The United Nations Conference on Trade and Development (UNCTAD) has issued an appeal for immediate assistance to developing nations, enabling them to attract substantially more investment for their transition towards clean energy.

The recently published “World Investment Report 2023” by UNCTAD reveals that the majority of international investment in renewable energy, which has nearly tripled since the adoption of the Paris Agreement in 2015, has been focused on developed countries.

According to the report, developing countries require approximately $1.7 trillion in annual investments in renewable energy. However, in 2022, they only managed to attract $544 billion in foreign direct investment (FDI) specifically for clean energy projects.

The total funding required for the energy transition in developing countries is considerably larger and encompasses investments in power grids, transmission lines, storage, and energy efficiency.

To address challenges, the report outlines essential actions, including financing mechanisms and investment policies, to enable developing countries to attract investments.

Regarding financing, the report suggests de-risking energy transition investments in developing countries through loans, guarantees, insurance instruments, and public-private partnerships.

Collaborations between international investors, the public sector, and multilateral financial institutions are also recommended as effective means to lower the cost of capital for clean energy investments in developing countries.

Additionally, UNCTAD emphasizes the need for debt relief to provide developing countries with fiscal space for necessary clean energy investments and to enhance their ability to attract international private investments by reducing country risk ratings.

Slump in Project Finance Deals

According to the report, there was a slowdown in the growth of investment in renewable energy in 2022, primarily due to a decline in international project finance deals.

Even though total international investment in renewables has almost tripled since 2015, the growth rate in developing countries has only marginally exceeded the growth rate of their GDP.

The report also highlights that energy companies within the top 100 multinationals are divesting their fossil fuel assets at a rate of approximately $15 billion per year. However, a significant concern arises from the fact that private buyers, particularly private equity funds, who are often not publicly listed, tend to have lower or no emission-reduction goals and weaker climate reporting standards.

Furthermore, the report reveals a substantial investment gap in achieving Sustainable Development Goals (SDGs) across various sectors.

The current annual investment gap for these goals has surpassed $4 trillion, compared to $2.5 trillion in 2015. The largest gaps exist in the areas of energy, water, and transport infrastructure.

While positive sustainability trends are evident in global capital markets, with the value of the sustainable finance market reaching $5.8 trillion in 2022, there is a contrasting situation regarding the growing investment gap in achieving the SDGs in developing countries.

In 2022, global FDI experienced a decline of 12%, amounting to $1.3 trillion. This decline followed a strong rebound in 2021 after a significant drop induced by the COVID-19 pandemic in 2020.

According to a report by International Energy Agency and International Finance Corporation, to meet the growing energy demand while aligning with the goals of the Paris Agreement, the annual investment in clean energy, both from public and private sources, will have to increase by more than triple from $770 billion in 2022 to approximately $2.2-2.8 trillion per year by early 2030.

In March, the International Renewable Energy Agency stated that the lack of adequate progress in the global energy transition would require even more investment, and a systematic change in the volume and type of investments is necessary to prioritize the growth.