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Report: About $55 bn needed in upfront investment for universal energy access each year
Around $ 55 billion in upfront investment is needed each year for universal energy access by 2030, around two-thirds of which is required in sub-Saharan Africa, according to the World Energy Outlook 2024.
This is less than 2% of current annual energy spending. Current investment levels are just below $ 10 billion annually. This is much less than is needed and has decreased around 75% from pre-COVID19 levels. However, the decrease is due in part to large economies having made rapid progress in the intervening years and achieving near universal access to electricity.
Affordability constraints mean that private capital can only cover a small share of the financing that is needed for energy access, while African governments already face rising debt sustainability concerns. This means that the allocation of official development assistance to energy in Africa is vitally important if faster progress is to be made, but the level of such assistance for energy projects has remained static over the past decade.
Without a stronger international commitment to universal energy access, there is a risk that many developing economies may be left behind.
The new collective quantified goal on climate finance could be used as a vehicle to close at least part of the funding gap.
Renewed attention to energy access issues within international climate finance and development assistance is already providing a boost to concessional capital for access.
The “Mission 300” program, which aims to provide 300 million people with electricity access, has received initial pledges of $30 billion and aims to reach around $ 90 billion.
An additional $ 2.2 billion of private and public sector finance for clean cooking was pledged at the International Energy Agency (IEA) Summit for Clean Cooking in Africa in May 2024, on top of the $ 2 billion committed by the African Development Bank at the COP28.
Global energy sector investment:
Global energy sector investment reached around $ 2.9 trillion in 2023 and is likely to exceed $ 3 trillion for the first time in 2024, with almost $ 2 invested in a range of clean energy technologies and infrastructure for every $ 1 spent on fossil fuels.
Prior to the Covid-19 pandemic, this ratio was closer to 1:1. Global investment in clean energy has increased by 60% since 2015, driven not only by emissions reduction goals, but also by robust underlying economics, considerations of energy security during a period of extreme volatility in fossil fuel prices, and competition among leading economies for positions in the new clean energy economy that will be an important source of growth and employment in the coming years.
Recent increases in clean energy investment come mostly from advanced economies and China, making up 85% of the total, while other emerging market and developing economies, home to two-thirds of the global population, account for just 15%.
This misalignment is a major concern, given that demand for energy services in developing economies will inevitably increase in the coming years to support rising standards of living, universal access to energy and construction of modern infrastructure.
The high cost of capital and lack of affordable long-term financing is a key contributor to these regional imbalances and an impediment to increasing capital flows to emerging market and developing economies in the future.
Investment in clean energy projects increase in all parts of the world in the Net Zero Emissions by 2050 (NZE) Scenario, but the regional imbalances mean that the required increase is particularly steep in emerging market and developing economies other than China. In the NZE Scenario, annual spending on clean energy doubles in advanced economies and in China by 2035 compared with 2023 levels, while it grows more than six-fold in other developing economies.
The prospects for scaling up clean energy investment in all sectors depend to a large extent on policy certainty, data reliability and strong governance. Making improvements in these areas is therefore critically important. This needs to be accompanied and facilitated by significant increases in international public financial and technical support, including larger volumes of concessional funding to bring in much higher multiples of private capital.
By 2030 in the NZE Scenario, annual concessional funding for the energy sector triples to reach over $ 100 billion in developing economies other than China. However, not all projects need public financial support.
Three categories to scale up investment:
In considering how to scale up investment, it is useful to break down the overall requirement into categories that reflect particular characteristics and risk profiles.
In work undertaken in support of the Brazilian G20 presidency in 2024, the following three groupings were proposed: The first group covers investment in mature clean energy technologies with relatively low risk and strong underlying economics in countries with relatively good credit rating. These can usually be privately led, provided that investors have confidence in the quality of the policy and regulatory environment. For example, utility-scale solar PV and wind projects in Brazil or in India have built up a successful track record of mobilizing private capital for several years, and only limited interventions are required on the financing side from the public sector.
In the NZE Scenario, the total clean energy investment requirement in developing economies other than China in 2035 is around $ 1.8 trillion, and it is assessed that around 40% of the investment falls into this privately led category.
The second group of projects, accounting for around half of the 2035 clean energy requirement in the NZE Scenario, needs to be facilitated by some form of risk mitigation based on collaboration between the public and private sectors. These facilitated interventions cover technologies that have reached commercial maturity in some markets but have yet to take off in a specific developing economy, for example a utility scale solar PV in a nascent market like Cambodia, and emerging technologies in relatively low risk jurisdictions that require additional support for the first commercial scale projects, for example a low-emissions hydrogen project in Chile.
They also cover projects where the national creditworthiness is low and a constraint on investors, or where significant social returns, such as those arising from improved energy access, need some form of public support to ensure affordability and bankability.
The third group, accounting for around 6% of projects, concerns investment for which commercial capital is either not available or is too costly to access because the real and perceived risks are very high.
These investments need to be publicly driven. They include projects in some of the least developed countries in the world, and projects in countries involved in or emerging from conflicts, as well as those involving some nascent technologies or aspects of public infrastructure that require substantial public support to lower costs.
These three categories help to differentiate the types and scale of finance that may be required to advance clean energy transitions in emerging market and developing economies, and to provide a means of identifying the cases that require additional support from public financial institutions, including the strategic use of concessional financing to bring in much larger volumes of private capital.
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