investment Hit $500 Billion in 2020 – For First Time,” BloombergNEF, January 19, 2021.

17“Road transport: Reducing CO2 emissions from vehicles,” European Commission, accessed on February 10, 2020.

18“Covid-19 Response in Emerging Market Economies: Conventional Policies and Beyond,” International Monetary Fund, August 6, 2020.

Private Sector Considerations for Policymakers

9Section 1.
Preamble
Section 2.
The State of Energy Transition Financein Emerging Markets
Section 3.
The Role of Enabling Environments
in Low-Carbon Transition
Primer: High-level, cross-cutting enabling
environment factors
Primer: Clean energy systems
Primer: Sustainable urban transport
Primer: Waste and the circular economy
Primer: Green buildings
Section 4.
Call to Action
Section 5.
Private Sector Considerations for Policymakers
Consideration 1: High-level, cross-cutting
enabling environment factors
Consideration 2: Clean energy systems
Consideration 3: Sustainable urban transport
Consideration 4: Climate-smart water
and waste
Consideration 5: Green buildings
and streetlighting
Consideration 6: Sustainable land use

The macroeconomic hit of the global pandemic has
combined with existing risks in several major emerging
economies, to stymie energy transition investment.
Typically, these markets have suffered from uncertainty
over macro-economic outlook, energy policy, andregulatory stability, including delays or retroactive
changes to clean energy investment incentives. There
may also be a lack of near- and longer-term powersystem planning and, in some cases, macroeconomic
challenges such as overreliance on commodity exports
or high debt. Notable markets to experience drops inenergy transition investment in 2020 were Argentina,
Mexico, South Africa, and Ukraine.
On the other hand, markets such as Brazil, Vietnam,
and Chile have been examples of the resiliency thatstrong enabling policy environments can bring toenergy transition investment activity. Thanks to its
strong energy sector planning, regulating authority, anddemand fundamentals, Brazil has been able to schedule
auctions ahead of time to ensure investor interest. It hasdone so flexibly enough to slow capacity procurement
when it is less needed. India and China saw clean
energy deployment temporarily slowed by social
distancing restrictions, but their markets reboundedby the end of 2020. Both countries have delivered apositive long-term signal to energy transition investors
by focusing on grid infrastructure deployment andmarket reform in their recovery plans.

FIGURE 8:
Global energy transition investment relative to GDP
by income group
Investment as a share of GDP

High income
Upper-middle income

1.0%

Lower-middle income
Low income

0.8%
0.6%
0.4%
0.2%
0.0%
2016

2017

2018

2019

2020

Source: BloombergNEF

The different impact of the COVID-19 shock onsustainable investment activity across the world has
highlighted the central role played by strong enabling
environments. These environments ensure that thetransition to a low-carbon economy is resilient andmakes a significant contribution to economic growth.
The data indicates that high-income economies havebeen able to put the green transition at the centerof their recovery plans, especially in Europe where2020 was a record year for such investment, despite
the pandemic. Some emerging markets have also
shown resilience, highlighting that there is no lack ofexperience and lessons to learn from economies acrossall income groups. The next section explores the dataand insights drawn from some of these success stories.

Private Sector Considerations for Policymakers

10Section 1.
Preamble
Section 2.
The State of Energy Transition Financein Emerging Markets
Section 3.
The Role of Enabling Environments
in Low-Carbon Transition
Primer: High-level, cross-cutting enabling
environment factors
Primer: Clean energy systems
Primer: Sustainable urban transport

Section 3. The Role of Enabling
Environments in Low-Carbon Transition
Against the backdrop of the economic crisis created by COVID-19, governments have thechance to seize the opportunity of delivering a green recovery that can accelerate theircountries’ transition towards net-zero. The experience of emerging markets that have taken
a lead on climate action and saw private capital follow, and the growing pool of private
investors committing climate finance across the developing world, point to the potential
opportunities ahead.

Primer: Waste and the circular economy
Primer: Green buildings
Section 4.
Call to Action
Section 5.
Private Sector Considerations for Policymakers
Consideration 1: High-level, cross-cutting
enabling environment factors
Consideration 2: Clean energy systems

The clean energy industry has provided many of the lessons learned over the last decade,and these can be adapted to other sectors. Early experience with policies targeting thedecarbonization of sectors such as transport, green buildings, and waste management
highlights the overlap. This section reflects on the progress countries around the world havemade in creating thriving markets for sustainable investment, mobilizing billions of dollars in
new investment in the process. However, these experiences also show that, when considering
which policy tools to deploy, each country and sector will require an evolving mix of enabling
policies over time, depending on its maturity and a wider range of market conditions.

Consideration 3: Sustainable urban transport
Consideration 4: Climate-smart water
and waste
Consideration 5: Green buildings
and streetlighting
Consideration 6: Sustainable land use

This section brings together a diverse set of examples, intended to offer to all countries
a broad range of lessons learned on potential policy opportunities for key emitting sectors.
These should be regardless of current investment environment, or position on the path toa low-carbon economy. As such, the insights align with the scope and reinforce the purposeof the “Private Sector Considerations for Policymakers.”

Private Sector Considerations for Policymakers

11Section 1.
Preamble
Section 2.
The State of Energy Transition Financein Emerging Markets
Section 3.
The Role of Enabling Environments
in Low-Carbon Transition
Primer: High-level, cross-cutting enabling
environment factors
Primer: Clean energy systems
Primer: Sustainable urban transport
Primer: Waste and the circular economy
Primer: Green buildings
Section 4.
Call to Action
Section 5.
Private Sector Considerations for Policymakers
Consideration 1: High-level, cross-cutting
enabling environment factors
Consideration 2: Clean energy systems
Consideration 3: Sustainable urban transport
Consideration 4: Climate-smart water
and waste
Consideration 5: Green buildings
and streetlighting
Consideration 6: Sustainable land use

Primer:High-level, cross-cutting
enabling environment factors
Participation in global climate action,
political will, and execution capacity
The number of countries, cities, and businesses with
net-zero targets has grown significantly over the past
year. Some 58 countries – or 30% of the world’s nations,and accounting for 46% of the global greenhouse-gas
emissions – have announced net-zero emission targets(Figure 9 and Figure 10). China, South Korea, Japan,
and the EU all made announcements in the second
half of 2020. However, BloombergNEF (BNEF)
has tracked just eight countries with legislated goals,
covering 6% of global greenhouse-gas emissions, with
25 more nations, accounting for 10% of emissions, inthe process of putting theirs into law.
Emerging markets are lagging behind. Suriname is the
only country that has a legislated net-zero target outof 57 developing nations, and just eight have targets
currently in a legislative process.19 Together, these ninecountries account for just 1.5% of emerging market
greenhouse gas emissions. The other 19 emerging
economies that have made pledges, including China,
Argentina, and Ukraine, have yet to make their targets
legally binding and detail their governance structure(Figure 11 and Figure 12).

19

“Nationally Determined Contribution 2020,” The Republic of Suriname, December 2019.

Private Sector Considerations for Policymakers

12Section 1.
Preamble
Section 2.
The State of Energy Transition Financein Emerging Markets

FIGURE 9:

FIGURE 11:

Numbers of countries with national net-zero targets

Number of emerging markets with national net-zero targets% of countries% of countries
4%

1%

12%

13%

Section 3.
The Role of Enabling Environments
in Low-Carbon Transition

36%

5%
13%

Primer: High-level, cross-cutting enabling
environment factors

43%

40%
33%

Primer: Clean energy systems
Primer: Sustainable urban transport
Primer: Waste and the circular economy
Primer: Green buildings

FIGURE 10:

FIGURE 12:

Section 4.
Call to Action

Global greenhouse-gas emissions coveredby net-zero targets

Emerging markets greenhouse-gas emissions
covered by net-zero targets

Section 5.
Private Sector Considerations for Policymakers% of emissions% of emissions

Consideration 2: Clean energy systems

0.02%

6%

Consideration 1: High-level, cross-cutting
enabling environment factors

30%

44%

47%

37%

Consideration 3: Sustainable urban transport
Consideration 4: Climate-smart water
and waste

9%

1.46%

10%

12%

Consideration 5: Green buildings
and streetlighting
Consideration 6: Sustainable land use
Legislated

Government position

Under discussion

No target

In legislative process

Source: WRI CAIT, governments, BloombergNEF. Note: As of February 2021. Based on 192 countries. Emerging markets include 157 non-Organization for
Economic Cooperation and Development (OECD) nations, plus Chile, Colombia, Mexico, and Turkey. Includes 2016 greenhouse-gas emissions including land-use
change and forestry.

Private Sector Considerations for Policymakers

13Section 1.
Preamble
Section 2.
The State of Energy Transition Financein Emerging Markets
Section 3.
The Role of Enabling Environments
in Low-Carbon Transition
Primer: High-level, cross-cutting enabling
environment factors
Primer: Clean energy systems
Primer: Sustainable urban transport
Primer: Waste and the circular economy
Primer: Green buildings
Section 4.
Call to Action
Section 5.
Private Sector Considerations for Policymakers
Consideration 1: High-level, cross-cutting
enabling environment factors
Consideration 2: Clean energy systems
Consideration 3: Sustainable urban transport
Consideration 4: Climate-smart water
and waste
Consideration 5: Green buildings
and streetlighting
Consideration 6: Sustainable land use

Matching climate goals
with targeted sector policies
In addition to net-zero targets, strong sector-specificpolicies are fundamental to enable emission reductions
to take place across the economy. Sector-specificmeasures are particularly important in markets thatare expected to go through rapid transformation, as
they provide longer-term clarity, reduce market risk,
and therefore help mobilize larger pools of private
investors. Substantial interdependencies exist between
sectors, especially when deployment of one technology
is contingent on the deployment of others. Notably,
to ensure that electrification of end-use sectors suchas heating is accompanied by decarbonization, powersystems must become greener. It will likely also meanother changes for the electricity sector, such as the needfor more flexible resources.
Research completed for Climatescope, BNEF’s annual
emerging market energy transition index, evaluates
clean energy policy regimes by analyzing the ambition,access, stability, and success of each type of policy
implemented.20 Results of the 2020 ranking show thatnone of the bottom 60 markets received more than
$2 billion in clean energy asset finance over 2015-2019,
and that just four of the 60 received more than $1
billion. On average, the 60 economies attracted $275
million over the five-year period, or $55 million per
year. In contrast, the remaining 47 markets surveyed(excluding mainland China), attracted almost 17
times as much, with an average of $4.6 billion overthe period, or $907 million per year (Figure 13).
As highlighted earlier in this report, much of the
progress achieved to date globally in deploying
sustainable infrastructure has come in the power
sector, especially in emerging markets. Experience inthe countries that are scoring early successes in the
decarbonization of transport or heat reiterates theimportance of having a strong enabling environment
for the decarbonization of the wider energy sector.
BNEF has evaluated the economy-wide decarbonization
policies of G20 countries across 122 qualitative andquantitative metrics.21 Taking the decarbonization oftransport as an example, the eight countries that havescored 50% or more for this sector (excluding China)
recorded an average of $7.8 billion of investment in2020. China, in comparison, harnessed a record-breaking$45.3 billion. Meanwhile, the ten countries that scoredless than 50% attracted on average less than $100 million
in electrified transport last year (Figure 14).
FIGURE 13:
Climatescope renewable energy policy score vs. five-year
clean energy asset finance in emerging markets
5-year investment ($ billion)
16
14
12
10
8
6
4
2
0

0.5

1

1.5

Middle East & Africa

Asia Pacific

Latin America

Europe2.5

Trendline

Source: BloombergNEF, Climatescope.

FIGURE 14:
G20 Zero-Carbon Policy Score for road transport
vs. 2020 investment in electrified transport
2020 investment ($ billion)
20

U.S.

18

Germany

16
14
12
10

France8

U.K.

6

Indonesia

4Australia

2

Saudi Arabia
Russia

0%

10%

20%

High income

Argentina

South Korea

TurkeySouth Africa

BrazilMexico

30%

40%

Italy

50%

Japan

CanadaIndia

60%

Upper-middle income

70%

80%

90%

Lower-middle income

Source: BloombergNEF. Note: Score from BNEF’s G20 Zero-Carbon Policy
Scoreboard Issue 2020. Gray outline highlights country where investment
data is unavailable/minimal. China is an outlier and thus not included in thechart above. It scores 80% and received $45.4 billion in electrified transport
investment in 2020.

20

BloombergNEF’s annual Climatescope review of the energy transition in emerging markets tracked 108 countries in 2020.

21“G20 Countries’ Climate Policies Fail to Make the Grade on Paris Promises,” BloombergNEF, February 1, 2021.

Private Sector Considerations for Policymakers

214Section 1.
Preamble
Section 2.
The State of Energy Transition Financein Emerging Markets
Section 3.
The Role of Enabling Environments
in Low-Carbon Transition
Primer: High-level, cross-cutting enabling
environment factors
Primer: Clean energy systems
Primer: Sustainable urban transport
Primer: Waste and the circular economy
Primer: Green buildings
Section 4.
Call to Action
Section 5.
Private Sector Considerations for Policymakers
Consideration 1: High-level, cross-cutting
enabling environment factors
Consideration 2: Clean energy systems
Consideration 3: Sustainable urban transport
Consideration 4: Climate-smart water
and waste
Consideration 5: Green buildings
and streetlighting
Consideration 6: Sustainable land use

Policy stability and rule of law
A government’s long-term commitment to transition
plans can create markets for sustainable infrastructure
investments that have scale and are resilient to shocks.
On the other hand, governments risk seeing investment
activity deteriorate rapidly if they tamper with theenabling environments that have been put in place. The
diverging stories of the clean energy market in Mexico
and Brazil provide useful examples of the importanceof policy stability and government goals.

MexicoIn Mexico, abrupt changes in energy policy have put
a sudden halt to a boom in clean energy investment.
In December 2013, an amendment to Mexico’s
constitution, passed under the presidency of EnriquePeña Nieto, opened up the country’s power sector to
private participation.22 The reform was followed by anambitious clean energy policy framework, including
three renewable energy action rounds in 2016-2017,
which led to over $21 billion in clean energy projects
since 2014. Mexico’s clean energy policy framework,
especially the auction system, consistently ranked
amongst the most attractive enabling environments
for the sector across the OECD.23, 24
However, since assuming the presidency in late 2018,
Andrés Manuel López Obrador has attempted to undosome of the reforms of his predecessors at the expenseof further renewable power development in Mexico.
Clean energy policy frameworks introduced by theprevious administration have been halted or revoked,
and a scheduled auction round has been cancelled.
The impact of these policy announcements, combinedwith the disruptions of COVID-19, have led to acontraction in clean energy investment, which dropped
44% between 2019 and 2020. The removal of someof the key policies that underlined Mexico’s enabling
environment for clean energy also affected the country’s
position in the Climatescope ranking, which went fromfive years inside the top 10, to 51st in 2020 (Figure 15).

22

Mexico country profile, Climatescope 2020, BloombergNEF.

23

Auctions for the Support of Renewable Energy in Mexico, AURES, November 2019.

24

Designing Renewable Energy Auctions, USAID, July 2019.

25

Brazil country profile, Climatescope 2020, BloombergNEF.

26

League Tables & Ranking, BloombergNEF, accessed on February 10, 2021.

Private Sector Considerations for Policymakers

FIGURE 15:
Mexico new clean energy investment (left)
and Climatescope rank (right)$ billion
7

Climatescope score
7

8

6

4
9

1

8

9

5

17

24

4

25

3

33

2

41
51

1
0
2010
Calderón (PAN)

49
57

2014

2017

Peña Nieto (PRI)2020
AMLO (Morena) Head of government
Energy sector open
for private investment
Renewable energy
auctions

Source: BloombergNEF, Climatescope.

BrazilBrazil is a country known for its volatile politicalenvironment, recording no less than four changes inhead of state over the last decade. However, clean energy
policy and investment have stayed remarkably stable.
Over the past 10 years, the country has maintained
one of the most comprehensive and inviting clean
energy policy frameworks among emerging markets.24
Brazil pioneered the use of competitive auctions tocontract clean energy projects, adapting the level ofprocurement to the demand and supply balance andeconomic growth, leading to the procurement of 30GW
of clean power at record-low prices over 2009-2019.
The national development bank has played a criticalrole in mobilizing sustainable investments throughout
the period, becoming the largest single lender to clean
energy projects globally in the process.26
The consistency of policy has helped Brazil remain
an attractive clean energy market, and even helped
compensate for some of the wider challenges the15Section 1.
Preamble
Section 2.
The State of Energy Transition Financein Emerging Markets

country’s economy has been facing. Brazil attracted
around $70 billion in clean energy projects between
2010 and 2020, including significant volumes ofcross-border investment. As a result of its strong, stableenabling environment, Brazil has remained in the top
five of the Climatescope index every year (Figure 16).

Section 3.
The Role of Enabling Environments
in Low-Carbon Transition

FIGURE 16:

Primer: High-level, cross-cutting enabling
environment factors

Brazil new clean energy investment (left)
and Climatescope rank (right)

Primer: Clean energy systems$ billion

Climatescope score

Primer: Sustainable urban transport
Primer: Waste and the circular economy

12

Primer: Green buildings

10

Section 4.
Call to Action
Section 5.
Private Sector Considerations for Policymakers
Consideration 1: High-level, cross-cutting
enabling environment factors
Consideration 2: Clean energy systems

2

2

2

3

4

3

3

5

6

7

4

9

2

11

0
2010
Lula (PT)13
2014
Dilma (PT)

2017

2020

Temer (PMDB)

Bolsonaro

Head of government
Renewable energy
auctions
Net metering

Consideration 4: Climate-smart water
and waste

Consideration 6: Sustainable land use

3

8Consideration 3: Sustainable urban transport

Consideration 5: Green buildings
and streetlighting

1

Source: BloombergNEF, Climatescope.

Currency stability
A key challenge for investors considering deploying
finance in emerging markets is local currency stability,or the lack thereof. While it is true that volatility andbouts of depreciation have continued to affect someemerging market currencies, especially during the
COVID-19 crisis, currency stability has improved
across other emerging markets, often thanks to soundmonetary policy. Today, the currency volatility of a
growing group of emerging markets is increasingly
in line with that of developed nations.
The COVID-19 pandemic had a large initial impact
on emerging and advanced economy currencies alike.
However, the global coordinated response of central
banks to preserve access to credit, and the mobilizationof public finance in advanced economies, helped the
MSCI emerging market currencies index recover andfinish 2020 in positive territory (Figure 17).27 Also, the
COVID-19 pandemic has offered investors a window
into some of the key drivers of currency volatility.
Economies relying heavily on commodity exports togenerate revenue in hard currencies have recorded highcurrency volatility and depreciation, as has been thecase in Mexico (Figure 18) and Brazil. Countries that
could afford it, such as Saudi Arabia, tapped into theirforeign exchange reserves to preserve the value of thedomestic currency. On the other hand, markets like in

FIGURE 17:

FIGURE 18:

Evolution of high-income (DXY) and emerging market(MSCI) currency indices, 2020-21

Evolution of emerging market currency index (MSCI)and select emerging market currencies, 2020-21

Indexed 100 = 1 Jan 2020

Indexed 100 = 1 Jan 2020

110

110
Philippine peso

DXY

MSCI

100
MSCI
90

100

Mexican peso

8090
Jan 20

Apr 20Jul 20

Oct 20Jan 21

70
Jan 20

Apr 20Jul 20

Oct 20Jan 21

Source: Bloomberg Terminal. Note: The DXY index integrates a basket of hard currencies including the euro, Japanese yen, British pound, and Swiss franc. The MSCIEmerging Markets Currency Index tracks the performance of 25 emerging market currencies against the U.S. dollar. Philippine peso and Mexican peso rates are against
the U.S. dollar.

27“The Impact of COVID-19 on Emerging Market Economies’ Financial Conditions,” Board of Governors of the Federal Reserve System, October 7, 2020.

Private Sector Considerations for Policymakers

16Section 1.
Preamble
Section 2.
The State of Energy Transition Financein Emerging Markets
Section 3.
The Role of Enabling Environments
in Low-Carbon Transition
Primer: High-level, cross-cutting enabling
environment factors
Primer: Clean energy systems
Primer: Sustainable urban transport
Primer: Waste and the circular economy
Primer: Green buildings
Section 4.
Call to Action
Section 5.
Private Sector Considerations for Policymakers
Consideration 1: High-level, cross-cutting
enabling environment factors
Consideration 2: Clean energy systems
Consideration 3: Sustainable urban transport
Consideration 4: Climate-smart water
and waste

the Philippines and Vietnam, which have been able
to count on growth fueled by domestic consumption
in goods and services, have fared better.
This is why governments and investors looking tomobilize investment in new sustainable infrastructureneed to account for the economic and currency profile
of each country. Most sustainable infrastructure
investments have a lifetime exceeding 15 years.
Therefore, the long-term outlook of the economy they
are in and the impact it will have on the currency must
always be considered. Markets whose currencies are
particularly exposed to volatile commodity prices, or
those that have a currency that is difficult to convert asa result of insufficient internationalization, will typicallyneed to agree to payment terms set in hard currencies
or incur the added cost of foreign exchange hedges andguarantees. On the other hand, international investors
looking to deploy capital to sustainable infrastructurein economies with a strong growth outlook should
accept local currency risk and consider expanding
their activity over the long term. Contracts awarded toclean energy investors in larger markets such as Brazil,
China, Columbia, Egypt, India, Jordan, Kazakhstan,
Malaysia, Pakistan, South Africa, Sri Lanka, Thailand,
and Vietnam can sometimes include partial hedges, butthey are typically denominated in domestic currency.

