BAKU, Azerbaijan, September 7. In order to increase funding in energy efficiency in emerging and developing economies, governments need to pay particular attention to overcoming barriers to attracting private investment, the International Energy Agency (IEA) said, Trend reports via its latest publication.
According to the agency, medium- and long-term approaches to financing require government support in the form of technical and commercial risk reduction, such as credit guarantees or energy-saving insurance schemes, to attract private sector investment. Governments can further encourage investment in efficiency by removing administrative barriers and supporting the expansion of existing private sector financing instruments, such as utility finance.
The agency believes direct public funding through grants and loans is particularly important to create short-term effects and support energy efficiency in critical areas such as health, vulnerable communities and social housing. Short-term funding can be most effectively used by optimizing and expanding existing funding mechanisms to reduce administrative costs and shorten lead times.
According to the IEA’s forecast, yearly investments in energy efficiency in emerging and developing economies has to surge seven-fold in order to scale up efficiency action - from $200 billion to above $1.4 trillion.
Although investments in total energy efficiency in 2021 increased 225 percent year-on-year to $330 billion, “rising costs, interest rates and supply chain shortages represent looming risks to the world’s ability to maintain similar investment levels in 2022,” the agency noted.
“The IEA report Financing Clean Energy Transitions in Emerging and Developing Economies highlights that over 70 percent of clean energy investment is financed by private capital in the Net Zero Scenario, complemented and leveraged by the smart use of public funds. Investment in energy efficiency measures is typically done on a local level, and refinancing can be difficult in emerging and developing economies, which tend to have less mature domestic banking infrastructure and higher cost of capital than advanced markets. This can be a barrier for aggregators seeking to raise debt finance, particularly for small and medium-sized enterprises that form an important component of these economies,” the report said.
As the IEA noted, local public or private green banks can act as aggregators of energy efficiency loan portfolios and look for low-cost refinancing in capital markets to release capital for investment in new projects.
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