Consideration 5: Green buildings
and streetlighting
Consideration 6: Sustainable land use

Private Sector Considerations for Policymakers

17Section 1.
Preamble
Section 2.
The State of Energy Transition Financein Emerging Markets
Section 3.
The Role of Enabling Environments
in Low-Carbon Transition
Primer: High-level, cross-cutting enabling
environment factors
Primer: Clean energy systems
Primer: Sustainable urban transport
Primer: Waste and the circular economy
Primer: Green buildings
Section 4.
Call to Action
Section 5.
Private Sector Considerations for Policymakers
Consideration 1: High-level, cross-cutting
enabling environment factors
Consideration 2: Clean energy systems
Consideration 3: Sustainable urban transport
Consideration 4: Climate-smart water
and waste
Consideration 5: Green buildings
and streetlighting
Consideration 6: Sustainable land use

Primer:Clean energy systems
The power sector is the source of emissions thathas recorded by far the highest level of transition
investment and fastest decarbonization to date. The
fall in the cost of clean energy technologies has alsomeant that an increasing amount of investment isfueled by economic imperatives rather than climate
goals. This helps solar and wind grow their market
shares, especially in emerging markets where demandis growing. As a result, clean energy is the sector where
there are the most lessons to learn from the successes
and failures of regulations and policy over the last
decade. These experiences are important as clean
electricity is set to play a leading role in decarbonizing
the economy. Direct and indirect electrification is often
the most effective way to deliver emission reductions
in transport, heating, cooling, and industry due to theincreasing availability of cheap clean power generation.

Cross-cutting clean energy
Energy sector targets
As economies recover from the pandemic, power
demand across the majority of emerging markets is
expected to rebound and continue to rise, requiring
investment in additional capacity. However, mostemerging markets still have low shares of clean energy
sources supplying their grids, with 48 out of 108
countries tracked by BNEF (representing the bulk of
power demand) averaging below a quarter of electricity
supplied by clean power28 in 2019 (Figure 19). As aresult, investment signals for new clean energy capacity
and its related infrastructure, as well as the market
structure for the energy sector, are critical to delivering
climate goals.
Most emerging markets already have clean energy
targets, with varying levels of ambition. These canhelp to signal growth opportunities for new renewable

28

energy projects. BNEF has tracked 84 emerging
markets with clean power targets (Figure 19). Clean
energy targets can be high-level, and ambiguous andhave limited value in isolation, making it vital forgovernments and other relevant energy authorities
to align their targets with robust policy and regulatory
frameworks. Of the 84 emerging markets with targets,
44 still have large gaps to meeting their goals and only
31 have strong support for clean power (i.e., scoredmore than 50% in BNEF’s assessment of policies tosupport renewable electricity).
Nonetheless, many emerging markets are ramping up
their efforts to deploy renewable power and deliver theirgoals. China and India, for instance, have relatively small
gaps to achieving their nearest approaching clean energy
targets (Figure 19), as both have made quick progress inrecent years on the back of subsidy schemes including
clean energy auctions. India’s sector-specific target forsolar and widespread use of auctions and tenders havebeen particularly important.

Including large hydro-electric dams.

Private Sector Considerations for Policymakers

18Section 1.
Preamble
Section 2.
The State of Energy Transition Financein Emerging Markets
Section 3.
The Role of Enabling Environments
in Low-Carbon Transition

FIGURE 19:
Status of clean power targets in emerging markets and policy support, compared to shareof renewables in generation and size of power system
Share of renewables in power generation (2019)
100%
80%
60%

Primer: Clean energy systems

40%

Primer: Sustainable urban transport

Section 4.
Call to Action
Section 5.
Private Sector Considerations for Policymakers
Consideration 1: High-level, cross-cutting
enabling environment factors
Consideration 2: Clean energy systems
Consideration 3: Sustainable urban transport
Consideration 4: Climate-smart water
and waste
Consideration 5: Green buildings
and streetlighting
Consideration 6: Sustainable land use

Colombia
AngolaTurkey

Congo

50GW

Clean power policy score

Vietnam
China
India

20%
0

500GW

Laos

Sudan

Argentina

Primer: Waste and the circular economy
Primer: Green buildings

BrazilEcuadorPrimer: High-level, cross-cutting enabling
environment factors

Size of power system

Paraguay

ThailandUkraineSomalia

No target

Pakistan

RussiaMexicoEgypt
Saudi Arabia

Small gap to target

Indonesia
South Africa

>60%

>50%

>30%

<30%

Algeria

Large gap to target

Source: BloombergNEF. Note: Gap to target is based on the capacity deployment needed to meet the nearest national clean energy target. Clean power
policy score refers to the number of clean power policies in place out of 10 indicators included in BNEF’s Climatescope 2020 report. The calculation
for share of renewables in power generation includes biomass and waste, geothermal, large and small hydropower, solar, and wind.

Argentina, Colombia, Pakistan, and Vietnam have also
set clean energy targets. They ranked well on BNEF’s
indicators for clean power policy among emerging
markets in 2020, signaling the strong set of renewableenergy support schemes in these countries. Strong
renewables policies have helped mobilize investment,
sometimes despite challenging financial and regulatory
situation, which still need to be addressed in thewider energy sector. Meanwhile markets like South
Africa, Russia, and Saudi Arabia still have fossil-heavy
electricity mixes and large gaps to meeting their clean
energy targets (Figure 19). These countries also havefewer measures to support renewables deployment,
weakening investment signals to ensure their delivery.

BNEF has tracked activity by energy sector authorities
to support clean energy offtake in emerging markets.
Measures assessed include whether emerging
markets have made efforts to help to standardize
power purchase agreements (PPAs), helping to lower
transaction costs for offtake contracts; whether markets
have PPAs of long-enough tenures to be bankable; andwhether PPAs (including auction contracts) are signed
or indexed to a hard currency, which can help to shield
against exchange rate volatility (Figure 20).
FIGURE 20:
Features of power purchase agreements in emerging
markets: standardization, duration, and currency

Market development
In addition to setting clean energy targets and backing
these goals with policy support, governments inemerging markets are also helping to scale clean energy
through supportive market frameworks. As highlighted
in the ‘Policy Considerations’ section, regulatorsand governments can strengthen investment signals
through measures like improving the market for private
clean energy offtake and enabling generators to charge
cost-reflective energy tariffs.

Private Sector Considerations for Policymakers

Number of countries
Are standardized PPAs available?

33

PPAs available with durations>15 years
PPAs signed in or indexed tohard currency (e.g., USD)

21
66

37

Yes

54
23

17

Somewhat

19

54

No

Source: BloombergNEF. Note: “Somewhat” for duration refers to PPAs of 10-14
years available.

19Section 1.
Preamble
Section 2.
The State of Energy Transition Financein Emerging Markets
Section 3.
The Role of Enabling Environments
in Low-Carbon Transition
Primer: High-level, cross-cutting enabling
environment factors
Primer: Clean energy systems
Primer: Sustainable urban transport
Primer: Waste and the circular economy
Primer: Green buildings
Section 4.
Call to Action
Section 5.
Private Sector Considerations for Policymakers
Consideration 1: High-level, cross-cutting
enabling environment factors
Consideration 2: Clean energy systems

We found that at least 89 of 108 emerging markets
have PPAs with durations above 10 years. Half signor index offtake contracts to a hard currency (althoughcurrency indexation is not always a necessary feature
to ensure investor confidence, if the national currency
is stable – see “Currency stability” section on page16). Several emerging markets are leading the way increating the innovative market frameworks that help
to unlock and rapidly scale clean energy investment.
Chile is a notable example where these PPA features
have been particularly successful. The country had
driven investment in more than 6GW of wind andsolar projects by 2020. It also had more than 1.5GW
of corporate renewable energy PPAs signed as ofend-2020, according to BNEF data, on the back ofsuccessful reforms and market development. Relative tothe 25GW size of the country’s power market, Chile’s
corporate PPA volumes now rank the country secondin the world for such offtake agreements (Figure 21).

Consideration 5: Green buildings
and streetlighting
Consideration 6: Sustainable land use

Grid-connected renewable energy

FIGURE 21:
Volume of renewable energy corporate PPAs signed
by end 2020, relative to size of power market

Consideration 3: Sustainable urban transport
Consideration 4: Climate-smart water
and waste

However, 54 of the emerging markets assessed by
BNEF still do not have standardized PPAs available.
Other regulatory barriers that hamper clean energy
investment, such as a lack of creditworthy offtakers ortariff deregulation, are also commonplace. Price caps
or regulated tariffs are often kept low in an attempt toensure electricity supply is affordable and accessible to
the general population. However, such measures often
block energy sector investment signals, which meansthat legacy fossil fuel capacity is not put in competition
with increasingly cheap clean technologies. This
prevents increasingly cheaper clean energy technologies
from driving an overall reduction in the cost andenvironmental impact of supplying power. Just half theemerging markets tracked by BNEF allow generators
to charge cost-reflective energy tariffs, and only 16%
allow generators to supply electricity directly at cost,compared with 52% in OECD markets (Figure 22).

%
Sweden

6.5%

Chile

6.3%

Finland

6.2%

Norway

5.2%

Spain

4.2%

U.S.

4.0%

Australia

3.9%

Denmark

3.9%

Ireland

3.8%

Burkina Faso

3.7%

Taiwan2.2%

Belgium

2.2%

Emerging Markets

Other

Source: BloombergNEF.

FIGURE 22:
Share of countries with deregulated retail tariffs
Share of countries
Emerging markets

16%OECD markets

33%
52%

Yes

51%
28%

Somewhat
21%

Source: BloombergNEF.

Private Sector Considerations for Policymakers

No

Auctions and tenders
Scaling grid-connected renewable energy capacity
relies on clear investment signals as most of the capitalis deployed in the project development phase. Auctions
are often the policy mechanism of choice for emerging
markets to procure new renewable energy capacity for
their grids and attract private investment. Auctions forlong-term price contracts can provide revenue certainty,
drive investment into clean energy, and attract a low
cost of capital to new renewables projects. Competitive
allocation through auctions can also result in tariffs that
better reflect ongoing technology cost trends. BNEF
has tracked a general decline in levelized bid prices in
auctions across emerging markets for PV and wind overrecent years, reflecting falling costs of technology andfierce competition (Figure 23).
BNEF has tracked more than 352GW of clean energy
auctions delivered worldwide as of 1Q 2021, from which
76% of capacity has been awarded in emerging economies.
However, this activity is concentrated largely to certain
markets. China and India are the global heavyweights ofauction delivery, awarding to date a cumulative 183GW ofclean energy capacity (Figure 24), far exceeding the 84GW
of auction procurement by OECD countries. Auctiondeliveries in Brazil, South Africa, Mexico, Turkey, and Chilecomprise a large portion of activity among the remaining
emerging markets. Leading clean energy auction programs
across emerging markets have helped produce some of themost innovative and impactful auction designs to date.
20

Section 1.
Preamble
Section 2.
The State of Energy Transition Financein Emerging Markets
Section 3.
The Role of Enabling Environments
in Low-Carbon Transition
Primer: High-level, cross-cutting enabling
environment factors
Primer: Clean energy systems
Primer: Sustainable urban transport
Primer: Waste and the circular economy

FIGURE 23:
Levelized bids for auctions in select markets by project commissioning year, 2016-24
PVOnshore wind$/MWh (2019 real)$/MWh (2019 real)

100

100
LCOE range

80

LCOE range

80

60

60

40

40

20

20

Primer: Green buildings
Section 4.
Call to Action
Section 5.
Private Sector Considerations for Policymakers
Consideration 1: High-level, cross-cutting
enabling environment factors
Consideration 2: Clean energy systems

2016

2018

2020

2022

2024

2016

2018

2020

2022

2024

FranceU.K.

Argentina

India

Argentina

U.K.

Germany

Saudi Arabia

Germany

TurkeyMexicoJapan

MexicoSouth Africa

FranceIndia

Saudi Arabia

BrazilCanadaChina

BrazilItaly

PolandChina

CanadaTurkeySouth Africa

Source: BloombergNEF. Note: In order to make winning auction tariffs comparable across countries, we levelize the capacity-weighted average winning tariff –i.e., we estimate the average inflation-linked tariff for the full lifetime of the project. We remove the effect of subsidies, standardize inflation, and add a merchanttail for the duration of the project lifetime after the auction tariff expires. Levelized bids are shown by commissioning date and assume a 0% discount rate.

Consideration 3: Sustainable urban transport
Consideration 4: Climate-smart water
and waste
Consideration 5: Green buildings
and streetlighting

FIGURE 24:
Awarded and announced volumes of clean energy auction capacity in 15 emerging markets comparedwith OECD countries, by technology

Consideration 6: Sustainable land use

GWOECD countries*

26

23

China

21

14

69

India

63

Brazil6

19South Africa 2 3
Mexico6

Turkey

5

3

14

5
20

4

106

100

31

12

7

8

2

3

145

61
28

7

PV
Solar thermal
Onshore wind
Offshore wind

Chile

6

United Arab Emirates

6

Mixed auction/other5

Announced

Russia3

Argentina
KuwaitOman

Bioenergy and waste

5
4

4

3

Saudi Arabia

3

Morocco2

Malaysia

2

Source: BloombergNEF. Note:*OECD countries excludes Chile, Colombia, Mexico and Turkey.

Private Sector Considerations for Policymakers

21Section 1.
Preamble
Section 2.
The State of Energy Transition Financein Emerging Markets
Section 3.
The Role of Enabling Environments
in Low-Carbon Transition
Primer: High-level, cross-cutting enabling
environment factors
Primer: Clean energy systems
Primer: Sustainable urban transport
Primer: Waste and the circular economy
Primer: Green buildings
Section 4.
Call to Action
Section 5.
Private Sector Considerations for Policymakers
Consideration 1: High-level, cross-cutting
enabling environment factors

Co-ordinated auction planning
Governments can provide greater certainty by publishinglong-term calendars for auction rounds, and sticking tothem. Auction calendars are commonplace in many OECD
countries as well as several emerging markets. It is also
important that auction procedures are coordinated with astreamlined permitting process and grid planning, in order
to avoid the under-delivery or late procurement of capacity.
Delays and cancellations to auctions can damage
investor confidence, slow renewables deployment, and be
disruptive to local supply chains, particularly where otherroutes to market are not available. A case in point is South
Africa. Having last announced auction-round winners in
2015, years of delays followed before the PPAs for thoseprojects were signed. The government has yet to hold
another auction round. The lack of auctions has severely
limited the options for developers to build new projects
due to the highly regulated nature of the country’s power
sector. This has forced clean energy project developers andinvestors to look elsewhere for activity (Figure 25).

FIGURE 25:
Clean energy investment in South Africa and REIPPP
auction status$ billion
Government refuses
to sign Round 4 PPAs,
investment slumps

5.4
First wave ofinvestment from
REIPPP auctions

1.4

3.7

3.6

1.7

1.4

4.0

0.0
2010

2012

Auction Round Round Round
timeline 1
2
3

3.7

Solar
Wind
Other

2.6

1.2
1.9

0.0

Government finally
signs Round 4 PPAs

2.1
1.1

0.9
0.9

2014

2016
Round
3b & 4

0.7
0.0

0.9

0.7

2019
Round 5announced but not held

Source: BloombergNEF. Note: REIPP = Renewable Energy Independent
Power Producer Program.

requirements have suffered financially and closed
as a result of the gap in new-build opportunities.

Supporting better renewables integration

Consideration 2: Clean energy systems

Local content requirements

Consideration 3: Sustainable urban transport

Brazil, Russia, Saudi Arabia, South Africa, and Turkey,
among others, have imposed local-content requirements
on auctions. Under such policies, winners of auctions
must meet certain conditions to execute on contracts
they have won (or, in Brazil’s case, to receive access to
low-cost financing). These conditions may require themto build factories in the country, employ locals, or use
certain volumes of locally manufactured equipment.
Such conditions can help to attract investment into
the development of local supply chains – but only
if governments also demonstrate a commitment torenewables and visibility on future demand.

Auctions can be designed to deliver clean power inways that best meet grid needs, as the share of variable
renewables in the system grows. Introducing time-ofday or peak load requirements to auctions can be one
way to achieve this. In Chile, the government has had
generators compete in technology-neutral auctions to
supply power during specific periods of the day since2014.30 This has enabled solar in particular to benefit
by providing power during a designated daytime blockof demand, while other technologies serve evening
demand.31, 32 In India, firm power requirements wereintroduced to a peak power supply auction in 2020.
The cleared winners will rely on wind, solar, and energy
storage to deliver dispatchable generation.

Brazil’s approach to supporting the developmentof a domestic supply chain has been particularly
successful.29 Local content measures are not put inplace as requirements but rather as incentives in theform of access to concessional debt from the country’s
development bank. As the clean energy sector in the
country matured, local content requirements to accessthe incentives were raised progressively. In comparison,solar and wind manufacturers that opened facilities inSouth Africa to meet the government’s local content

Accommodating co-located renewables (i.e., wind or solar
plus storage) and oversized renewable energy projects
within auction schemes can help to deliver better outcomes
for the grid and for generators. This is because they can
maximize the utilization of a grid connection and smooththe output from a wind or solar project. Some governments
are already taking steps toward this. Co-located windand solar auctions have been used since 2018 in India
and Denmark with fairly successful results, and Portugal
recently ran a co-located solar-plus-storage tender.

Consideration 4: Climate-smart water
and waste
Consideration 5: Green buildings
and streetlighting
Consideration 6: Sustainable land use

29“Local Content Requirements in Auctions Scheme for Renewable Energy,” UNEP DTU, 2019.

30“Auctions for Renewable Energy in Chile,” AURES, August 21, 2017.

31“Power Market Design Series: Chile,” BloombergNEF, November 2, 2018.

32“Round-the-Clock Renewables Threaten Coal Power in India,” BloombergNEF, May 13, 2020.

Private Sector Considerations for Policymakers

22Primer: Waste and the circular economy

Attracting private investment

Primer: Green buildings

Investment in grids has typically come from state-owned
enterprises, but private finance has begun to play a rolein certain markets. Indefinite privatization, employed in
the U.K. and the Philippines, sees private actors manage
existing and new lines within a country or region.
Merchant lines – private initiatives not commissioned bygovernments – have been commissioned in the U.S. andAustralia. Yet few emerging markets have successfully
implemented either model.

FIGURE 26:

FIGURE 27:

Grid extension costs and electrification rates

Chile wind and solar generation vs spot prices
of both national grids

Grid extension costs per households ($)
GWh

2,500
2,000

1,400

Vanuatu

$/MWh
90
80

1,200

1,500
1,000

Second interconnector
completed

RwandaKenya
D.R.C.

500
Zambia

0%

20%

Peru

Solomon Islands
SenegalMozambique
MyanmarLaos

40%

Botswana
India

60%

50

600

40

400

Electrification rate (%)

200

Source: BloombergNEF, World Bank project records.

60

800

100%

80%

70

1,000

30
20
10

Solar

Wind

SIC spot priceOct-19Consideration 6: Sustainable land use

Dec-19Consideration 5: Green buildings
and streetlighting

More widely applicable is the independent powertransmission model, which involves individual lines,
or a package of lines, being built and operated under
one of several types of public-private partnershipAug-19Consideration 4: Climate-smart water
and wasteJun-19Consideration 3: Sustainable urban transport

Apr-19Consideration 2: Clean energy systems

Feb-19Consideration 1: High-level, cross-cutting
enabling environment factors

Dec-18

Section 5.
Private Sector Considerations for Policymakers

Chile shows why transmission infrastructure is so
important to integrating renewables. Breakneck windand solar build resulted in severe curtailment andvolatile wholesale power prices. The situation was only
alleviated when privately financed transmission lines
were built to connect the country’s two main grids. The
latest came online in 2019, correcting volatility on thegrid nodes where midday spot prices once averaged$0, and helping price convergence between the two
grids (Figure 27). While most emerging economies
lack wholesale markets, the Chilean case underscores
the importance of integrated grid plans accounting forrenewables build.

Oct-18

Section 4.
Call to Action

Aug-18

Primer: Sustainable urban transport

Jun-18

Primer: Clean energy systems

Apr-18

Primer: High-level, cross-cutting enabling
environment factors

Many PPP structures see both construction andoperation risk and capital expenditure requirements
taken on by the private sector. As with renewables
auctions, Latin America was a trailblazer in competitively
procuring private power lines. Brazil, Peru, and later
India, successfully commissioned transmission lines underthe build, own, operate, and transfer model. Implemented
via tenders, this sees private companies taking on upfront
costs, bearing construction and operation risks, andoperating completed assets.

Feb-18

Section 3.
The Role of Enabling Environments
in Low-Carbon Transition

Transmission infrastructure is essential to scalingclean power in grids. Investment in reinforcing orbuilding out power grids eases the integration ofrenewables, reduces the capacity required to ensure
security of supply, and facilitates access to cost-efficient
generation assets. Where there is substantial need for
new grids, the cost of reaching the most remote areas
can rise rapidly, and the role of electrification throughdistributed renewables should also be considered(Figure 26).

(PPP). Focusing on fewer lines helps attract financeand makes de-risking more manageable. Contracts are
rarely indefinite but are generally long-term, running
25 years or more.

Dec-17

Section 2.
The State of Energy Transition Financein Emerging Markets

Power grid infrastructureOct-17

Section 1.
Preamble

SING spot priceSource: BloombergNEF, CNE, CEN. Note: SIC and SING spot prices correspondto Quillota and Crucero 220kV node prices.

Private Sector Considerations for Policymakers

23Section 1.
Preamble
Section 2.
The State of Energy Transition Financein Emerging Markets
Section 3.
The Role of Enabling Environments
in Low-Carbon Transition
Primer: High-level, cross-cutting enabling
environment factors
Primer: Clean energy systems
Primer: Sustainable urban transport
Primer: Waste and the circular economy
Primer: Green buildings
Section 4.
Call to Action
Section 5.
Private Sector Considerations for Policymakers
Consideration 1: High-level, cross-cutting
enabling environment factors
Consideration 2: Clean energy systems

Equally revealing is Vietnam, where the introductionof a feed-in tariff for solar, and upward revision of thetariff awarded to wind, led to a renewables boom. The
country is now Southeast Asia’s largest clean power
market with 5.9GW of intermittent renewables,
accounting for 9.5% of installed capacity.33 A lack of
take-or-pay clauses in standard Vietnamese PPAs
led to a rapid jump in curtailment, hurting project
revenues. Curtailment of renewables (mostly solar)
averaged 30-35% over June-July 2019, reaching 65%
in some of the worst cases (Figure 28).
Priority dispatch for “new” renewables was since
implemented, leading to a large hydro plant being
curtailed in July 2020. Grid investment has also beenprioritized, curbing curtailment from 34% to 10%
in two provinces over 2019-2020. The government
approved the country’s first private grid project inJanuary 2020, and passed a PPP law in June 2020. This
will help attract private capital, $38 billion of which
the government thinks is needed for grid projects over
2016-2030, or $2.5 billion per year. That represents afivefold increase compared with 2008-2018.

Consideration 3: Sustainable urban transport
Consideration 4: Climate-smart water
and waste
Consideration 5: Green buildings
and streetlighting
Consideration 6: Sustainable land use

FIGURE 28:
Available grid capacity and approved capacityof renewable energy projects in selected
Vietnam provinces
MW

2,000

Approved project
capacity in excess
of grid availability

1,500

Available grid
capacity

1,000
500

Ninh
Thuân

Bình
Thuân

Phú
Yên

Khánh
Hòa

An
Giang

Gia
Lai

Regional electricity markets
Building interconnectors could lead to a rise in power
trading. By aggregating demand and making clean
power exportable, common markets can enhance theattractiveness of renewables development. The Central
American Electrical Interconnection System (SIEPAC)
was commissioned in 2013, steadily increasing traded
power volumes. Similarly, the Southern African Power
Pool (SAPP) was formed in 1995 – competitive trading
has accounted for an increasing share of cross-borderflows, and an intraday market came online in 2016.
Yet efforts to interconnect countries alone does
guarantee renewables growth. Power traded over the
SAPP has slumped due to increasingly slim reserve
margins in the region’s biggest power market, South
Africa. A failure to meet national clean energy
deployment plans has meant that very little of the
anticipated cross-border flows materialized.

Grid codes
Introducing up-to-date grid codes (or rules) is also
critical to integrating variable renewables. These cangovern everything from frequency control to congestion
management. Generator connection codes are particularly
important to developers. Getting them right is essential:
too onerous, and they can slow renewables additions, but
overly lax rules can threaten grid stability.
What technical requirements must be met bygenerators is likely to vary as larger shares of variable
renewables are added (Table 1). Rules might emphasize
system protection (fault mitigation) when deployment
is low, but ask operators to provide synthetic inertia (forsystem stability) as the renewables share of generation
ramps up. Here, a well-structured revision process –with rigorous verification – is critical to ensuring thatrules are appropriate.

Source: BloombergNEF, National Load Dispatch Centre of Vietnam.

33

Vietnam country profile, Climatescope 2020, BloombergNEF.

Private Sector Considerations for Policymakers

24Section 1.
Preamble
Section 2.
The State of Energy Transition Financein Emerging Markets
Section 3.
The Role of Enabling Environments
in Low-Carbon Transition
Primer: High-level, cross-cutting enabling
environment factors
Primer: Clean energy systems
Primer: Sustainable urban transport
Primer: Waste and the circular economy
Primer: Green buildings
Section 4.
Call to Action
Section 5.
Private Sector Considerations for Policymakers
Consideration 1: High-level, cross-cutting
enabling environment factors
Consideration 2: Clean energy systems
Consideration 3: Sustainable urban transport
Consideration 4: Climate-smart water
and waste
Consideration 5: Green buildings
and streetlighting
Consideration 6: Sustainable land use

TABLE 1:
Intermittent renewables’ impact on the grid
GRID IMPACT

EMERGING-MARKET EXAMPLES

Low

None

Saudi Arabia, Indonesia, Turkmenistan

MediumBecomes noticed by system operator. Local grid conditions affected,
transmission congestion is possible.

Senegal, South Africa, Argentina

High

Significant change in power flow patterns, higher potential fortransmission congestion. Flexibility is required.

Vietnam, China, Chile

Intermittent
renewables cover
all of demand at
certain points

Requirement for grid-wide reinforcement and significant flexibility
resources to maintain stability.

None yet

Variable-renewables
penetration

Source: BloombergNEF.

Brazil shows how grid codes can evolve. Congested
power lines meant that, in 2013, some 2GW of windcapacity received payment despite being unable tofeed power into the grid.34 This is a common featureof so-called take-or-pay power purchase agreements inemerging markets. Since then, the curtailment risk has
been taken by wind operators, with payments withheld
when grid congestion prevents wind generation.
This has encouraged auction bidders to site projects
near the existing grid, and to account in their bids
for the cost of new transmission lines.
Renewables will often be built in jurisdictions where
they are not yet covered by the grid code. In these cases,
PPAs or government support schemes can feature socalled change-in-law provisions, facilitating compliancewith any subsequent changes to the grid code (or otherregulations) that might affect power projects. Clarity
on this area also applies to mini-grids, which are often
built in a regulatory vacuum and as such are vulnerable
to changes post factum.

34

Social and governance standards
Public consultations early on can address local
acceptance issues plaguing planned lines from Germany
to Japan. Such markets suffer from local pushbackthat hinders development on likely sites. Operators
have tried to adapt. German cables are increasingly
built underground at greater expense, and with limited
success in quelling opposition. Yet the cost of earthing
cables is too high for many emerging markets, where
acceptance issues are also common.
Community opposition notably delayed a major
Chilean interconnector’s construction in 2019 by 17months. Those developing West Africa’s largest windfarm hedged against such issues. Commissioned in
2020, the 159MW Taiba project in Senegal pledged
to spend $20 million on local development overthe plant’s lifetime (against an initial $330 million
investment). Sited 80 km from the capital, the projectrequires a short cable and has faced little opposition.
Like Taiba, some private line projects take the initiative
to mitigate risk. Yet strong governance standards arelacking where grid investment is most needed, such as
in much of sub-Saharan Africa.

“Scaling up Variable Renewable Power: The Role of Grid Codes,” IRENA, May 2016.

Private Sector Considerations for Policymakers

25Section 1.
Preamble
Section 2.
The State of Energy Transition Financein Emerging Markets
Section 3.
The Role of Enabling Environments
in Low-Carbon Transition
Primer: High-level, cross-cutting enabling
environment factors
Primer: Clean energy systems
Primer: Sustainable urban transport
Primer: Waste and the circular economy
Primer: Green buildings
Section 4.
Call to Action
Section 5.
Private Sector Considerations for Policymakers
Consideration 1: High-level, cross-cutting
enabling environment factors
Consideration 2: Clean energy systems
Consideration 3: Sustainable urban transport
Consideration 4: Climate-smart water
and waste
Consideration 5: Green buildings
and streetlighting
Consideration 6: Sustainable land use

Energy storage
Investment in utility-scale energy storage is also needed
as variable renewables are added to power systems.
As penetration increases, adding storage smooths
renewables’ output by shifting power supply to betteralign with demand. Batteries and pumped hydro plants
can also provide ancillary services to shore up gridstability. That is all the more crucial when renewables
are added to small power systems with decrepit grids,
as is the case in many emerging markets.
When power fleets are dominated by large, flexiblehydro plants – common across equatorial swathes ofAsia, Africa, and Latin America – the case for extra
storage assets can be weaker. Pumped hydro projects
are primarily being developed in China, India being theother emerging market with a big pipeline (Figure 29).
These rely on concessional finance, with projects
increasingly built to integrate renewables. In many
regions, increasing droughts are a concern for bothlarge hydro and pumped storage, although the latteris generally more resilient to low rainfall.
Pumped hydro is a mature technology, and has storage
durations averaging 10.4 hours for new plants. Likelarge hydro, they cannot provide primary frequency
response, offering more limited ancillary services thanmost batteries. But in China, plants are built as part of
the transmission system for grid stability, and were oneof the factors that cut curtailment from 17.1% of wind
generation and 9.8% of solar in 2016, to 4% of windand 2% of solar in 2019. Long development times, highcapital costs, and difficult permitting have limited theirspread to other emerging markets.
In contrast, utility-scale battery projects typicallyprovide up to just four hours of storage today, although
this is increasing as battery prices fall. They have ahigher availability than pumped hydro, are betterat rapid response, and – crucially – are simpler tosite. Lithium-ion is the most promising technology.
Having plunged from $1,191/kWh to $137/kWh over
2010-2020, lithium-ion battery prices are expected tofall further to $45/kWh by 2035 (Figure 30). Costcompetitiveness and long lifetimes mean that lithiumion batteries are likely to be favored over the lead-acidtype used in many mini-grids. Hydrogen can also be
used for storage, but it lacks market maturity.

Private Sector Considerations for Policymakers

FIGURE 29:
Historical and forecast additions of pumped hydroprojects, 1960-2030
GW

86.4

35.0
14.1

33.9
21.7

19.3

55.9

30.8

10.2

18.1
10.2

15.7

14.7

17.3

7.6

1961-1970 1971-1980 1981-1990 1991-2000 2001-2010 2011-2020 2021-2030
Europe

U.S.

Japan

Australia

India

Rest of world

China

Source: BloombergNEF.

FIGURE 30:
Lithium-ion battery pack priceReal 2020 $/kWh
1,200

Observed
prices

1,000

18% learning
rate

800
600
2024 implied
price $92/kWh

4002030 implied
price $58/kWh
2035 implied
price $45/kWh

200
0
2010

2015

2020

2025

2030

Source: BloombergNEF.

Revenue models
Utility-scale batteries have seen little deployment outsiderich countries and China, but this is set to change
as costs fall. A central issue is that of remuneration.
Ancillary markets have played an important rolein incentivizing utility-scale battery build in many
countries, but are lacking in most of the developingworld. Meanwhile, a lack of wholesale power marketsmeans that operators are unable to engage in pricearbitrage. In many cases, battery build cannot bemerchant-based, and must be carried out by (often
state-owned) utilities, or procured through PPAs.

26

Section 1.
Preamble
Section 2.
The State of Energy Transition Financein Emerging Markets
Section 3.
The Role of Enabling Environments
in Low-Carbon Transition
Primer: High-level, cross-cutting enabling
environment factors
Primer: Clean energy systems
Primer: Sustainable urban transport

Many governments are looking to establish wholesaleor ancillary service markets, but the way to there is often
tortuous and opaque. The challenges are numerous:
power market reform is typically a slow process,requiring the development of technical expertise andmanaging the interest of the existing entities invested
in the sector. Saudi Arabia has been envisioning
establishing markets for electricity, capacity, balancing,
and ancillary services for over a decade; all could rewardbatteries. The latest incremental step was back in 2017,
when a single buyer was created to manage the country’s
electricity market. Little progress has been made since.

Primer: Waste and the circular economy

Offtake agreements

Primer: Green buildings

Israel shows how a country without such markets canprocure storage co-located with renewables. As an“energy island,” the country’s lack of interconnection
with neighbors makes integrating renewables achallenge. The regulator calls for 2GW/8GWh ofstorage to integrate the 12GW of PV it targets for 2030
(bringing renewables to 30% of power generation). As
a result, batteries were added to the PV auction scheme.
Two rounds were held over 2020, bringing the storage
pipeline to 3.3GWh, rivaling near-term utility-scalebuild in other markets across EMEA (Figure 31).

Section 4.
Call to Action
Section 5.
Private Sector Considerations for Policymakers
Consideration 1: High-level, cross-cutting
enabling environment factors
Consideration 2: Clean energy systems
Consideration 3: Sustainable urban transport
Consideration 4: Climate-smart water
and waste
Consideration 5: Green buildings
and streetlighting
Consideration 6: Sustainable land use

Developers got 23-year PPAs, with 609MW of PV andat least 2,435MWh of batteries tendered through thesecond auction. The latest auction cleared at $56/MWh,and no additional revenue stream was provided forbattery services. Clear regulations helped attract investors.
Operators must provide four hours of storage availability
for each megawatt of capacity, and the system operator
can request one cycle per day. However, the fact thatall but one of the successful bidders were Israeli points
to a significant local value chain, something that many
emerging markets lack.
One market looking to follow Israel’s example isSenegal. Adding renewables has reduced the country’s
reliance on costly diesel, a result of policy commitment
to renewables and donor support through programs like
Scaling Solar. In 2020, intermittent renewables leapt

Private Sector Considerations for Policymakers

FIGURE 31:
Utility-scale storage forecast in largest EMEA markets
MWh
5,154

IsraelU.K.
Ireland

2,400

2,388
561

2020

1,060

672

France
1,349

908

2021

2022

Germany
Italy
Iberia2023

Source: BloombergNEF.

to 30% of installed generation capacity, compared withless than 1% five years earlier. Coping with the sudden
influx of variable power has become a challenge forthe state utility, which has insufficient spinning reserve
to balance out output from the country’s solar andwind installations.
The government signed a memorandum of
understanding in June 2020 to procure lithium-ion
batteries totaling 30MW/60MWh, co-locating themwith the country’s 149MW wind farm, Senegal’s largest
intermittent renewables plant. The battery operator will
receive a fixed capacity charge to compensate its asset’s
ability to generate when dispatched – this is alreadywidespread in African large hydro or thermal PPAs
(which also include an energy charge remunerating
an agreed volume of generation).
Both the Israeli and Senegalese frameworks rewardbattery operators with simple tariff structures; thesewill attract finance where development risks are highand familiarity with battery technology low. Once
familiarity increases, projects could be developed
under more complex, and potentially more lucrative,
arrangements. These could procure distinct ancillary
services at different rates, opening the door to therevenue stacking envisaged by operators in various
developed markets.

27Section 1.
Preamble
Section 2.
The State of Energy Transition Financein Emerging Markets
Section 3.
The Role of Enabling Environments
in Low-Carbon Transition
Primer: High-level, cross-cutting enabling
environment factors
Primer: Clean energy systems
Primer: Sustainable urban transport
Primer: Waste and the circular economy
Primer: Green buildings
Section 4.
Call to Action
Section 5.
Private Sector Considerations for Policymakers
Consideration 1: High-level, cross-cutting
enabling environment factors
Consideration 2: Clean energy systems
Consideration 3: Sustainable urban transport
Consideration 4: Climate-smart water
and waste
Consideration 5: Green buildings
and streetlighting
Consideration 6: Sustainable land use

Distributed renewables
Renewables have a critical role to play in electrifying
the world’s population. Some 903 million people
remained without access to electricity in 2018, or 11%of the world’s population. That constitutes considerable
progress since 2010 (Figure 32). Off-grid solar
packs alongside the expansion of transmission grid
infrastructure in Asia explain much of that drop, but
strong population growth means the number without
access in sub-Saharan Africa has hardly budged.
Robust policies will be required for low-cost
electrification options to spread at scale. Progress needs
to accelerate if policymakers want to reach universal
energy access by 2030, a UN goal championed by many
governments. BNEF found that most countries withlarge off-grid populations had an electrification plan
(Figure 33). At their best, these are implemented bycompetent, empowered rural electrification agencies
that develop energy access roadmaps and typicallycoordinate the distribution of operating licences andsubsidy payments.
Electrification plans that outline the role oftechnologies like solar home systems and solar hybridmini-grids can send strong investment signals tomarket entrants. In 2018, Togo outlined the role ofsolar home systems, mini-grids, and grid connections
for over 3,000 communities distributed across thecountry. Access to a clear plan was viewed favorably
by investors, and helped attract capital to one of West
Africa’s fastest-growing mini-grid markets.
Countries that have seen a high penetration of mobile
pay-as-you-go services can provide a route to market
for solar home system retailers capable of powering
basic necessities. These are already widespread in East
Africa, and they will see rapid deployment in West
Africa in coming years. Yet such platforms are still
inaccessible in many markets: at the last count, mobile
pay-as-you-go was not widely available in 16 subSaharan African countries (Figure 34).

Private Sector Considerations for Policymakers

FIGURE 32:
Number of people who lack electricity access, by region
Population (Million people)

Rest of world
Asia

1,419

1,257

Sub-Saharan Africa

903
755

689
514

602

612

2005

2010

2018

Source: BloombergNEF, World Bank.

FIGURE 33:
Rural electrification program is under way, 2019
Country count36
No
Somewhat

8

Yes
10

9

9

7

APAC

LATAM

24

SSA

1
MENA

FIGURE 34:
Mobile pay-as-you-go services are widely available, 2019
Country count
36
No

7

Somewhat
Yes
11

25

SSA

9
2

5

6

APAC

LATAM

MENA

Source: BloombergNEF. Note: SSA = sub-Saharan Africa, APAC = Asia Pacific,
LATAM = Latin America, MENA = Middle East and North Africa.

28

Section 1.
Preamble
Section 2.
The State of Energy Transition Financein Emerging Markets
Section 3.
The Role of Enabling Environments
in Low-Carbon Transition
Primer: High-level, cross-cutting enabling
environment factors
Primer: Clean energy systems
Primer: Sustainable urban transport
Primer: Waste and the circular economy
Primer: Green buildings
Section 4.
Call to Action
Section 5.
Private Sector Considerations for Policymakers
Consideration 1: High-level, cross-cutting
enabling environment factors
Consideration 2: Clean energy systems
Consideration 3: Sustainable urban transport
Consideration 4: Climate-smart water
and waste
Consideration 5: Green buildings
and streetlighting
Consideration 6: Sustainable land use

Of the main electrification options, mini-grids arewhere supportive policies can make the biggest
difference. These can serve almost half the 238 million
households that need to gain electricity access.35 BNEF
estimates that achieving the UN’s universal accesstarget would require the number of households reachedby solar-hybrid mini-grids to grow from 185 million
households in the business-as-usual scenario to 238
million over 2020-2030 (Figure 35).
High upfront costs mean that capital investment would
have to increase by the same order, underlining the needfor extra subsidies (Figure 36). The electricity from solar
hybrid mini-grids remains expensive for many rural
customers who have limited ability to pay. Hence, it isimportant government explore the link between theeconomic potential of solar hybrid mini-grids and theeffect fossil fuel subsidies have on delaying the point at
which clean alternatives are cheaper.
Installing PV modules in mini-grids typically improves
their economics as compared with relying solely on
diesel. Governments would do well to support projectsites where there are large enough “anchor loads”
or a certain level of economic activity. This is because
boosting the utilization rate of the mini-grid leads
to a lower cost of electricity and higher average revenue
per user (Figure 37). Increased demand from typical
daytime economic activity cuts the overall cost ofelectricity as it aligns with the generation profilesof sun-powered PV systems.
Batteries can help cut costs. Coupled with PV systems,
they reduce the running time and cost of diesel generators.
Storage can allow developers to eschew diesel generators
altogether, cutting operating costs and avoiding potential
diesel theft. As with utility-scale batteries, the onus ison governments to design financing mechanisms thatincentivize their procurement for mini-grids.

FIGURE 35:
Electrification technology used, 2020-2030
Households reached (million)
238
Solar home systems

185

Mini-grids
Grid extensions

111
63
91

102

BAU

Universal
accessFIGURE 36:
Estimated capital expenditure by electrification
technology, 2020-2030
Capital expenditure ($ billion)
243
194

Solar home systems
Mini-grids

73

Grid extensions

69
128

72
53

42

BAU

Universal
access

Source: BloombergNEF. Note: BAU refers to business-as-usual.
Assumes all mini-grids are solar-hybrid systems.

FIGURE 37:
Correlation between utilization rate and averagerevenue per user
ARPU ($/connection/month)
12.0
Western Africa country B

10.0
8.0
6.0
4.0
2.0
10%

Southern Africa
Eastern Africa country B
Equatorial Africa

Western Africa country A

Eastern Africa country A

20%

30%

40%

50%

60%

70%

Utilization rate (%)
Source: Africa Minigrid Developers Association, Economic Consulting Associates.
Note: ARPU = Average Revenue Per User.

35“State of the Global Mini-grids Market Report 2020,” BloombergNEF for SE4All, July 1, 2020.

Private Sector Considerations for Policymakers

29Section 1.
Preamble
Section 2.
The State of Energy Transition Financein Emerging Markets
Section 3.
The Role of Enabling Environments
in Low-Carbon Transition
Primer: High-level, cross-cutting enabling
environment factors
Primer: Clean energy systems
Primer: Sustainable urban transport
Primer: Waste and the circular economy
Primer: Green buildings
Section 4.
Call to Action
Section 5.
Private Sector Considerations for Policymakers
Consideration 1: High-level, cross-cutting
enabling environment factors
Consideration 2: Clean energy systems
Consideration 3: Sustainable urban transport
Consideration 4: Climate-smart water
and waste
Consideration 5: Green buildings
and streetlighting
Consideration 6: Sustainable land use

Most mini-grids with storage use lead-acid batteries,
as these are more readily available and have a lower
upfront cost than viable alternative technologies.
However, increasing numbers are opting for lithiumion, as costs decline (Figure 38). Lithium-ion batteries’
market share in the mini-grid segment varies: it is 29%
in sub-Saharan Africa versus 19% in Asia.

Subsidy programs
Subsidies can come from government budgets, but
are often backed by donors. Multilaterals like theWorld Bank have played a role in backing a numberof emerging-market mini-grid programs. Gauging
the impact of policy interventions can be challenging;governments do not always disclose the results of minigrid tenders and other subsidy programs. How public
support is disbursed varies considerably, but many
approaches fit into two categories:36•	Upfront capital expenditure grants or loans covera portion of initial capital expenses, and can be
distributed through minimum-subsidy tenders.
Eight African countries launched such schemes
over 2019-2020. As experienced with utility-scale
renewables, auctions facilitate price discovery anddrive down costs – useful benefits given the sector’s
relative immaturity. However, developers complainthat taking part can be administratively burdensome.
•	Results-based financing, where sums are transferred
upon the completion of milestones, is usually simpler
to introduce. Developers and investors interviewed
by BNEF say they generally prefer results-based
financing programs because they are clear andefficient to implement. Importantly, such schemes
allow governments to rein in the subsidy burden
by determining how many connections to support.
Nigeria has set up a robust results-based grantframework.37 A World Bank-backed program involves
performance-based payments, providing $350 foreach new connection. The scheme restricts eligible
projects to solar hybrid mini-grids in off-grid regions.
Progress has been swift, with the first mini-grid online
in December 2019, a year after financing was secured.
That grants are made in U.S. dollars mitigates some ofthe performance risk that results-based financing shifts
to the private sector.

FIGURE 38:
Battery technologies used for installed mini-grids
Annual installations
50

44

40
30

26

28

60%
28%

10

14%

14%

2016

2017

100%
80%

32

28

20

32%

40%
20%

0%

2015
Lead-acid

Lithium-ion

2018
Other

2019
Lithium-ion
market share (%)

Source: BloombergNEF, Carbon Trust, GIZ.

Nigeria shows that one subsidy type need not exclude
the other: a minimum-subsidy tender was launched in
2019, targeting 250 sites. It aims to drive costs below
the $350-per-connection offered by the results-based
financing scheme. Widely viewed as bankable andeffective, Nigeria’s framework for financing mini-grids
could be replicated in other markets.

Tariffs and licenses
Some countries – such as India – allow mini-grids
to operate in a largely deregulated environment, but
most do not. Letting developers levy cost-reflective
tariffs reduces the need for subsidies, but they are often
limited by price caps or pegging retail rates to thoseof the main grid (and by what consumers can afford).
Regulators should ensure that cost-reflective rates are
kept in check, conducting periodic reviews against areference internal rate of return, or by estimating how
much replacing the generation asset would cost.
Investors are attracted where licencing is efficient andfair. For instance, Sierra Leone packs what would
typically amount to multiple licenses in a single permit,
cutting the number of administrative hoops requiredfor project permitting. Exempting the smallest projects
or those nearest the main grid creates opportunities
that would otherwise get passed by. More nuanced
regulations are emerging as the sector matures,
adapting documentation according to project size,
technology or location. These often simplify proceduresfor smaller or greener projects.

36“State of the Global Mini-grids Market Report 2020,” BloombergNEF for SE4All, July 1, 2020.

37

Nigeria country profile, Climatescope 2020, BloombergNEF.

Private Sector Considerations for Policymakers

Lithium-ion (% of new additions)30Section 1.
Preamble
Section 2.
The State of Energy Transition Financein Emerging Markets
Section 3.
The Role of Enabling Environments
in Low-Carbon Transition
Primer: High-level, cross-cutting enabling
environment factors
Primer: Clean energy systems
Primer: Sustainable urban transport

Grid arrival
Rules on the arrival of the main grid are alsoa concern for distributed clean energy project
developers. These mostly try to erect mini-grids thatare unlikely to be within connecting distance fromthe main grid over the coming decade, as such aconnection can wipe out an operator’s revenue stream.
However, not all countries make grid expansion planspublic (Figure 39). Worryingly, rules clarifying what
occurs upon grid arrival are lacking in more than halfof surveyed countries (Figure 40). That can result inuncompensated expropriation, the worst-case scenario.

Guaranteeing compensation is one solution, and it cantake many forms. For example, Senegal’s framework
is clear. When the grid arrives, the developer transfers
ownership of the mini-grid’s distribution assets to thestate utility in exchange for compensation reflecting
their value (Figure 41). Clear regulations offer investors
much-needed visibility, incentivizing the developmentof projects that would have been deemed too risky.
Many countries allow operators to continue to operate,by converting to small power producers or distributors.
Small power distributors purchase electricity from thestate-owned utility and sell it to local clients. On thePrimer: Waste and the circular economy
Primer: Green buildings
Section 4.
Call to Action
Section 5.
Private Sector Considerations for Policymakers
Consideration 1: High-level, cross-cutting
enabling environment factors

FIGURE 39:

FIGURE 40:

Potential mini-grid sites are specified by electrification
program, 2019

Mini-grid developers benefit from clear rules on arrivalof the main grid, 2019

Country countCountry count
37

37
No
25

Consideration 4: Climate-smart water
and waste

Somewhat

17

Yes
11

Consideration 2: Clean energy systems
Consideration 3: Sustainable urban transport

No

Somewhat

5

Yes

7

12

5

9
1

15

MENA

SSA

8

SSA

APAC

LATAM

Consideration 5: Green buildings
and streetlighting

Source: BloombergNEF.

Consideration 6: Sustainable land use

FIGURE 41:

2

6

7

APAC

LATAM

MENA

Source: BloombergNEF.

Example of options available to mini-grid operators upon grid arrival
SenegalNigeria1.

Mini-grid

1. Distribution assets
transferred to stateutility in exchange forcompensation

1.

Mini-grid

2.

3.

1. Distribution assets
transferred to
distribution company(DISCO) in exchange
for compensation
2. Operator becomesan SPP, transferring
distribution assets
while selling power
to the DISCO
3. Operator maintains
generation anddistribution assets
while selling to andbuying power fromthe DISCO

Source: BloombergNEF. Note: In Nigeria, should the mini-grid’s distribution assets be transferred to the DISCO, the mini-grid operator is free to relocate generation
assets. Senegal lacks detailed regulations regarding grid arrival, but in practice, compensation-backed expropriation has been carried out across the board.

Private Sector Considerations for Policymakers

31Section 1.
Preamble
Section 2.
The State of Energy Transition Financein Emerging Markets
Section 3.
The Role of Enabling Environments
in Low-Carbon Transition
Primer: High-level, cross-cutting enabling
environment factors

other hand, small power producers no longer sell power
directly to customers, but to the distribution company.
This is the case in Nigeria, for instance, where operators
can maintain their generation and distribution assets
while selling to (and buying power from) the local
distribution company (Figure 41).
Several models exist for calculating compensation. One
approach focuses on unrecovered costs from operations,

including those that would have been paid for throughelectricity sales or subsidies. Initial capital expenditure,such as that of generation units, might also be
included once accumulated depreciation is discounted.
Governments may also opt to pay developers for taking
over assets linked to distribution, but not generation.
In some cases, only larger generation assets may bedeemed worthy of compensation.

Primer: Clean energy systems
Primer: Sustainable urban transport
Primer: Waste and the circular economy
Primer: Green buildings
Section 4.
Call to Action
Section 5.
Private Sector Considerations for Policymakers
Consideration 1: High-level, cross-cutting
enabling environment factors
Consideration 2: Clean energy systems
Consideration 3: Sustainable urban transport
Consideration 4: Climate-smart water
and waste
Consideration 5: Green buildings
and streetlighting
Consideration 6: Sustainable land use

Private Sector Considerations for Policymakers

32Section 1.
Preamble
Section 2.
The State of Energy Transition Financein Emerging Markets
Section 3.
The Role of Enabling Environments
in Low-Carbon Transition
Primer: High-level, cross-cutting enabling
environment factors
Primer: Clean energy systems
Primer: Sustainable urban transport

The Policy Considerations inpractice – clean energy systems
As shown by the great variety of experience in thetransition to a low-carbon economy highlighted
across this report, it is clear that every country has its
own unique circumstances. Consequently, the Policy
Considerations are meant to be broad enough to offer
a menu of potential policy-change opportunities toall countries, regardless of their current investment
environment, opportunities for sustainableinfrastructure growth, or position on the path

to a low-carbon, resilient economy. This is especiallytrue in the clean energy sector, where rapid growthand innovation have created plenty of policy
challenges and opportunities from which to learn.
The diagram (Figure 42) and two country examples
below help better illustrate how the relevance of the
Policy Considerations evolves, depending on thelevel of power system decarbonization countries havereached and the wider socio-economic policy prioritiesof governments.

Primer: Waste and the circular economy
Primer: Green buildings
Section 4.
Call to Action
Section 5.
Private Sector Considerations for Policymakers
Consideration 1: High-level, cross-cutting
enabling environment factors
Consideration 2: Clean energy systems
Consideration 3: Sustainable urban transport
Consideration 4: Climate-smart water
and waste
Consideration 5: Green buildings
and streetlighting
Consideration 6: Sustainable land use

Applying the framework

Applying the framework

Country A

Country B

Context:
Country A is a small-sized, low-income country whose populationand economy are growing rapidly. This growth has also translated
into a rapidly growing power demand, but procurement of new
generation capacity and grid infrastructure rollout has happened
in a piecemeal and relatively uncoordinated fashion. Insufficientplanning and benchmarking has meant that conventional
generation technologies have been prioritised over cheaper clean
power options. Domestic financing capacity is limited; hence,
projects have tended to be carried and financed by international
players and sources of financing.

Context:
Country B is a medium-sized, lower-middle income country going
through a phase of sustained economic and demographic growth.
Energy demand has been growing rapidly across all sectors of
the economy. This growth has encouraged authorities to embark
on a large power generation fleet expansion program, which hasenabled substantial investment in clean and fossil fuel power
plants. As demand growth is levelling off, Country B is looking toraise its climate ambition and initiate a phase of decarbonizationof the country’s energy supply. The priorities of this next stageof the country energy sector plans are to improve distribution
capacity, attract more international investors, and increase local
value creation and retention.

Looking through the lens of the Policy Considerations:
Country A has the political will and economic outlook to support aclean energy investment drive. However, execution capacity in theenergy sector is lacking, and the country’s currency, while stable,
is not yet internationalized enough to ensure easy convertibility.
An important first step for Country A is to create - or enhancethe execution capacity of - its energy sector planning authority.
The authority will be able to assess the economic benefits ofadding clean power to the grid, design suitable incentives andprocurement mechanisms, and ensure that the country’s energy
strategy accounts for the importance of grid capacity and stability,
and that project permitting procedures are fit for a surge in activity.
Due to Country A’s relatively small experience with clean
energy projects to date, the rules of participation and project
specifications should ensure to maximize opportunities forinternational participation by limiting foreign ownershipand content restrictions and using standardized contracts.
The offtake will also typically need to be secured through aguarantee or other credit-enhancement measures, the level ofwhich can be reviewed as the market matures and developers
and investors become more comfortable.

Private Sector Considerations for Policymakers

Looking through the lens of the Policy Considerations:
The energy sector authority of Country B will need to expand its
capabilities to plan for the integration of more renewables andthe use of electricity in more sectors. The government’s strategy
to reduce energy sector emissions will benefit from cost-reflective
tariffs, which require fossil fuel subsidies to be removed. The
introduction of carbon pricing to give plant operators an incentive
to shift to renewables can also be explored. Tendering procedures
for new generation capacity can integrate increasingly stringent
sustainability criteria that will ensure that the best projects are
selected, and encourage international developers to introduce new,cleaner solutions to the market. The more rapid and larger scale ofrenewables deployment, combined with the closure of fossil fuelpower plants, may also require more community engagement.
An important part of meeting the government’s goal to attract moreinternational investors will be to make sure that foreign ownership
restrictions are minimized, and that the government’s strategy
provides clear evidence of future market-scaling opportunities.
As auctions gain traction, and the pool of assets benefiting of
stable investment incentives increased, activity on the secondary
market will follow and allow developers and primary investors tofree up some of their capital by selling assets.

33

FIGURE 42: Policy Considerations mapped for the clean energy sector
Enabling environmental factors for private climate finance in sustainable infrastructure
Focus on clean energy – selection of enabling environment factors for grid-connected clean energy

Cross-Cutting Enabling
Environmental Factors

Political will andexecution capacity

Economic outlook
and currency stability

Policy stability
and rule of law

Participation in global
climate action

Government sets low-carbon growth strategy
and wants to attract investment in clean energy

Initial Enabling
Environmental
Factors

Capable energy sector
planning authority*

Commitment to stableand predictable
investment incentives**

Financial market
depth and willingnessof local investors**
Foreign participation rules
should reflect domestic capacity

Assess investment requirement
and set policy incentives

Investment Enabling
Environmental Factors

Commitment tostandardized, enforceable
contracts**

Cost-reflective tariffs*

Sustainability criteria
used in tendering
procedure**

Limit foreign ownership
restrictions and local
content requirements**

Transparent and appropriate incentives
trigger investment

Project Development
Enabling Environmental
Factors

Integrated energy strategy
planning

Power grid capacity,
stability

Effective community
engagement

Clear and predictable
permitting andlicensing procedures

Preparedness andwillingness of grid operators
to intermittent power

Grid code tailoredfor variable
renewable energy

Assets in the real economy

Project Operation
Enabling Environment
Factors

Creditworthy or creditenhanced off-takers

PPAs incorporating
protections required byinternational markets

Gain of experience reduces costs of clean energy
and creates market scaling opportunities

Finance Mobilization
Enabling Environment
Factors

Market-scaling
opportunities

Legend:Most relevant energy sector enabling
environment factors for:Country A

Commitment to stableand predictable
investment incentives

Size of the market
and relevant deal flow

Market stability, size, and liquidity attract institutional
investors, enabling refinancing, freeing up capital for
new investments

Country B*Cross-Cutting Clean Energy**High-Level, Cross-Cutting Enabling Environment Factors

Source: CFLI.

34

Section 1.
Preamble
Section 2.
The State of Energy Transition Financein Emerging Markets
Section 3.
The Role of Enabling Environments
in Low-Carbon Transition
Primer: High-level, cross-cutting enabling
environment factors
Primer: Clean energy systems
Primer: Sustainable urban transport
Primer: Waste and the circular economy
Primer: Green buildings
Section 4.
Call to Action
Section 5.
Private Sector Considerations for Policymakers
Consideration 1: High-level, cross-cutting
enabling environment factors
Consideration 2: Clean energy systems
Consideration 3: Sustainable urban transport
Consideration 4: Climate-smart water
and waste
Consideration 5: Green buildings
and streetlighting
Consideration 6: Sustainable land use

Primer:Sustainable urban transport
Falling battery costs will largely happen off the back ofelectrified transport’s rapid growth and improvements
in technology. BNEF expects EV battery demand togrow almost 14-fold to 1.7TWh by 2030, by whichtime EVs are forecast to hit 28% of global passenger
vehicle sales.38 Policies favoring EVs are common inmuch of the developed world, but are rarer in emerging
markets, and lower spending power blunts the effectof upfront grant subsidies.

Two- and three-wheelers
Two-wheeler ownership is the main source of oil demandin some Asian markets, which also have the fastest growthtrajectories (Figure 45). That means that electrifying thesegment could make a sizeable dent in local pollution
levels. Also, many of the world’s most polluted cities areon the list of the largest two-wheeler markets.

The electrification of two- and three-wheelers has thepotential to change the face of urban transport in many
emerging markets in the nearer term. Some 30% of
global sales are already electric, with China accounting
for the bulk of the global fleet (Figure 43 and Figure44). Supportive policies, manufacturer interest, andimproving economics will propel the segment to rapid
growth. Already, several lower-income Asian markets
have seen an uptick in sales.

Policy has been the biggest driver of electric two- andthree-wheeler adoption in large markets like China,
India, and Taiwan. Here, national programs implement
policies such as upfront subsidies, registration waivers,
electric sales targets, or internal combustion engine(ICE) usage restrictions. Cities can also play a vitalrole. In China, the market first leapt in the late 1990s
and early 2000s when cities like Shanghai adopted salesbans on ICE motorcycles. Also helping the change
were exemptions from registration requirements, andFIGURE 43:

FIGURE 44:

Global two-wheeler sales

Global two-wheeler fleet by market

Million annual sales

Billion units

100

1.0

80
60

0.5

40
20
2010

2011

2012 2013

2014

2015

2016

2017

2018

2019

2010

2011

2012 2013

Africa & Mid-East

Europe

China

India

North America

South America

Indonesia

Rest of Asia

2014

2015

2016

2017

2018

2019

Source: BloombergNEF, China Association of Automobile Manufacturers, Society of Indian Automobile Manufacturers, Federation of Asian Motorcycle Industries,
European Association of Motorcycle Manufacturers, Abraciclo, U.S. Motorcycle Industry Council, MotorCyclesData, International Road Federation, news reports.

38“Electric Vehicle Outlook 2020,” BloombergNEF, May 19, 2020.

Private Sector Considerations for Policymakers

35

FIGURE 45:

Section 1.
PreambleTwo-wheeler adoption in selected markets, 2010-2019

Section 2.
The State of Energy Transition Financein Emerging Markets

Two-wheelers per 1,000 people
600

AfricaVietnam

Section 3.
The Role of Enabling Environments
in Low-Carbon Transition

500

Primer: High-level, cross-cutting enabling
environment factors

400South America
North America
Rest of Asia
Indonesia
India
Indonesia

China

Malaysia

Primer: Clean energy systems
Thailand300

Primer: Sustainable urban transport
Primer: Waste and the circular economy
Primer: Green buildings

India

Section 4.
Call to Action

100

Section 5.
Private Sector Considerations for Policymakers
Consideration 1: High-level, cross-cutting
enabling environment factors

China

Sri Lanka
200

Pakistan

Philippines

Peru

Egypt

EcuadorBrazilArgentina
Bubble legend:2019 data2010 data

Nigeria

Bangladesh$0Colombia

Paraguay
Guatemala$2,000$4,000$6,000$8,000

Mexico$10,000$12,000$14,000$16,000

GDP per capita

Source: BloombergNEF, United Nations, OECD, national governments, industry associations.

Consideration 2: Clean energy systems
Consideration 3: Sustainable urban transport
Consideration 4: Climate-smart water
and waste
Consideration 5: Green buildings
and streetlighting
Consideration 6: Sustainable land use

allowing electric motorcycles access to bicycle lanes.
Lastly, China has a fuel consumption and vehicle
emissions standard for two-wheelers.
India has focused its approach on financial incentives
for electric two- and three-wheelers.39 Two-wheelers arebacked by India’s $1.4 billion FAME 2 support program,which aims to subsidize over 1.6 million EVs by 2022,
including two-wheelers and public transport. The
program’s first iteration supported lead-acid batteries, but
FAME 2 only applies to units with lithium-ion batteries.
The scheme’s effectiveness, however, is hampered by low
disbursal rates, which probably reflect the fact that many
vehicle models are no longer eligible for subsidies under
the scheme.
Several Indian states have adopted supportive policies
at a regional level. For instance, Bihar wants to make all
motor tricycles electric by 2022, and Telengana wants
to support the retrofitting of non-electric rickshaws

39

and two-wheelers. Delhi, Maharashtra, Kerala, andUttarakhand have all passed their own targets andincentives. Meanwhile, India’s government think tank
was reportedly looking into requiring all 150cc-andunder two-wheelers to be electric from 2026 onward,
affecting 90% of the market. However, the government
appears to have shelved plans for legislation after
pushback from major motorcycle manufacturers.
Still, electric three-wheelers are highly popular in
India’s densely populated cities. Some 630,000 weresold domestically in 2019. Market activity underscores
the complementarity of public transport and EVs,
which provide last-mile connectivity. Local rail
operators are playing a leading role in facilitating the
deployment of e-rickshaws, in particular. For instance,
Delhi Metro Rail Corporation has plans to deploy over
250 EVs at its stations. Similar trends are visible incities like Kochi and Hyderabad.

“India Road Transport Electrification Outlook,” BloombergNEF, August 7, 2020.

Private Sector Considerations for Policymakers

36Consideration 3: Sustainable urban transport
Consideration 4: Climate-smart water
and waste
Consideration 5: Green buildings
and streetlighting
Consideration 6: Sustainable land use

In Thailand, local market growth owes much to thefact that plug-in hybrid models are priced closer tocomparable internal combustion-engine vehicles(Figure 47). Tax breaks and rebates favor EVs in several
markets, but none of them in the region offer direct

States with a draft EV policy
Subsidies for vehicles
Subsidies for charging stations
Incentives for manufacturing
Passenger EV deployment targets

Source: BloombergNEF, state energy departments, news articles. Note: Map isan ‘artistic vector rendering’ by 24Point0, published with that firm’s consent.

FIGURE 47:
Purchase price of electric and internal combustion passenger vehicles in Thailand$ thousand
284

300

249

232
182

200
Average

124
84

100
35
18

22

Small

54

92
86

76
98

73

53
25

Medium

Large

35
39

45

20

SUV

36

PHEV

Consideration 2: Clean energy systems

States with an approved EV policy

BEV

Consideration 1: High-level, cross-cutting
enabling environment factors

ICE

Section 5.
Private Sector Considerations for Policymakers

Southeast Asian countries have also taken the leadon electric-friendly policymaking, and provided
insights into its near-term limits when accelerating the
deployment of passenger EVs in emerging economies.
Indonesia, Malaysia, Singapore, and Thailand all havefederal-level targets for EV deployment and charging
infrastructure.40 A dearth of affordable models has heldback adoption in the past. However, passenger EV sales
grew more than fivefold over 2015-2019, with 94% of
those models sold in Thailand and Malaysia.

PHEV

Section 4.
Call to Action

India’s state-level policies for electric mobility

BEV

Primer: Green buildings

ICE

Primer: Waste and the circular economy

PHEV

Primer: Sustainable urban transport

ICE

Primer: Clean energy systems

PHEV

Primer: High-level, cross-cutting enabling
environment factors

ICE

Section 3.
The Role of Enabling Environments
in Low-Carbon Transition

FIGURE 46:

Regions and cities often step in to fill federal policy
gaps. For instance, 10 Indian states have introduced
broader EV policies, and seven others have released
draft regulations (Figure 46). Most plans areprioritizing the electrification of commercial and public
transport fleets. Four have offered purchase subsidies
for EVs, and have proposed subsidy programs for thepurchase of electric charging points. A number havealso announced incentives to attract EV component
manufacturers, offering reduced land costs, electricity
tax waivers, and other fiscal exemptions.

BEV

Section 2.
The State of Energy Transition Financein Emerging Markets

Passenger EVs

ICE

Section 1.
Preamble

MPV

Source: BloombergNEF, Zigwheels. Note: Vehicle prices are the average suggested retail price in Bangkok in November 2020. The range for internal combustion
engine vehicles shows the price for the best-selling models that made up 80% of sales in 2019. BEV = battery electric vehicle, ICE = internal combustion engine,
PHEV = plug-in hybrid electric vehicle, SUV = sports utility vehicle, MPV = multi-purpose vehicle.

40“E-Vehicle Policy and Market Landscape in Southeast Asia,” BloombergNEF, December 15, 2020.

Private Sector Considerations for Policymakers

37Section 1.
Preamble
Section 2.
The State of Energy Transition Financein Emerging Markets
Section 3.
The Role of Enabling Environments
in Low-Carbon Transition
Primer: High-level, cross-cutting enabling
environment factors
Primer: Clean energy systems
Primer: Sustainable urban transport
Primer: Waste and the circular economy
Primer: Green buildings
Section 4.
Call to Action
Section 5.
Private Sector Considerations for Policymakers

subsidies for EV purchase. As a result, the high priceof battery EVs will be a hurdle for further electrifying
the passenger segment over the next five years.
Governments are unlikely to be able to offer to close
the price gap, but the rising demand for small batteryelectric SUVs shows that other sectors have the potential
for growth.

Bus fleets
China accounts for 99% of the global electric bus
fleet, but sales growth in the country is slowing as big
cities begin to complete their fleet changeovers.41 The
deployment of so-called e-buses is now increasing
elsewhere, spurred on by improving economics andconcerns about urban air pollution. Municipal buses are
expected to electrify faster than any other segment ofroad transport, with e-buses making up over 67% of the
global bus fleet in 2040 according to EVO 2020, BNEF’s
long-term outlook for the electrification of transport.

Consideration 1: High-level, cross-cutting
enabling environment factors

Non-electric buses will continue to play a role. Diesel
and fuel-cell buses are expected to round out the restof the 2040 fleet in areas where installing charging
infrastructure is difficult, where temperatures are low,and near industrial clusters where hydrogen production
is being produced. Local incumbents may also favordifferent technologies.
In India, the federal government has approved subsidies
for 5,595 e-buses to be procured before March 2022.42
The tendering process for their procurement is ongoingin several states (Table 2). State transport departments
must procure buses under gross cost contracts whereby
bus operators are paid per kilometer of use. This could
help lighten the subsidy burden.
Some Indian states are going an extra mile. New bus
purchases in Gujarat, for instance, are eligible for
viability gap funding of 25 rupees ($0.34) per kilometer,
and Maharashtra offers a subsidy of 10% on e-buses’
base price. Such policies are starting to have an impact:
the electric share of 2019 bus sales was only 4%, but it
represents a nearly fivefold year-on-year increase.

Consideration 2: Clean energy systems
Consideration 3: Sustainable urban transport

TABLE 2:

Consideration 4: Climate-smart water
and wasteState level e-bus targets and incentives

Consideration 5: Green buildings
and streetlighting

State

Electrification target

Incentives

Consideration 6: Sustainable land use

Tamil Nadu

Replace 5% of ICE bus fleet with e-buses every year

Road tax and permit-fee exemption until 2022

Madhya Pradesh

By 2028, all public buses to be electricRoad tax and permit-fee exemption until 2023

Karnataka

1,000 e-buses on road by 2022

Road-tax exemption

KeralaBy 2025, all municipal buses to be electricRoad-tax exemption until 2022

Uttar Pradesh

1,000 e-buses on road by 2030

Road-tax exemption and 100% registration-fee exemption
on private purchase

Andhra Pradesh

By 2029, all municipal buses to be electricRoad-tax and registration-fee exemption until 2024

Maharashtra

n/a

10% subsidy on the purchase price of first 1,000 buses

Delhi

50% of new bus purchases to be electricRoad-tax and registration-fee exemption until 2022

Source: BloombergNEF, state transport department websites, and news articles. Note: Extent of tax/registration fee exemption is state-specific. Only states withdedicated state-level EV policies have been included.

41“Electric Vehicle Outlook 2020,” BloombergNEF, May 19, 2020.

42“India Road Transport Electrification Outlook,” BloombergNEF, August 7, 2020.

Private Sector Considerations for Policymakers

38Section 1.
Preamble
Section 2.
The State of Energy Transition Financein Emerging Markets
Section 3.
The Role of Enabling Environments
in Low-Carbon Transition
Primer: High-level, cross-cutting enabling
environment factors
Primer: Clean energy systems
Primer: Sustainable urban transport
Primer: Waste and the circular economy
Primer: Green buildings
Section 4.
Call to Action
Section 5.
Private Sector Considerations for Policymakers
Consideration 1: High-level, cross-cutting
enabling environment factors
Consideration 2: Clean energy systems
Consideration 3: Sustainable urban transport
Consideration 4: Climate-smart water
and waste

Primer:Waste and the circular economy
In line with the waste hierarchy (Figure 49), countries
that prioritize waste prevention, re-use, and recycling
perform better than those that merely dictate rules
around recovery and landfilling. Current circular
economy legislation suffers from weak implementation
measures, especially in emerging markets. Countries
with enforceable policies such as taxes and content
mandates tend to do better than those that only relyon “soft” targets where progress is slow.

The primary focus of the circular economy is to reduce
waste and prevent materials at the end of their useful life
from harming the environment (Figure 48). Governments
are moving to implement circular economy policies totackle plastic waste and make better use of resources. As
a result, public investment in recycling, waste reduction,and sustainable packaging has accelerated markedly inrecent years. Several important deals were signed in 2020,
including a $300 million loan facility put in place by the
Asian Development Bank targeting plastic recycling
in Southeast Asia, and Circulate Capital’s $19 million
funding for Indian waste management companies.43

Increasing the circularity of the global economy can play
an important role in reducing carbon emissions, withmaterials responsible for roughly 20% of worldwide
emissions. Reducing material demand by reusing as
much as possible avoids material production emissions,and making recycled materials typically has a lower
carbon footprint than new (virgin) equivalents. Recycledsteel generates 84% less emissions than new steel, andrecycling plastics typically saves 50-60% of greenhousegas output compared with virgin production.

BNEF tracked circular economy policies in 26
markets that together account for 88% of world GDP.
Typically, such policies cover landfilling, recycling, key
materials including plastic bags, and extended producer
responsibility schemes. Increasing globalization meansthat circular economy policies affect not only materials
sustainability but also international trade flows.

Consideration 5: Green buildings
and streetlighting
Consideration 6: Sustainable land use

FIGURE 48:

FIGURE 49:

Elements of a circular economy

Waste Hierarchy
Prevention

New material willalmost always beneededRe-useMake with clean
energy andsustainable
Use andmaterials
repair for
Design for
as long as
longevity, reuse,possibleand recyclability

Recyclechemicallyor physically

Recycling

Remanufacture partsor whole products toreturn to the suppy
chain

Recovery
Disposal

Recover
100% of waste

Sell a lower-value recycled
feedstock into a new market

Landfill biodegradable
or natural materials

Source: BloombergNEF.

43“4Q 2020 Advanced Materials Market Outlook,” BloombergNEF, October 12, 2020.

Private Sector Considerations for Policymakers

39Section 1.
Preamble
Section 2.
The State of Energy Transition Financein Emerging Markets
Section 3.
The Role of Enabling Environments
in Low-Carbon Transition
Primer: High-level, cross-cutting enabling
environment factors
Primer: Clean energy systems
Primer: Sustainable urban transport
Primer: Waste and the circular economy
Primer: Green buildings
Section 4.
Call to Action
Section 5.
Private Sector Considerations for Policymakers
Consideration 1: High-level, cross-cutting
enabling environment factors
Consideration 2: Clean energy systems
Consideration 3: Sustainable urban transport
Consideration 4: Climate-smart water
and waste
Consideration 5: Green buildings
and streetlighting
Consideration 6: Sustainable land use

Materials are one of the most difficult sectors todecarbonize, due to the requirements for hightemperature heat or petrochemical feedstocks in theirproduction. Through the internationalization of supply
chains, much of the new demand for raw materials is
located in rapidly growing emerging markets.
Most of the alternatives for primary production, such ashydrogen, bio-based feedstocks, and carbon capture andstorage, are early-stage, costly, or both. The recycling
industry is well-established for metals, plastics, glass,and paper, and can be the first step in driving down
emissions from industrial energy use. However, theemission reductions from recycling are currently
much smaller on an industry level than they are on akilogram-for-kilogram basis. This is because of a lackof available scrap. The largest application for steel isconstruction, where material is locked away for decades.
In BNEF’s assessment of G20 circular economy
policies, countries fall into three groups (Figure 50):
The top group comprises the first-movers – namely
smaller countries with limited space for landfill. Japan,
South Korea, and European nations were all early
adopters of waste reduction policies such as hightipping fees and extended producer responsibility
schemes. The EU, in particular, has already put
legislation in place – to ban single-use plastics, tocharge higher fees for packaging that is difficult torecycle, and to require a minimum recycled material
content of 30% in plastic bottles by 2030. These
countries have relatively high recycling rates, thanks
to long-running programs of public education andwidely available recycling infrastructure.
The middle group, including Canada, Australia, Mexico,and Turkey, has adopted some circular economy policies,
such as recycling targets or bans on single-use plastics,
but their policies are either not as comprehensive or not
as stringent as those in the first-mover category. In somecases, implementation is weak or lagging.

Private Sector Considerations for Policymakers

FIGURE 50:
Country scores – circular economy%
73%

South Korea
Japan

71%

France

71%

U.K.

70%

Italy

69%

Germany

67%

Canada53%

Australia

53%

Turkey53%

Mexico45%

Russia

36%

U.S.

33%

India

32%

Indonesia

30%

China

29%

South Africa

26%

Saudi Arabia

24%

Brazil22%

Argentina

21%

Source: BloombergNEF.

The countries with the lowest scores have only the mostbasic circular economy policies, as is the case in South
Africa and Saudi Arabia. Alternatively, they may haveambitious plans, but have not yet passed the legislation
to bring them into force, as in Indonesia, China, andArgentina. A common theme among countries withthe lowest scores is the lack of policy and guidance atthe national or federal level. Although waste policies areusually legislated locally, the absence of strong national
legislation can result in sporadic and inconsistent circular
economy policies. There are also economic concerns
in emerging economies, where governments can be
reluctant to put more stringent circular policies in place
to avoid impacting the competitiveness of industry.

40Section 1.
Preamble
Section 2.
The State of Energy Transition Financein Emerging Markets
Section 3.
The Role of Enabling Environments
in Low-Carbon Transition
Primer: High-level, cross-cutting enabling
environment factors
Primer: Clean energy systems
Primer: Sustainable urban transport
Primer: Waste and the circular economy
Primer: Green buildings
Section 4.
Call to Action
Section 5.
Private Sector Considerations for Policymakers
Consideration 1: High-level, cross-cutting
enabling environment factors
Consideration 2: Clean energy systems
Consideration 3: Sustainable urban transport
Consideration 4: Climate-smart water
and waste
Consideration 5: Green buildings
and streetlighting
Consideration 6: Sustainable land use

Primer:Green buildings
Energy demand from buildings is expected to continue
growing rapidly across emerging economies in the
coming decades, with markets outside of the U.S.,
Canada, and Europe representing 71% of global final
energy demand from buildings by 2050 (Figure 51).
This will be driven by growing populations, increasing
the need for energy in cooking and water heating – aswell as improved economic prosperity, which increases
the use of electronic appliances and air conditioners.
Unlocking investment in energy efficiency measuresin buildings, as well as in the installation of efficientand low-carbon heating and cooling systems andappliances, is therefore an increasingly importantcomponent of the transition in emerging markets.
The scaling of investment in the “greening” of buildingsin emerging markets must take into consideration
various factors. For example, end-use applications forenergy in buildings varies substantially between countries
and climate; the need for space heating in mild- andwarm-climate countries is relatively low compared withthat in cold-climate countries (Figure 52).
Compared to developed economies, the building stockin emerging markets is newer and continues to growalongside the population and economy. India and China
are due to see a massive growth in their building stockover the coming years, compared with a relatively flat
outlook for Europe. This makes regulatory standards
on new buildings in emerging markets a key driver ofinvestments, particularly those related to the materials
and construction of buildings and the carbon-intensityof energy supply.

FIGURE 51:
Global final energy demand from buildings
by region, 2000-2050
TWh50,000Rest of world

40,000

India
China

30,000U.S. & Canada
Europe20,00010,0002000

2025

Source: BloombergNEF New Energy Outlook 2020.

FIGURE 52:
Final energy demand for buildings by end-use in 2050,
and type of climate%
Cold Climate
Countries

Private Sector Considerations for Policymakers

45%

Moderate & WarmClimate Countries

30%

15%

Space heating

32%

38%

Water heating
Cooking16%

Air conditioning
Appliances

Source: BloombergNEF New Energy Outlook 2020, WRI.

FIGURE 53:
Production of district heating in 2015 by fuelsource, globally

Green heating and cooling
The fuel sources for space heating, hot water, and cooking
vary across the globe, but coal, oil, and natural gas still
provide the majority. Some emerging markets haveparticularly unique energy mixes for buildings, making
for distinct challenges for enabling private investment
to green heating supply. For example, district heating
networks are common in Russia, China, and some partsof Europe (Figure 53). These are often highly regulated
sectors that use large volumes of coal and gas, and haveseen very limited progress in decarbonizing to date.

2050

TWh
1,076

Russia
114

China
646

EuropeAsia Pacific44

North America

112

Rest of World

Coal
Gas
Oil
Nuclear
Waste
Geothermal
Biofuels
Solar Thermal
Other

Source: IEA statistics: Electricity and Heat, BloombergNEF.

41

Section 1.
Preamble
Section 2.
The State of Energy Transition Financein Emerging Markets
Section 3.
The Role of Enabling Environments
in Low-Carbon Transition
Primer: High-level, cross-cutting enabling
environment factors
Primer: Clean energy systems
Primer: Sustainable urban transport
Primer: Waste and the circular economy
Primer: Green buildings
Section 4.
Call to Action
Section 5.
Private Sector Considerations for Policymakers
Consideration 1: High-level, cross-cutting
enabling environment factors
Consideration 2: Clean energy systems
Consideration 3: Sustainable urban transport
Consideration 4: Climate-smart water
and waste
Consideration 5: Green buildings
and streetlighting
Consideration 6: Sustainable land use

Nonetheless, some authorities in emerging markets aretargeting buildings with individual heating and coolingsystems, setting ambitious goals. The Clean Heating Planin Northern China, for example, aims to remove all coaluse from homes in 2021 to improve air quality.44 This
will be achieved through a combination of mandated
connections to new gas networks and subsidies forhouseholds that wish to switch to cleaner heating units.
Due to the often costly nature of low-carbon heating
systems, these targets must be backed by meaningfulenabling policy measures, including financial instruments
and regulatory intervention, in order to be successful.
Cooling strategies can also help enable low-carbon andsustainable space cooling. Demand for cooling is expected
to increase rapidly across emerging markets as these
economies grow (Figure 54). India was the first country
globally to introduce a national cooling action plan.45 The
plan aims for a 20-25% cut in overall cooling demand,
as well as reducing cooling energy requirements by 2540% and refrigerant demand by 25-30%, by 2037-38.
China has since also adopted a cooling action plan, which
includes a goal for a 30% increase in air-conditioning unit
efficiency by 2022, and an overall improvement in coolingefficiency by 25% by 2030.46 The plans of both China andIndia contain policy recommendations for research anddevelopment, passive cooling programs like cool roofs, andenergy-efficiency labeling schemes. However, there arestill gaps in the necessary incentives that will be available
to deliver these goals.
FIGURE 54:
Total electricity consumption of air conditioners
by country
TWh
5,000
4,000
3,000
2,000
1,000

2010

2020

2030

2040

2050

Other

Indonesia

India

Japan

U.S.

China

Unlike heating, space cooling, lighting, and appliances
are almost always supplied by electricity. As a result,
their role in greening buildings is contingent on the
decarbonization of the power system, and on energy
efficiency. Efficiency policies can be designed to reduce
total demand by improving the insulation levels of thebuildings themselves or to improve the performance ofinstalled appliances/technologies. As highlighted in the
Policy Considerations, mandatory appliance and productstandards, as well as ensuring the transparency of energy
performance contracts, will be crucial for emerging
markets to unlock private investment in energy efficiency.

Energy efficiency in new buildings
Many countries have set in place plans, targets, andincentives to promote cleaner and more energy-efficientbuildings. BNEF tracked nine of the G20 countries(including Mexico and South Korea) with financial
incentives already in place – like grants, loans, andtax credits – to encourage energy efficiency retrofits.47
Mexico has a Green Mortgage program, which offers
credit at affordable rates to support investment in efficienttechnologies, based on the premise that lower future
utility bills put households in a better position to repay
larger loan balances.48 Such green mortgages are one toolthat can help to unlock investment in energy efficiency
measures for buildings, including as part of activities byenergy service companies.
However, the majority of the building stock in emerging
markets still lacks incentives for investment in energy
efficiency. BNEF tracked limited activity in Russia, Saudi
Arabia, Indonesia, and Argentina, for example. These
countries have some efficiency standards, but they have
implemented little by way of incentives. Despite this,some emerging markets are targeting new buildings withminimum energy performance standards and building
codes. Mexico and India have both introduced energy
efficiency measures based on their regional climates.
Mexico introduced standards in 2011 to improve theperformance of walls and roofs for new buildings.
India implemented an energy conservation buildingcode in 2019 for new residential buildings, focusing on
the performance of the building exterior, and energy
efficiency regulations for large new commercial buildings.

Source: BloombergNEF.
44“Clean Winter Heating Plan in Northern China,” Government of China, 2017.

45“India Cooling Action Plan,” Ministry of the Environment, Forest & Climate Change, March 2019.

46“Green and High-Efficiency Cooling Action Plan,” Government of China, July 13, 2019.

47“G20 Countries’ Climate Policies Fail to Make the Grade on Paris Promises,” BloombergNEF, February 1, 2021.

48“Green Mortgage Program INFONAVIT - Mexico,” INFONAVIT, undated.

Private Sector Considerations for Policymakers

42Section 1.
Preamble
Section 2.
The State of Energy Transition Financein Emerging Markets
Section 3.
The Role of Enabling Environments
in Low-Carbon Transition
Primer: High-level, cross-cutting enabling
environment factors
Primer: Clean energy systems
Primer: Sustainable urban transport
Primer: Waste and the circular economy
Primer: Green buildings
Section 4.
Call to Action
Section 5.
Private Sector Considerations for Policymakers
Consideration 1: High-level, cross-cutting
enabling environment factors
Consideration 2: Clean energy systems
Consideration 3: Sustainable urban transport
Consideration 4: Climate-smart water
and waste
Consideration 5: Green buildings
and streetlighting

Section 4. Call to Action
Trends in energy transition investment and sustainablefinance and commitments to ambitious reductions inemissions across governments and the private sector,
all highlight that there is an unprecedented momentum
behind the transition to a low-carbon economy. A numberof emerging markets are already seizing this opportunity,
but the risks of seeing lower-income economies fall
further behind are also increasing. Most emerging
economies do not have the budgetary space to deploy
the kind of economic stimulus that countries and regions
like China, the U.S. and the EU launched in response to
COVID-19. This unprecedented mobilization of publicresources is set to benefit sustainable investments beyond
the power sector, with clean transportation, heating,energy efficiency, and hydrogen, all key focuses ofstimulus packages. These sectors do not yet benefit fromthe experience, scale, and cost declines needed to makethem ubiquitous across the developing world.
Still, the examples highlighted in the previous section
show that many emerging markets have been able
to attract investors to sustainable infrastructure byintroducing strong and innovative enabling policies.
These often were the first of their kind, and werelater adopted in other developed and developing
economies. Importantly, governments have been able
to design enabling policy packages that help leverage
limited public resources to attract considerably larger
volumes of private sector investment. In essence, theseexperiences add up to a constantly improving publicprivate partnership toolbox that can help governments
around the world design their transition strategies,
while taking into account the socioeconomic context
in their country.
The “Private Sector Considerations for Policymakers”
detailed in the next section reflect the experience ofinvestors that have deployed billions in investment tosustainable infrastructure across developing countries.
That experience shows that when climate leadership in
emerging markets is combined with the right mix ofpolicy enhancement and commitment by the private
sector, a thriving market for clean technologies canemerge rapidly. Policymakers have an unprecedented
opportunity to put in place the enabling environmentsthat can deliver a rapid recovery, and more sustainableeconomic growth and contribute to meeting the goals
set out in the Paris Agreement.

Consideration 6: Sustainable land use

Private Sector Considerations for Policymakers

43Section 1.
Preamble
Section 2.
The State of Energy Transition Financein Emerging Markets
Section 3.
The Role of Enabling Environments
in Low-Carbon Transition
Primer: High-level, cross-cutting enabling
environment factors
Primer: Clean energy systems
Primer: Sustainable urban transport
Primer: Waste and the circular economy
Primer: Green buildings
Section 4.
Call to Action

Section 5. Private Sector
Considerations for Policymakers
The Climate Finance Leadership Initiative (CFLI)—in partnership with the Association ofEuropean Development Finance Institutions (EDFI), and the Global Infrastructure Facility(GIF)—have set out to raise the profile of enabling environment priorities and to gather
industry perspectives on collective challenges. The resulting Private Sector Considerations
for Policymakers (the “Policy Considerations”) highlight broad, cross-cutting enabling
environment factors, as well as sector-specific factors in clean energy systems, sustainableurban transport, climate-smart water and waste, green buildings and streetlighting, andsustainable land use. We hope that this will serve as a starting point for productive publicprivate dialogue on strengthening enabling environments for private climate finance.

Section 5.
Private Sector Considerations for Policymakers
Consideration 1: High-level, cross-cutting
enabling environment factors
Consideration 2: Clean energy systems
Consideration 3: Sustainable urban transport
Consideration 4: Climate-smart water
and waste
Consideration 5: Green buildings
and streetlighting
Consideration 6: Sustainable land use

Private Sector Considerations for Policymakers

44Section 1.
Preamble
Section 2.
The State of Energy Transition Financein Emerging Markets
Section 3.
The Role of Enabling Environments
in Low-Carbon Transition
Primer: High-level, cross-cutting enabling
environment factors
Primer: Clean energy systems
Primer: Sustainable urban transport
Primer: Waste and the circular economy
Primer: Green buildings
Section 4.
Call to Action
Section 5.
Private Sector Considerations for Policymakers
Consideration 1: High-level, cross-cutting
enabling environment factors
Consideration 2: Clean energy systems
Consideration 3: Sustainable urban transport
Consideration 4: Climate-smart water
and waste
Consideration 5: Green buildings
and streetlighting

Consideration 1:
High-level, cross-cutting enabling
environment factors
Creating investment-friendly business environments andstrong pipelines of bankable sustainable infrastructure
opportunities requires an approach tailored to eachcountry and sector, as each market has its own diverse
economic, legal, political, and financial circumstances.
There are, however, a set of enabling environment
factors that cut across sectors and require whole-ofgovernment and whole-of-industry efforts to address.
Clear climate and sustainable infrastructure targets,backed by multi-level, integrated, systems planning
across sectors provide investors with certainty anda clear roadmap when planning for a long-term
commitment to a market. Well-developed local
financial markets with experience in sustainableinfrastructure can expedite investors looking to support
local companies, projects, and developers. Transparent
taxonomies and standardization of contracts insustainable infrastructure sectors can help facilitate
capital markets solutions.

Consideration 6: Sustainable land use

Private Sector Considerations for Policymakers

These and other Policy Considerations presented below
can be enormously challenging to address. Still, we
present these factors here as they represent some of themost oft-cited considerations of investors looking todeploy capital in emerging markets. We also recognizethat governments are fully aware of, and actively
working to address, many of these high-level issues,
such as stability among macroeconomics, currency,
politics, and law.
These High-Level, Cross-Cutting Enabling Environment
Factors Policy Considerations are by no means aprescriptive set of expected policy changes or mandatory
investment criteria that must be implemented to attract
private climate finance. They are presented only as astarting point for productive public-private dialogue
on strengthening enabling environments with the goalof mobilizing private climate finance for low-carbon,
climate-resilient development in emerging markets
aligned with the Sustainable Development Goals (SDG)
and the Paris Agreement.

45Section 1.
Preamble

Macroeconomic stability and economic
growth prospects

Section 2.
The State of Energy Transition Financein Emerging Markets

Sound macroeconomic policies to drive broad-based
growth and to manage inflation and interest rates
provide investors with broad assurance of the financial
sustainability of their investments. Strong government
institutions, with a track record of good governanceand the commitment and capacity to provide stable
macroeconomic management, are also a major factor.
As governments work to stimulate their economies in
the wake of the COVID-19 pandemic, commitment
to structural reforms can help bring investors on board
with recovery plans. Investors also seek reliable dataon the macroeconomic state of the economy (banking
sector health, employment numbers, census data, etc.)
to support their own reporting requirements.

Section 3.
The Role of Enabling Environments
in Low-Carbon Transition
Primer: High-level, cross-cutting enabling
environment factors
Primer: Clean energy systems
Primer: Sustainable urban transport
Primer: Waste and the circular economy
Primer: Green buildings
Section 4.
Call to Action
Section 5.
Private Sector Considerations for Policymakers
Consideration 1: High-level, cross-cutting
enabling environment factors
Consideration 2: Clean energy systems
Consideration 3: Sustainable urban transport
Consideration 4: Climate-smart water
and waste
Consideration 5: Green buildings
and streetlighting
Consideration 6: Sustainable land use

Currency stability
Exchange rate risk is a key consideration forinternational investors. Investors will either look fora historically stable exchange rate, income indexation
to a hard currency, or a market that enables affordable
hedging of foreign exchange risk. Mismatches between
the currency denomination of project costs, including
financing, and the denomination of its revenue
present extra risks to investors when neither local nor
international markets provide instruments needed tohedge those risks in sufficient size and tenor, and at
a reasonable cost. This is particularly problematic incountries where significant current account deficits
leave those currencies vulnerable to devaluation.
Therefore, the ability to denominate project revenues
in a hard currency is an important advantage, thoughpartial conversion structures and hedging instruments
can also help to develop the market.

Private Sector Considerations for Policymakers

Policy stability and rule of law
Political risks, such as expropriation, sovereign
breach of contract, and foreign exchange controls, arecritical considerations for investors. In addition, thepredictability, credibility, and reliability of rules andregulations, including investor and creditor protections,and the ability to repatriate capital, are crucial. The riskof policy delays, reversals, or renegotiations are among
the biggest concerns for international investors indeveloping countries, particularly when such policies
can be altered legally with ease or not enforced bygovernment agencies or the judiciary. These risks canonly be partially covered through international politicalrisk insurance, which adds to transaction costs.

Multi-level, integrated, systems planning
Building a sustainable and resilient economy requires
coordinated government planning across sectors,
across the asset life cycle, and involving both local andnational governments. Publicly available plans that aredeveloped with private sector and civil society input canboost investor confidence in projects that align withpriorities. Integrated and spatial systems planning thatconsiders ecosystem services can protect and enhancethe value of infrastructure investments, and help spurdemand for more climate-friendly infrastructure.
Governments send strong signals to the market about
their long-term commitment to low-carbon, climateresilient development by setting renewable energy andemission reduction targets, and implementing energy
efficiency standards. This commitment is also conveyed
when integrating climate adaptation into infrastructure
planning by adopting international standards on
climate-resilient infrastructure, including building
codes, design standards, and disaster risk management
guidelines. Furthermore, investors are keen to see
governments increase the ambition of their Nationally
Determined Contributions (NDCs) and demonstratea path to achieving them by linking those NDCs tonational development strategies and budget processes.

46

Section 1.
PreambleGovernment commitment to stableand predictable investment incentives

Financial market depth and willingnessof local investors

Section 2.
The State of Energy Transition Financein Emerging Markets

In addition to strong statements of government support
for private investment in sustainable infrastructure,a variety of incentives may signal a favorable businessenvironment for businesses, developers, and investors.
These signals may include, among others, long-termfavorable financing options, direct support for project
development through grants, tax incentives, andpreferential treatment on import duties for components
of low-carbon systems.

The existence of local bank and capital markets thatcan provide financial services, such as currency andinterest rate swaps, access to listed markets, and evensupport for a local green bond market and sustainableinfrastructure debt funds, are valuable for international
investors. The challenge of limited local debt andequity markets, such as the lack of long-term, fixed
rate non-recourse debt, limits options for someinternational investors. The willingness and abilityof local investors (pensions, sovereign wealth funds,
national development banks, developers, financial
institutions, etc.) to invest alongside international
investors is important in garnering local support,
execution capacity, and alignment of interests. National
regulatory bodies may need to review financial sector
and investment laws, including, but not limited to,
local pension fund and insurance company investment
guidelines, in order to allow these entities to invest in
infrastructure debt and equity.

Section 3.
The Role of Enabling Environments
in Low-Carbon Transition
Primer: High-level, cross-cutting enabling
environment factors
Primer: Clean energy systems
Primer: Sustainable urban transport
Primer: Waste and the circular economy
Primer: Green buildings
Section 4.
Call to Action
Section 5.
Private Sector Considerations for Policymakers
Consideration 1: High-level, cross-cutting
enabling environment factors
Consideration 2: Clean energy systems
Consideration 3: Sustainable urban transport
Consideration 4: Climate-smart water
and waste
Consideration 5: Green buildings
and streetlighting
Consideration 6: Sustainable land use

Political will and execution capacity
Strong policy support along with clear rules andregulations are important, but equally important is thegovernment’s willingness, experience, and technicalcapacity to implement and enforce those policies. In
addition, many developing countries have little experienceengaging with cross-border investors or with negotiatingand executing international commercial agreements.
The ability of the government to create robust, bankablepipelines of low-carbon, climate-resilient investment
opportunities that are attractive to private capital are key
to encouraging investors to a country.

Procurement regimes to attract
private investment
Across emerging markets, public-private partnerships(PPPs) can be a positive mechanism to attract
private finance in many sectors. Strong PPP policy
and regulatory frameworks coupled with effective
institutional capacity for PPPs, including by wellorganized roles and responsibilities among government
ministries, are essential to attract private investment.
E-procurement platforms show promise in terms ofincreasing transparency of procurement. Contract
standardization and bundling of smaller projects intolarger investment programs can also be more attractive
to private finance. In addition to appropriate risksharing between government and the private sector,
public obligations in PPPs, such as viability gap
funding, project revenue support, or other support
mechanisms, as well as termination payments, must be
regarded as credible to garner private interest.

Private Sector Considerations for Policymakers

Fewer foreign ownership restrictions
and local content requirements
In some jurisdictions, foreign investment is limited tominority stakes, whereas cross-border investors may
seek ownership control. The limited availability of wellcapitalized local partners with relevant experience canbe a barrier to developing a successful project. Similarly,
restrictive local content requirements, if they materiallyimpinge on the quality or economics of the project, canstymie investment.

Clear and predictable licensing
and permitting procedures
The assurance that necessary licenses and permits will
be awarded based on fair, efficient, and predictableprocesses is crucial to project developers and investors.
Establishing and digitizing land titles in markets wheretraditional land tenure is practiced is especially importantand can often be very costly and time consuming,
contributing to the uncertainty that is so problematicfor investors. In some countries, governments seek tofacilitate permitting processes through special units
supported by technology. These practices provide positive
signals to investors that such processes are streamlined.

47

Section 1.
PreambleStandardization and enforceabilityof contracts

Strong anti-corruption and transparency
measures

Section 2.
The State of Energy Transition Financein Emerging Markets

Corruption risks remain prevalent in many countries
and sectors where private investment is most needed.
Strong programs to prevent corruption and enable
greater transparency and accountability help to ensurethat public spending will not be abused in the form ofpolicy capture, undue influence, creative accounting orreporting, and the mismanagement, embezzlement or
misappropriation of public resources. Ensuring thatprojects are awarded in a transparent and a competitive
way is also key to mitigating corruption risk. Investors
are very sensitive to any corruption-related disputesthat arise once a project’s financing is in place, and clear
mechanisms for fair and transparent dispute resolution
are very important to them.

Section 5.
Private Sector Considerations for Policymakers

For most transactions and, particularly for infrastructure
projects, standardized contracts that reflect internationalcommon practice on key bankability dimensions can
reduce transaction costs and shorten the timeline
between award and commercial/financial close. Somestandard contract features include change in law,force majeure, termination and associated payments,
step-in rights, arbitration, and dispute resolution.
Standardization also facilitates the development ofbankable project pipelines. In more developed markets,
standardized contracts can facilitate bundling andaggregation, which is especially critical for institutional
investors that may not consider project-level investments
or be able to carry out due diligence on bespoke
financing structures. Enforceability of any contract
in a timely manner in local courts is a fundamental
consideration for investors.

Consideration 1: High-level, cross-cutting
enabling environment factors

Effective community engagement

Consideration 2: Clean energy systems

Ensuring that local communities are consulted effectively
and are engaged throughout the project life cycle isimportant to the success of a sustainable infrastructure
project. While developers and lenders must conduct theirown community engagement, governments can help
by taking an active role in early infrastructure planning,prioritization, and preparation stages, as well as facilitating
community engagement at the regional and local levels
throughout the project’s life cycle.

Given increasing recognition by investors thatenvironmental, social, and governance (ESG) factors
can carry significant risk to infrastructure assets andcan impact financial returns, investors increasingly
incorporate ESG criteria into investment decisions.
In addition, institutional investors face increasingpressure from their respective regulators to incorporate
sustainability factors into investment decisions.
Therefore, governments that make concerted efforts toinclude ESG, including climate and other sustainability
factors in national policies and sector development
plans, upstream project preparation, and tendering andprocurement for infrastructure, can send positive signals
to attract greater levels of private investment.

Section 3.
The Role of Enabling Environments
in Low-Carbon Transition
Primer: High-level, cross-cutting enabling
environment factors
Primer: Clean energy systems
Primer: Sustainable urban transport
Primer: Waste and the circular economy
Primer: Green buildings
Section 4.
Call to Action

Consideration 3: Sustainable urban transport
Consideration 4: Climate-smart water
and waste
Consideration 5: Green buildings
and streetlighting
Consideration 6: Sustainable land use

Private Sector Considerations for Policymakers

Government use of sustainability criteria toraise the bar in tendering and procurement

48

Section 1.
Preamble
Section 2.
The State of Energy Transition Financein Emerging Markets
Section 3.
The Role of Enabling Environments
in Low-Carbon Transition
Primer: High-level, cross-cutting enabling
environment factors
Primer: Clean energy systems
Primer: Sustainable urban transport
Primer: Waste and the circular economy
Primer: Green buildings
Section 4.
Call to Action
Section 5.
Private Sector Considerations for Policymakers
Consideration 1: High-level, cross-cutting
enabling environment factors
Consideration 2: Clean energy systems
Consideration 3: Sustainable urban transport
Consideration 4: Climate-smart water
and waste

Consideration 2:
Clean energy systems
The Policy Considerations for investments in clean
energy systems address, first, the enabling environment
factors that affect the whole energy sector, and second,on factors specific to grid-connected renewable energy,
distributed renewable energy, power grid infrastructure,and energy storage investments.
Conditions for private financing of clean energy
systems are, in general, the most developed of all
sustainable infrastructure sectors, although thismostly pertains to policies facilitating investment in
grid-connected renewables. The toolbox of solutions
that have helped to propel some emerging markets
to the top ranks of global clean energy investment
destinations includes the following: stable clean energy
targets, auctions that award cost-covering tariffs, tax
incentives, a power-generation sector open to private
participation, and transparent and robust payment
agreements that recognize local currency dynamics.

Following, we outline a set of related high-level andsub-sector-specific factors that investors often review
in determining which clean energy markets, companies,
and projects in which to invest. These factors reflect
our experience as investors that have deployed billions
in clean energy over the past decade. Our experience
also shows that, when considering which policy tools
to deploy, it is crucial to recognize that each country
and sector will require a unique and evolving mix ofenabling policies over time.
As such, the following Clean Energy Systems Policy
Considerations are not meant to be prescriptive,
but rather to catalyze the country- and sector-specificdiscussion, and debate, and to further action that isneeded to strengthen enabling environments forprivate capital.

Consideration 5: Green buildings
and streetlighting
Consideration 6: Sustainable land use

Private Sector Considerations for Policymakers

49Section 1.
Preamble

Cross-Cutting Clean Energy

Section 2.
The State of Energy Transition Financein Emerging Markets

Capable energy sector authority to advancean integrated energy sector strategy

Section 3.
The Role of Enabling Environments
in Low-Carbon Transition
Primer: High-level, cross-cutting enabling
environment factors
Primer: Clean energy systems
Primer: Sustainable urban transport
Primer: Waste and the circular economy
Primer: Green buildings
Section 4.
Call to Action
Section 5.
Private Sector Considerations for Policymakers
Consideration 1: High-level, cross-cutting
enabling environment factors
Consideration 2: Clean energy systems
Consideration 3: Sustainable urban transport
Consideration 4: Climate-smart water
and waste
Consideration 5: Green buildings
and streetlighting
Consideration 6: Sustainable land use

A capable and empowered energy sector authority
is key to setting, coordinating, and executing an
integrated sector strategy. Strong master energy
sector plans include supply and demand scenariosand planning assumptions, reflecting an integrated
approach that includes grid-connected power and arange of distributed power sources. Such a plan helps
to clarify investment needs and priorities acrosssegments of the energy sector. Energy sector regulatorsthat are independent and possess the technicalcapacity to set a regulatory framework will protect
against curtailment and arbitrary government action.
Regulators need the authority to negotiate, structure,
implement, monitor, and enforce agreements, policies,and regulations in a consistent manner. This includes
overseeing predictable, transparent, and regular auction
processes for new projects, upholding fair dispatch
systems that are based on actual marginal costs, andmaintaining clear, stable, and efficient licensing andpermitting processes.

Cost-reflective energy tariffs
Crucial to enabling private investment is ensuringthat power generators can charge the necessary costreflective tariffs differentiated for grid-connected andvarious forms of distributed renewable energy. In manycases, this will require the removal of energy subsidies
for the incumbent fossil fuel industry such that retailenergy prices may rise to reflect their true costs. An
open access framework to network infrastructure isalso a critical element in creating a level playing field.
An integrated clean energy system will likely requiredifferent tariffs and potentially different subsidies.
In the case of mini-grids, it may mean granting local
providers of electricity the autonomy to sell power at
potentially higher rates than those offered by stateoperated utilities.

Private Sector Considerations for Policymakers

Market-scaling opportunities
Governments can help scale market development andattract investment over time by supporting greater
standardization of power purchase agreements (PPAs)
and by helping to create opportunities to aggregate
and pool smaller investments for investors within
their countries. Looking internationally, national
governments can enable cross-border energy tradeby creating regional power pools that can help scaleregional energy markets, attract capital, and augmentsupply and distribution of energy. In addition,
government efforts to encourage digitalization andmake data and power grid information more accessible
and transparent can help accelerate the implementationof these Policy Considerations.

Grid-Connected Renewable Energy
Power purchase agreements incorporating
protections required by international markets
Power purchase agreements (PPAs) must be of
sufficient duration to match the tenor of financing
required. International private sector lenders also often
require that offtake payments are denominated in orindexed to dollars or euros, which can be challenging
for offtakers whose income is in local currency.
Additional elements typically required by private
lenders include the following: agreement to settle any
disputes in a neutral, offshore location; termination
payments that cover outstanding debt, interest, andequity and that apply also in the event of a force
majeure; step-in rights; and other standard protections
for the developer and its lenders.

50Section 1.
Preamble
Section 2.
The State of Energy Transition Financein Emerging Markets
Section 3.
The Role of Enabling Environments
in Low-Carbon Transition
Primer: High-level, cross-cutting enabling
environment factors
Primer: Clean energy systems
Primer: Sustainable urban transport
Primer: Waste and the circular economy
Primer: Green buildings
Section 4.
Call to Action
Section 5.
Private Sector Considerations for Policymakers
Consideration 1: High-level, cross-cutting
enabling environment factors
Consideration 2: Clean energy systems
Consideration 3: Sustainable urban transport
Consideration 4: Climate-smart water
and waste
Consideration 5: Green buildings
and streetlighting
Consideration 6: Sustainable land use

Creditworthy or credit-enhanced offtakers
In many countries, the offtaker is a government-owned
utility that may require credit enhancement to support
its payment obligations to the power producer. Support
may come in different forms, including partial or fullguarantees, liquidity facilities, and laws assuring funding
for the electricity sector. The stronger the PPA, the more
likely the investor and lender will accept something lessthan a full sovereign guarantee. Any sovereign support
must be within debt capacity limits or will be discounted
by investors. The level and scope of credit support needed
is determined on a case-by-case basis depending on
the creditworthiness of the offtaker, financial conditionof the sector, affordability of service, track record,
investor confidence in the country, and other terms andconditions of the PPA, such as termination price. A
sovereign’s track record in honoring its guarantees will,of course, be a consideration as well.

Power grid capacity, stability, andwillingness of grid operators to handle
intermittent power
In many countries, the national power grid has limited
capacity to absorb new power and is not equipped
to handle the intermittent power that is generated
by most renewable energy sources. This can result
in renewable energy plants being required to reduce
their production, often without compensation for suchcurtailment. To facilitate power grid development,
clear government planning is needed regarding
necessary grid improvements, completion dates, andthe relation between those grid improvements andproposed renewable energy projects. Safeguarding
investors against the risk of the energy losses due
to an inability to evacuate power produced is an
important consideration.

Private Sector Considerations for Policymakers

Distributed Renewable Energy
Integration of off-grid energy solutions
within national energy access strategies
In most countries without universal access to power,
distributed renewable energy solutions – including
dedicated commercial and industrial systems, solar
home systems, and mini-grids – are highly beneficial
and as integral to national energy plans. Governments
can develop the market for full energy access acrossurban, peri-urban, and rural areas by developing tiered
and integrated policies, regulations, and incentives
based on different energy solutions, paving the way
for attracting international investment. Effective plans
often include an assessment of the areas that would be
best served by distributed renewable solutions, both at
the small-scale and large-scale industry levels, and at
the household level. Establishing a rural electrification
or dedicated agency to oversee the execution of the
distributed renewable energy strategy can help toelevate these off-grid solutions and their incorporationin broader energy plans. Mini-grids can be made morescalable through standardization of contracts.

Support for expansion and integrationof commercial & industrial power
Commercial & industrial (C&I) renewable energy
projects are increasingly attractive to corporate
consumers as they provide dedicated green power tomeet corporate decarbonization objectives and canlead to reductions in operational costs. C&I energy
providers may use the grid to supply their industrial
consumers or may use direct, dedicated connections.
In either case, by encouraging the expansion ofthis growing sector through supportive regulation,
governments can accelerate national energy transition
goals. In addition, governments can support wider
energy access goals by exploring these and other newmodels to provide additional power and to support
underserved areas.

51Section 1.
Preamble
Section 2.
The State of Energy Transition Financein Emerging Markets
Section 3.
The Role of Enabling Environments
in Low-Carbon Transition
Primer: High-level, cross-cutting enabling
environment factors
Primer: Clean energy systems
Primer: Sustainable urban transport
Primer: Waste and the circular economy
Primer: Green buildings
Section 4.
Call to Action
Section 5.
Private Sector Considerations for Policymakers
Consideration 1: High-level, cross-cutting
enabling environment factors
Consideration 2: Clean energy systems
Consideration 3: Sustainable urban transport
Consideration 4: Climate-smart water
and waste
Consideration 5: Green buildings
and streetlighting
Consideration 6: Sustainable land use

Enabling mobile payment regulations
Mobile payment systems are a key building blockfor the development of pay-as-you-go solar energy
and energy storage. The growth of this model canbe attributed to the development of mobile money
technology that allows households to make small, daily
payments to repay loans taken to acquire their solar
home systems. Governments that advance favorable
policy frameworks for the development of mobile
payment infrastructure will not only expand accessto credit, savings, and other financial tools to theirconstituents, but also pave the way for cost-effective,
rapid buildout of off-grid energy solutions.

Compensation plans for mini-grid
operators upon the arrival of the main
grid to a community
Compensation plans provide reassurances to minigrid permit holders that their investment will beprotected if and when the main energy grid is extended
to a community. These plans can provide importantreassurances to donors, concessional capital providers,and operators.

Financial and technical support for
distributed renewable energy operators
Certain tax and duty exemptions, grants, guarantees,
and low-interest loans can encourage distributed
renewable energy development and enable commercial
investors to see a path to financial self-sufficiency.
Technical support in the form of quality assurance andcertifications on all types of renewable energy products
can help build the market and attract the highest
quality companies and investors.

Private Sector Considerations for Policymakers

Power Grid Infrastructure
for Renewable Energy
Grid code tailored for variable renewableenergyGrid codes, or technical connection standards subject
to regular independent review and set by a technicallycompetent but neutral entity, will help to prevent codesfrom being overly favorable toward incumbent powersources at the expense of variable renewable energy.
Forward-looking grid code development with broad
stakeholder participation can also minimize costs fromgrid codes compliance.

Strong consideration of sustainability
criteria when planning grid expansion
Governments send positive signals to the market
when integrating ESG standards into long-term
grid expansion plans. This includes ensuring close
consideration of impacts of new routes on nature andlocal communities, while addressing or even surpassing
environmental and social protection standards whenmanaging easement, rights of way, and resettlement
issues. Policymakers that have constructive public
engagement can improve public acceptance for griddevelopment processes.

Integrated planning of power grids
and variable renewable energy zoning
High-quality variable renewable energy resources may
be located in areas that lack networks to integrate them.
Identification of suitable areas for renewable energy
deployment and their integration in transmission
planning can have multiple advantages. Integrated
planning may assist in identifying new lines to connect
resource-rich areas to the neediest load centers, and inincreasing developers’ confidence that their assets will
be put to full use.

52Section 1.
Preamble
Section 2.
The State of Energy Transition Financein Emerging Markets
Section 3.
The Role of Enabling Environments
in Low-Carbon Transition
Primer: High-level, cross-cutting enabling
environment factors
Primer: Clean energy systems
Primer: Sustainable urban transport

Clear and consistent performanceindicators for power transmission
and distribution operators
Governments will need to determine the performance
they want from independent power transmission
companies and develop key performance indicators(KPIs) under the contract. Making line availability thedominant KPI as the basis for payment (as opposed
to energy delivered or line use) provides both explicit
performance expectations to the transmission company
and reassurance to investors in renewables.

Primer: Waste and the circular economy
Primer: Green buildings
Section 4.
Call to Action
Section 5.
Private Sector Considerations for Policymakers
Consideration 1: High-level, cross-cutting
enabling environment factors
Consideration 2: Clean energy systems
Consideration 3: Sustainable urban transport
Consideration 4: Climate-smart water
and waste
Consideration 5: Green buildings
and streetlighting
Consideration 6: Sustainable land use

Energy Storage

Appropriate ownership, control,
and revenue models
Ownership and revenue models for energy storage
systems that reflect the role they play in helping
renewable energy compete with conventional powersources may be worth considering. Clarity is neededon whether energy storage assets will be tendered on
an independent power producer (IPP) basis or be
directly procured and therefore form part of thecountry’s transmission system. The ownership model
will inform the kind of revenue model: whether the
network operator has full control and supports thestorage system through regulated revenues, or whether
and how the scope of storage services needs to be
defined under the IPP model.

Clear regulatory framework
Traditional regulatory frameworks can hinder storage
development by unintentionally subjecting storage
facilities to additional costs, since they can be treated asboth consumers and generators of electricity. The uniquecharacteristics of energy storage must be incorporated
into regulatory frameworks so that storage facilities
are not double charged for the import and export ofelectricity. Instead of being placed alongside existing
generation or transmission regulatory frameworks,storage requires its own definitions and standards,
as well as permitting and updating grid codes.

Robust mechanisms in storage offtakeor lease agreements
To provide certainty to investors in storage facilities,
it is helpful to address allocation of levies and charges
in storage offtake and lease agreements, especially whenregulatory frameworks do not address energy storage.
This can include finding new ways to compensate
storage facilities, such as paying them fixed fees simply
for being available at hours of critical need.

Private Sector Considerations for Policymakers

53Section 1.
Preamble
Section 2.
The State of Energy Transition Financein Emerging Markets
Section 3.
The Role of Enabling Environments
in Low-Carbon Transition
Primer: High-level, cross-cutting enabling
environment factors
Primer: Clean energy systems
Primer: Sustainable urban transport
Primer: Waste and the circular economy
Primer: Green buildings
Section 4.
Call to Action
Section 5.
Private Sector Considerations for Policymakers
Consideration 1: High-level, cross-cutting
enabling environment factors

Consideration 3:
Sustainable urban transport
The Sustainable Urban Transport Policy Considerations
are focused on attracting private sector capital to urban
mass transit projects, including bus, light rail, ande-mobility infrastructure.
Global investment in sustainable transportation
infrastructure has grown rapidly over the past decadeas new technologies reach commercialization, and as
countries begin to build back better. With the return of
economic growth, demand for urban transport is expected
to climb. While continued investment in sustainabletransport R&D is important to advancing the sector’s
global prospects, clear, credible, and long-term plans for
decarbonizing urban transport, integrated across levelsof government, are vital for signaling opportunities toinvestors for private capital participation.

Consideration 2: Clean energy systems

Below, we define a set of related high-level and subsector specific factors that investors often review
before determining the sustainable urban transport
markets, companies, and projects in which to invest.
These factors reflect our experience as investors thathave deployed billions in sustainable transport overthe past decade. Our experience also shows that, when
considering which policy tools to deploy, it is crucial torecognize that each country and sector will require a
unique and evolving mix of enabling policies over time.
As such, the following Sustainable Urban Transport
Policy Considerations are not meant to be prescriptive,
but rather to catalyze the country- and sector-specificdiscussion, and debate, and to further action that isneeded to strengthen enabling environments forprivate capital.

Consideration 3: Sustainable urban transport
Consideration 4: Climate-smart water
and waste
Consideration 5: Green buildings
and streetlighting
Consideration 6: Sustainable land use

Private Sector Considerations for Policymakers

54Section 1.
Preamble
Section 2.
The State of Energy Transition Financein Emerging Markets
Section 3.
The Role of Enabling Environments
in Low-Carbon Transition
Primer: High-level, cross-cutting enabling
environment factors
Primer: Clean energy systems
Primer: Sustainable urban transport
Primer: Waste and the circular economy
Primer: Green buildings
Section 4.
Call to Action
Section 5.
Private Sector Considerations for Policymakers
Consideration 1: High-level, cross-cutting
enabling environment factors
Consideration 2: Clean energy systems
Consideration 3: Sustainable urban transport
Consideration 4: Climate-smart water
and waste
Consideration 5: Green buildings
and streetlighting
Consideration 6: Sustainable land use

Capable transit authority
National and local governments can best support
investors by providing and overseeing a well-funded,time-bound investment program that signals market
opportunities for private sector participation. Clearly
defined rules and regulations help to delineate
responsibilities among the sector regulator, awarding
authority, and contract supervisors. The removalof access barriers and support for healthy formalcompetition in the market also supports the sector’s
prospects. At the local level, these priorities can be
implemented by an empowered transit authority thatpresides over an organized, formal sector structure,including: clear roles for ownership, operation, andmaintenance; transparent operator permitting andlicensing; route award processes; and a credible plan to
manage informal competition from informal operators.
Integration of urban transit planning with other transit(feeders and other modes) as well as coordination withland use plans are also important.

Public procurement programs that signal
long-term sustainable transport intentions
Governments can spur interest and investments infleet renewal and fleet electrification initiatives througha transparent, well-structured, and dedicated public
procurement program in coordination with electricutilities and with local distribution companies forelectric vehicle charging infrastructure. For buses
and other urban mass transit, procurement programs
can help to level the playing field for electric public
transportation against conventional diesel buses withtraditionally lower upfront costs by factoring in the
total cost of ownership considerations.

Private Sector Considerations for Policymakers

Transparent fare-setting and protections
against unanticipated revenue shortfalls
Implementation of time-bound, performance-based
contracts with transparent remuneration schemes(typically based on commercial mileage, plus bonuses
and penalties according to KPIs) is often regarded as
an effective way to incentivize standards and levelsof service in public transport provision. Viability gap
funding, along with reliable re-setting mechanisms, canhelp to provide certainty and stability of cash flows andreduce risk for investors. At the local level, most cities
in developing countries are not deemed creditworthy,
so public transit subsidy/payment schemes may not be
regarded as credible. In addition to measures to improvecity creditworthiness, governments can also reducerisk for investors through the creation of centralized
and ring-fenced revenue collection and financing
mechanisms to cover revenue shortfalls from user fees.

Pricing mechanisms that account for thefull costs of fossil fuel-based transport
In order to create a level playing field, pricing mechanismsthat factor in externalities of fossil fuel-based transport
are needed and could be implemented through carbon
prices, fuel and vehicle taxes, congestion charges, fossil fuelsubsidy reform, and/or parking levies.

55

Section 1.
Preamble
Section 2.
The State of Energy Transition Financein Emerging Markets
Section 3.
The Role of Enabling Environments
in Low-Carbon Transition
Primer: High-level, cross-cutting enabling
environment factors
Primer: Clean energy systems
Primer: Sustainable urban transport
Primer: Waste and the circular economy
Primer: Green buildings
Section 4.
Call to Action
Section 5.
Private Sector Considerations for Policymakers

Consideration 4:
Climate-smart water and waste
The Climate-Smart Water and Waste Policy
Considerations focus on water, wastewater, and waste
sectors, which continue to lag in attracting private
climate finance. Most needed investments in these
sectors are still expected to come from the public sector,
and more work needs to be done to show how private
capital can finance what many consider to be public
goods. For related reasons, there is a need for policies
and government plans that ensure sufficient potential
for cost recovery where private finance can play a role.
Following, we define a set of related high-level andsub-sector specific factors that investors often review
before determining the climate-smart water and waste

markets, companies, and projects in which to invest.
These factors reflect our experience in the water andwaste sectors over the past decade. Our experience
also shows that when considering which policy tools
to deploy, it is crucial to recognize that each country
and sector will require a unique and evolving mix ofenabling policies over time.
As such, the following Climate-Smart Water andWaste Policy Considerations are not meant to beprescriptive, but rather to catalyze the countryand sector-specific discussion, and debate, and tofurther action that is needed to strengthen enabling
environments for private capital.

Consideration 1: High-level, cross-cutting
enabling environment factors
Consideration 2: Clean energy systems
Consideration 3: Sustainable urban transport
Consideration 4: Climate-smart water
and waste
Consideration 5: Green buildings
and streetlighting
Consideration 6: Sustainable land use

Private Sector Considerations for Policymakers

56Section 1.
Preamble

Water

Section 2.
The State of Energy Transition Financein Emerging Markets

Clear national plans for the water sector

Section 3.
The Role of Enabling Environments
in Low-Carbon Transition
Primer: High-level, cross-cutting enabling
environment factors
Primer: Clean energy systems
Primer: Sustainable urban transport
Primer: Waste and the circular economy
Primer: Green buildings
Section 4.
Call to Action
Section 5.
Private Sector Considerations for Policymakers
Consideration 1: High-level, cross-cutting
enabling environment factors
Consideration 2: Clean energy systems
Consideration 3: Sustainable urban transport
Consideration 4: Climate-smart water
and waste
Consideration 5: Green buildings
and streetlighting
Consideration 6: Sustainable land use

Clear goals and targets for water and sanitation –including water conservation and development, access,network extension, cost recovery, and reliability ofservices – strengthen understanding and alignment
across government and key stakeholders. Intergovernment coordination and water-smart publicawareness efforts also send important signals toinvestors on the long-term sustainability of agovernment’s plans for the sector. To enable more
institutional investors to invest in water-related
infrastructure, larger project sizes or pooled financing
approaches that achieve the necessary scale are key.

Meaningful economic regulationof water service
Given the monopolistic nature of most water services,
it is vital that rules and institutions be in place toset, monitor, enforce, and regulate tariffs and service
standards for water providers to ensure financial viability
and cost efficiency. A robust water sector regulatory
framework and strong government institutions canhelp provide greater certainty about sectoral approaches
to cost recovery and the quality of service provision,
including KPIs, for investors.

Ensure financial sustainability
and cost recovery
Given the significant investment required for water andwastewater provision, putting adequate cost-recovery
mechanisms in place to ensure financial sustainability
is crucial. Cost-reflective pricing is critical to recover
costs and stimulate private investment. Tariffs provide
an effective way to recover capital, operational, andmaintenance costs from users. Clear and reliablemechanisms for viability gap funding can also help
private operators mitigate revenue risks. It is importantthat consumers be aware of the linkage between theirincreased costs and service improvements. In assessing
plans to establish or expand water and wastewaterprovision, governments can consider a green
infrastructure alternative along with conventional grayinfrastructure approaches to evaluate the positive andnegative externalities of both.

Private Sector Considerations for Policymakers

Climate resiliency plans to safeguard
water resources
The impacts of climate change on water can beconsidered in an integrated manner. Above all,prioritizing solutions to water and energy losses from
non-revenue water is essential. Government support
for nature-based solutions through spatial land use
planning can also reduce climate risk of water sector
assets and improve the risk/return profile for investors.

WastewaterCommitted public investment
in wastewater treatment
Though wastewater treatment delivers shared societal
and ecosystem benefits, it is costly and the willingness
to pay for these benefits is low, making the achievementof commercial viability difficult. Public-private
partnerships can be successful in making wastewater
treatment investments more attractive to the private
sector by lowering investment risks.

Support for closed-loop wastewatertechnologies
New technologies have the potential to drive down
wastewater treatment costs and to bring about amore efficient and sustainable water system throughwater recycling. Governments can incorporate water
recycling systems into city planning and support thedevelopment of a robust market for recycled water.
With government support for this market, investors
can more easily identify and arrange for industrial
buyers of recycled water.

57

Section 1.
Preamble

Solid Waste

Section 2.
The State of Energy Transition Financein Emerging Markets

Presence of an integrated waste
management approach

Section 3.
The Role of Enabling Environments
in Low-Carbon Transition
Primer: High-level, cross-cutting enabling
environment factors
Primer: Clean energy systems
Primer: Sustainable urban transport
Primer: Waste and the circular economy
Primer: Green buildings
Section 4.
Call to Action
Section 5.
Private Sector Considerations for Policymakers
Consideration 1: High-level, cross-cutting
enabling environment factors
Consideration 2: Clean energy systems
Consideration 3: Sustainable urban transport
Consideration 4: Climate-smart water
and waste
Consideration 5: Green buildings
and streetlighting
Consideration 6: Sustainable land use

Municipalities can attract private capital by creatinga holistic plan for solid waste management thatincorporates goals and policies to support investment.
Since transportation is the main cost driver of waste
management, localized materials recovery stations
can make a significant difference. A clear pictureof the regulatory approach and timeline for waste
infrastructure development can also provide reassurance
to investors.

Capable waste authority

Ability to achieve economies of scale byaggregating waste flows and integrating
new technology
Local and national governments can help create
economies of scale to attract investors by aggregating
waste flows, including through the development ofregional waste management approaches, adopting
new waste-to-energy technology, and partnerships
with neighboring cities and regional governments.
The government can remove a major pain point forinvestors by instituting a transparent and uniform
e-procurement system for bundling waste contracts.

The empowerment of a capable authority can ensure
the implementation, monitoring, and enforcement offavorable policies, regulations, and incentives, including
reductions in waste generation, adequate pricing andtipping fees, reliable resetting, and credible sources
for viability gap funding. This includes effectively
managing the technicalities and standards for various
waste streams to prevent environmental contamination.

Government programs to integrate informal
sector workers and encourage recycling
In some countries, informal workers are the primarycollectors, sorters, reclaimers, and recyclers of solid
waste. Governments can integrate these workers into
waste management systems through cooperatives,
creating an aggregated and consistent approach topreserve economic livelihoods. Illegal dumping ofwaste can be detrimental to communities and to
the environment, reinforcing the need for strong
regulation and enforcement. In addition, national
and/or municipal level recycling campaigns, buoyedby supportive regulation, can help to reduce landfills,
improve circularity of certain waste with associatedenvironmental benefits, and potentially provide
additional revenue streams to investors.

Private Sector Considerations for Policymakers

58Section 1.
Preamble
Section 2.
The State of Energy Transition Financein Emerging Markets
Section 3.
The Role of Enabling Environments
in Low-Carbon Transition
Primer: High-level, cross-cutting enabling
environment factors
Primer: Clean energy systems
Primer: Sustainable urban transport
Primer: Waste and the circular economy
Primer: Green buildings
Section 4.
Call to Action
Section 5.
Private Sector Considerations for Policymakers
Consideration 1: High-level, cross-cutting
enabling environment factors
Consideration 2: Clean energy systems

Consideration 5:
Green buildings and streetlighting
The Green Buildings and Streetlighting Policy
Considerations focus on energy efficiency investment
opportunities in commercial real estate, hospitality,
and social infrastructure, as well as streetlighting.

Our experience shows that when considering which
policy tools to deploy, it is crucial to recognize that eachcountry and sector will require a unique and evolving
mix of enabling policies over time.

Energy efficiency improvements across these sectors
can provide significant carbon reductions for investor
portfolios, countries, and local communities. To
accelerate investment in greening buildings andimproving streetlighting, policymakers must set clear
standards and strengthen requirements for moresustainable practices in public procurement.

As such, the following Green Buildings andStreetlighting Policy Considerations are not meant
to be prescriptive, but rather to catalyze the countryand sector-specific discussion, and debate, and tofurther action that is needed to strengthen enabling
environments for private capital.

Below, we define a set of related high-level and subsector specific factors that investors often review before
determining the green buildings and streetlighting
markets, companies, and projects in which to invest.

Consideration 3: Sustainable urban transport
Consideration 4: Climate-smart water
and waste
Consideration 5: Green buildings
and streetlighting
Consideration 6: Sustainable land use

Private Sector Considerations for Policymakers

59Section 1.
Preamble

National energy efficiency planningand incentives

Standardization of energy
performance contracts

Section 2.
The State of Energy Transition Financein Emerging Markets

The presence of national energy efficiency plans,
dedicated entities to develop and implement theplans, along with specific targets, supporting laws,
and financing incentives, are key to setting direction
for all stakeholders when investing in energy
efficiency. Incentives from cost-reflective electricity
rate structures promote uptake of available energy
efficiency, while removal of subsidies for fossil-basedenergy supply can make energy efficiency investments
more economically viable.

In many developing countries, the complex contracting
procedures related to energy efficiency projects cancreate mistrust among end users. Clear and transparent
energy performance contracting frameworks,
including standard definitions of how project energy
savings are guaranteed, can foster trust among
contracting parties and streamline negotiations onenergy efficiency investments. Without standardized
contracts, banks are unlikely to invest the time andresources in each transaction. Government support
for contract standardization can help the sector growmore rapidly than would be the case with bespoke
contracting between parties, thus providing clarity andopportunities for scaling to banks and investors.

Section 3.
The Role of Enabling Environments
in Low-Carbon Transition
Primer: High-level, cross-cutting enabling
environment factors
Primer: Clean energy systems
Primer: Sustainable urban transport
Primer: Waste and the circular economy
Primer: Green buildings
Section 4.
Call to Action
Section 5.
Private Sector Considerations for Policymakers
Consideration 1: High-level, cross-cutting
enabling environment factors
Consideration 2: Clean energy systems
Consideration 3: Sustainable urban transport
Consideration 4: Climate-smart water
and waste
Consideration 5: Green buildings
and streetlighting
Consideration 6: Sustainable land use

Ambitious energy performance standards
and building codes
Increasingly, greener building codes, minimum energy
performance standards, and appliance standards all set
minimum thresholds for energy performance of new
and existing buildings. Alongside mandatory standards,
energy efficiency labels are important complementary
tools that ensure market players have appropriate
information for decision-making. Renovations,
retrofitting, and refurbishments can boost the value ofexisting buildings, reduce operational costs, and create
jobs. Standards and labels tailored to local contexts,
with local authorities responsible for adapting andimplementing national plans, have proven essential in
shifting producer and consumer activity, and in creatingstrong markets for energy efficiency.

Streetlighting retrofits
Standardization of project structuring and bidding
documents can facilitate private participation instreetlighting projects. In addition to national policy
frameworks and incentives, sound public-private
partnership modalities can also be an effective modelthrough which to share risks and to encourage
private investment. Ensuring that KPIs are clear
and measurable, such as linking energy savings withremuneration, can boost investor confidence.

Presence of energy services companies
Although energy efficiency measures typically resultin overall savings, high upfront costs can discourage
their adoption. Energy service companies (ESCOs)
can help overcome this barrier by covering the upfront
costs of efficiency investments, allowing consumers
to pay back these costs over time through energy
savings. In markets that lack ESCOs, governmentsupported “super-ESCOs” that aggregate rollout ofenergy efficient technologies for public sector buildings
can also jump-start the private ESCO market withcapacity building, project development, and facilitation.
Incentives for local bank financing of energy efficiency
can also be useful.

Private Sector Considerations for Policymakers

60Section 1.
Preamble
Section 2.
The State of Energy Transition Financein Emerging Markets
Section 3.
The Role of Enabling Environments
in Low-Carbon Transition
Primer: High-level, cross-cutting enabling
environment factors
Primer: Clean energy systems
Primer: Sustainable urban transport
Primer: Waste and the circular economy
Primer: Green buildings
Section 4.
Call to Action
Section 5.
Private Sector Considerations for Policymakers
Consideration 1: High-level, cross-cutting
enabling environment factors
Consideration 2: Clean energy systems
Consideration 3: Sustainable urban transport
Consideration 4: Climate-smart water
and waste
Consideration 5: Green buildings
and streetlighting

Consideration 6:
Sustainable land use
The Sustainable Land Use Policy Considerations focus
on agriculture and forestry investments. Both have
implications for carbon sequestration as well as
biodiversity protection, water protection, and supplyof timber and non-timber products for building,energy, and food. Recognition of these multiple
benefits requires integration and coordination acrossgovernment agencies and policies to prevent conflictand perverse incentives.
Scaling up such investments requires the developmentof a market, such as a carbon market, that accurately
prices carbon, accounting for the ecosystem services
and the potential for carbon sequestration provided
by natural capital. Investments in sustainable forestry
and agriculture can contribute to global adaptation andresilience goals, which in turn can help to insure against
the physical risks of climate change.
As natural capital solutions are nascent relative to otherclimate mitigation investment opportunities, a succinct,
uniform private sector perspective on key impediments

to investment is still missing. Nonetheless, the listed
considerations provide a very brief introduction to someexisting challenges expressed by select private sector
investors. Though, as with each Policy Consideration,
this is a rapidly developing area, and agriculture
and forestry are just two of the many options forpolicymakers considering sustainable land use.
Following, we define a set of related high-level andsub-sector factors that investors often review before
determining the markets, companies, and projects inwhich to invest. Our experience shows that, when
considering which policy tools to deploy, it is crucial torecognize that each country and sector will likely adopt
a unique and evolving mix of enabling policies over time.
As such, the following Sustainable Land Use Policy
Considerations are not meant to be prescriptive, butrather to catalyze the country- and sector-specificdiscussion, and debate, and to further action that isneeded to strengthen enabling environments forprivate capital.

Consideration 6: Sustainable land use

Private Sector Considerations for Policymakers

61Section 1.
Preamble
Section 2.
The State of Energy Transition Financein Emerging Markets
Section 3.
The Role of Enabling Environments
in Low-Carbon Transition
Primer: High-level, cross-cutting enabling
environment factors
Primer: Clean energy systems
Primer: Sustainable urban transport
Primer: Waste and the circular economy
Primer: Green buildings
Section 4.
Call to Action
Section 5.
Private Sector Considerations for Policymakers
Consideration 1: High-level, cross-cutting
enabling environment factors
Consideration 2: Clean energy systems
Consideration 3: Sustainable urban transport
Consideration 4: Climate-smart water
and waste
Consideration 5: Green buildings
and streetlighting
Consideration 6: Sustainable land use

Cross-Cutting Sustainable
Land Use
Existence and enforcement of land
use regulations

Agro-climatic and resiliency data to inform
investment decisions

In jurisdictions where claims to land ownership bymultiple parties are commonplace, the risk of future
land disputes, or delays in the acquisition rights ofway, can dampen investor interest. The following are
critical to addressing project interruptions promptedby land disagreements: an ability to secure land
rights in a timely and transparent manner; strong
enforcement of land tenure and usage regulations; andclear, streamlined permitting processes and regulations
for land acquisition. In addition, it is crucial that
community consultation procedures be formalized, thatIndigenous Peoples’ and local communities’ claims toterritories be respected, and that policies to prevent
land grabbing are in place and enforced.

Ensuring the integration and open availability of
public and private agro-climatic information systems,
as well as information related to climate resilience(e.g., ecosystems, geophysical), allows for morecomprehensive financial risk analysis. Data from recent
agricultural adaptation projects can also be leveraged.
Making such data publicly available can reduce investor
uncertainty by streamlining the due diligence process
and reducing transaction costs.

Data to identify critical natural habitats
Better data is needed to understand the benefits of
biodiversity and the implications of land use on thosenatural ecosystems. Policymaking can use spatial analysis
to assess ecosystem value in order to ensure land use
investments, whether for production or conservation,
to deliver positive land use outcomes whose value isrecognized. Clear spatial delineation of important
habitat—for biodiversity, water catchment, naturalcarbon sequestration, flood control, fire prevention,and coastal resilience—can help investors to be more
informed of these risks in order to avoid and/or manage
them. Objective, high-quality natural resource data caninform effective policymaking, forecasting, planning,measurement, reporting, and verification, as well as
enhance the value of infrastructure investments.

Development of a carbon market
Forestry and agriculture are two of the largest
opportunities for greenhouse gas emissions reductions
globally. The development of a carbon market withcarbon prices that encourage far greater investment
in forestry projects is needed. A robust carbon market
with participation from small landowners to large
corporates is important to achieving a country’s NDCs.
Whether through domestic compliance schemes ornested jurisdictional REDD+* carbon accounting,carbon markets and the offsets they generate will help
attract further investment in forestry and agriculture.

Community and environmental consultation
Given the potential externalities associated with forest
harvesting and agriculture projects, the developmentof forests or other natural resources requires holistic
consideration of many interconnected factors that areimportant for communities, and for the long-term
health and integrity of forests and ecosystems. These
factors include land tenure; traditional land uses,
foodprovision by forests and other ecosystems, access,carbon stores, biodiversity, water provision, and others.
Governments can play an important role in ensuringthat investors are equipped to assess these impacts, thatthey comply with government policies and restrictions,and that there is free, prior, and informed consent from
affected communities.

*REDD+ = Reducing emissions from deforestation and forest degradation.

Private Sector Considerations for Policymakers

62Section 1.
Preamble

Rule of law that supports sustainable
land development

Agriculture

Section 2.
The State of Energy Transition Financein Emerging Markets

In the agriculture and forestry sectors, illegal importsthat avoid tariffs and taxes can significantly undermine
legally operating firms seeking to advance sustainable
operations in the sectors. In the forestry sector, processedtimber products, originating from illegal logging, pose athreat to the sustainable management of forest resources
and create unfair competition for sustainable forestry
firms. Government efforts to regulate illegal imports, anduphold and enforce the rule of law in these sectors are
critical to scaling private investment.

Including climate-smart agriculture
in national climate goals and sector
development plans

Section 3.
The Role of Enabling Environments
in Low-Carbon Transition
Primer: High-level, cross-cutting enabling
environment factors
Primer: Clean energy systems
Primer: Sustainable urban transport
Primer: Waste and the circular economy
Primer: Green buildings
Section 4.
Call to Action
Section 5.
Private Sector Considerations for Policymakers

Development of a strong agricultural sector is best
accompanied by the concurrent development of
supporting infrastructure and regulations, such astransportation and cold storage, that which allow forexport of goods and incentivize private sector investment
in climate-smart agriculture. Including “climate-smart”
agriculture as a priority in a country’s NDCs—in both
its mitigation and its adaptation goals—signals a serious
focus on the climate impact of agriculture. This isimportant, as agriculture has historically been sensitive
due to its role in local economies.

Revision of polices that inadvertently
support emissions-intensive practices

Consideration 1: High-level, cross-cutting
enabling environment factors

Agricultural input subsidies, price support, tariffs,
and subsidies on agricultural products often
undermine climate goals and indirectly incentivize
the continuation of carbon-intensive practices.
Government support for, and enforcement of, policies
and regulations that avoid market distortions canencourage both private sector investment in the sector
and investment in technological innovations that aim
to increase agricultural efficiency.

Consideration 2: Clean energy systems
Consideration 3: Sustainable urban transport
Consideration 4: Climate-smart water
and waste
Consideration 5: Green buildings
and streetlighting
Consideration 6: Sustainable land use

Private Sector Considerations for Policymakers

63Section 1.
Preamble

Forestry

Section 2.
The State of Energy Transition Financein Emerging Markets

Stable and coherent forest policy

Policy support for low-carbon innovations

A national forest policy that supports economic
activities with adequate financing is the foundation for
attracting private investment to a sustainable forestry
sector. Policymakers can help to level the playing
field against other non-forestry land investments byaddressing land use and tenure and by creating clear
opportunities for investment in forest carbon offsets.
This can be done through nested jurisdictional REDD+
programs or through domestic compliance markets
that include Agriculture, Forestry, and Other Land Use(AFOLU) offsets. Sector policies are most successfulwhen they address upstream activities, opportunities tobuild local timber processing capacity, and the removalof export barriers. Beyond the establishment of a forest
policy, a capable government authority in a leading role
can help with policy coordination and execution.

Increasingly, forest products represent a substitute forhigh carbon intensity materials. Government design,
implementation, and enforcement of forward-leaning
regulations (e.g., building codes that permit masstimber) can spur private sector innovations in thematerials sector, incentivizing sustainably harvested
wood for downstream products that have low-carbon
life cycles.

Section 3.
The Role of Enabling Environments
in Low-Carbon Transition
Primer: High-level, cross-cutting enabling
environment factors
Primer: Clean energy systems
Primer: Sustainable urban transport
Primer: Waste and the circular economy
Primer: Green buildings
Section 4.
Call to Action
Section 5.
Private Sector Considerations for Policymakers
Consideration 1: High-level, cross-cutting
enabling environment factors
Consideration 2: Clean energy systems
Consideration 3: Sustainable urban transport
Consideration 4: Climate-smart water
and waste
Consideration 5: Green buildings
and streetlighting
Consideration 6: Sustainable land use

Responsibility for consequencesof forest roads

Timber and non-timber product processing
A successful forest product industry requires efficient
processing and transportation. Policymakers canconsider guidance and incentives to help locate theseresources in places where they can serve the public
interest, direct jobs where most needed, and minimize
unwanted environmental impacts.

Investments in new roads to develop forest resources
can invite unplanned settlement and land tenure
disputes, and can increase the risk of zoonotic pathogen
spillover. A forestry project that opens up new accessis best accompanied by a plan to restrict or manage
additional human settlement and associated landdegradation, such as the construction of additional
access roads. Monitoring costs can be covered by a
dedicated reserve account, funded by the forestry
activity and managed by a third party.

Private Sector Considerations for Policymakers

64Section 1.
Preamble
Section 2.
The State of Energy Transition Financein Emerging Markets
Section 3.
The Role of Enabling Environments
in Low-Carbon Transition
Primer: High-level, cross-cutting enabling
environment factors
Primer: Clean energy systems
Primer: Sustainable urban transport
Primer: Waste and the circular economy
Primer: Green buildings
Section 4.
Call to Action
Section 5.
Private Sector Considerations for Policymakers
Consideration 1: High-level, cross-cutting
enabling environment factors
Consideration 2: Clean energy systems
Consideration 3: Sustainable urban transport
Consideration 4: Climate-smart water
and waste
Consideration 5: Green buildings
and streetlighting
Consideration 6: Sustainable land use

Appendix: Glossary
Bank A financial institution that uses money from

depositors or investors to lend to individuals andcompanies. Investment banks oversee the issuanceof bonds and shares, and act as trading houses.

Blended finance A form of financing that uses

concessional capital from development financeinstitutions to de-risk investments in emerging
markets and thereby mobilize private capital towardsustainable development. Most blended financeinitiatives involve partnerships between DFIs
and private financial institutions.

Carbon footprint A measure of the carbon dioxide

or other greenhouse gas emissions associated witha particular activity or asset. In this report, carbon
footprint is often applied to an investment, a portfolio,
or an asset in the real economy.

Carbon-intensive Activities or assets associated withlarge amounts of greenhouse gas emissions that arethus misaligned with the low-carbon transition.

Clean energy/Renewable energy Zero-emissions

energy technologies that convert renewable resources,
such as sunlight, wind, and water flow, into usable
forms of energy, such as heat and electricity.

Creditworthiness The reliability of a borrower. In the caseof bank lending, it is usually assessed by a bank itself. For
large, publicly listed corporations, it is usually assessedusing standardized ratings from credit rating agencies.

Deregulated electricity markets Countries or regionsin which multiple power producers sell electricity incompetitive markets, or “wholesale markets.” In thesecases, the electric grid operator is independent anddoes not directly own generation assets. Electricity canalso be sold to end-consumers through competitive
processes (i.e., competitive “retail markets”) where
consumers can choose their suppliers.

Developed economies Countries that are characterized

as high income according to the World Bank’s country
classification.

Private Sector Considerations for Policymakers

Development finance institution (DFI) Government

development agencies or the private-sector arms of
multilateral development banks that work to advancesustainable economic development in developing
countries by providing equity, long-term finance, risk
mitigation, and other tools that stimulate investment
in development. DFIs operate as public-sector,
mission-driven investment banks and are mandated
to be financially self-sufficient.

Emerging economies Countries that are characterized
as low-income, lower-middle income, and uppermiddle income according to the World Bank’s
country classification.
Emissions trading system (ETS) A market-based policy

mechanism that places a cap on total emissions in a
specific country, region, or sector. Based on this cap,
individual entities are allocated permits that allow themto produce a certain amount of emissions. These permits
can be traded among emitters, allowing emitters thatcan reduce emissions at a lower cost to sell permits toemitters with higher costs. This market mechanism helps
ensure cost-effective reduction of emissions.

Feed-in tariff A policy mechanism that provides

a specified payment, or tariff, per unit of renewableelectricity produced over a designated period of time.
Unlike an auction, this price is set by a policymaker,
rather than competitively in an auction process.
A feed-in tariff can be fixed, as in an auction, or it can
provide a premium over a wholesale electricity tariff.
Financial institution Any organization in the financial

sector that offers or manages capital, including banks,
insurers, asset managers, and asset owners.
Financial system The financial sector and the system

around it, including financial regulation, central banks,and connections with the non-financial sector.

Greenhouse gas emissions (GHG emissions)/ emissions

The release of gases that trap heat in the atmosphereand therefore contribute to climate change. GHGs
include carbon dioxide, methane, nitrous oxide, andfluorinated gases.

65Section 1.
Preamble
Section 2.
The State of Energy Transition Financein Emerging Markets
Section 3.
The Role of Enabling Environments
in Low-Carbon Transition
Primer: High-level, cross-cutting enabling
environment factors
Primer: Clean energy systems
Primer: Sustainable urban transport
Primer: Waste and the circular economy
Primer: Green buildings
Section 4.
Call to Action
Section 5.
Private Sector Considerations for Policymakers
Consideration 1: High-level, cross-cutting
enabling environment factors
Consideration 2: Clean energy systems
Consideration 3: Sustainable urban transport
Consideration 4: Climate-smart water
and waste
Consideration 5: Green buildings
and streetlighting
Consideration 6: Sustainable land use

High-income country Countries with a gross national
income per capita of more than $12,376 in 2019, inline with the World Bank’s country classification.
Institutional investor Any investing entity that is not

an individual. Encompasses both asset managers andasset owners.

Investor Any entity that puts money into buying
financial or physical assets with the expectationof achieving a profit.
Levelized cost of electricity (LCOE) The net present
value of the cost of generating electricity, per unitof electricity generated, for the lifetime of an asset; used
to compare the cost of energy from various sources.
Low-carbon In this report, economic activities or assetsthat result in lower GHGs, as compared with otheractivities and assets.

Low-carbon transition The process of moving to a

trajectory that would limit average global temperaturerise to well-below 2°C compared with preindustrial
levels. The low-carbon transition can refer to transitions
within individual entities, industries, economic sectors,
countries, or the global economy.

Low-income country Countries with a gross national
income per capita of less than $1,025 in 2019, in linewith the World Bank’s country classification.
Middle-income country Countries with a gross national

income per capita between $1,026 and $12,376
in 2019, in line with the World Bank’s country
classification.

Power purchasing agreement (PPA) A contract between

a producer of electricity and a buyer that stipulates thecommercial terms of electricity sales between the twoparties. In this report, PPAs are typically long-term
contracts awarded to independent power producers
that provide a fixed priced per unit of renewable energy
generated over a specified time period.

Public finance Sources of finance provided by public

entities, including development finance institutions,sovereign wealth funds, and governments, usuallyderived from income raised through taxes. Publicfinance is usually meant to achieve social, political,
or environmental goals rather than produce a profit,
so it can finance loss-making propositions or help
subsidize private finance.

Regulated electricity markets Countries or regionsin which a single entity (e.g., an electric utility) owns
and operates electricity generation, transmission, anddistribution assets, and sells electricity directly to
end consumers. In these markets, the utility, which isfrequently a vertically integrated monopoly, is often
under regulation that guides its operations, e.g., tariff
setting. There are also various degrees of regulated
electricity markets. For example, in some markets,
additional power producers are allowed to generate andsell electricity directly to the vertically integrated utility.

Renewable energy auction A policy mechanism

involving the competitive procurement of renewableenergy generation. Bidders offer a price per unit ofelectricity and volume of renewable energy capacity.
Successful bidders are offered a power purchasing
agreement, which guarantees a fixed price per unitof electricity generated. This price is known as the“strike price,” or the price at which the auction cleared.

Renewable portfolio standard (RPS) A policy that

requires electricity providers to supply a certain portionof electricity from renewable energy sources.

Zero carbon Technologies or economic activities that

do not emit any greenhouse gases. In the context of thepower sector, this includes power-generation technologies
such as wind, solar, nuclear, and hydropower.

Private sector The part of the economy not under directgovernment control. In this report, both financial andnon-financial companies.

Private Sector Considerations for Policymakers

66About the Climate Finance Leadership Initiative
The Climate Finance Leadership Initiative (CFLI) convenes leading companies to mobilize and scale
private capital for climate solutions. Michael R. Bloomberg formed the CFLI at the request of theUnited Nations Secretary-General António Guterres. In September 2019, the CFLI released Financing
the Low-Carbon Future, a report that is aimed at mobilizing private climate finance at the scale andspeed needed to support an orderly transition to a low-carbon economy. Also in September 2019, the
CFLI established a partnership with the Association of European Development Financial Institutions(EDFI) to advance the public-private collaboration to address the climate finance gap in emerging
markets. For more information, visit www.bloomberg.com/cfli.

About the Association of European Development
Finance Institutions
The Association of European Development Finance Institutions (EDFI) promotes the workof 15 bilateral development finance institutions that invest in the private sector in emerging andfrontier markets to create jobs, boost growth and fight poverty and climate change. Since EDFI
was set up in 1992, its members have invested in approximately 15,000 projects, and they now
manage a combined investment portfolio of US$50 billion across financial services, clean energy,
industry and many other sectors in more than 100 countries. For more information, visit www.edfi.eu.

About the Global Infrastructure Facility
The Global Infrastructure Facility (GIF) is a G20 initiative with the goal of increasing private investment
in sustainable infrastructure in emerging markets and developing economies. Coupling funding withhands-on technical expertise, the GIF supports end-to-end, comprehensive advisory services toclient governments and multilateral development bank partners to build pipelines of bankable andsustainable infrastructure investments that are attractive to private capital. A suite of blended financesolutions to de-risk private investment is under design. As a global collaboration platform, the GIF
enables collective action among a wide range of partners – including donors, development financeinstitutions, developing country governments, together with private sector investors and financiers– to leverage both resources and knowledge to find solutions to sustainable infrastructure financing
challenges. The GIF is currently supported by Australia, Canada, China, Denmark, Germany, Japan,
Singapore, and the World Bank. For more information, visit www.globalinfrafacility.org.

We gratefully acknowledge the contributions of BloombergNEF — a leading provider of researchon energy and sustainability — to the development of this document.
© CFLI 2021