Clean Energy Financing: Are We Investing Enough?

Finance plays a vital role in the global push for renewable energy. Over the past decade, clean energy investments have grown significantly, driving gigawatt-scale renewable capacity additions and supporting related sectors, particularly in Asia, the Middle East, Europe, and North America. However, much more needs to be done for countries to meet their renewable energy targets, especially with the 2030 deadline approaching.

Financing will be a key component for renewable growth in particular that will decide the pace of RE adoption toward net-zero goals and overall clean energy transition. However, the International Renewable Energy Agency (IRENA) suggests that the governments need to redouble their efforts to ensure investments are on the right track if they want to deliver on their commitment to triple renewable power generation capacity and double the energy efficiency improvement rate by 2030. For instance, IRENA’s analysis to track the progress towards the global target set at COP28 shows that global investment in renewable generation capacity alone must amount to over USD 1.5 trillion (INR 130.17 lakh crore) annually till 2030. 

$2 Trillion in 2024: Are We on Track?

The year 2024 first time ever saw over USD 2 Trillion investment in clean energy and infrastructure globally. As per BloombergNEF’s Energy Transition Investment Trends 2025 report, Investment in the low-carbon energy transition worldwide grew 11 percent to hit a record USD 2.1 trillion (INR 182.24 lakh crore) in 2024. 

In 2024, mainland China led global energy investments, reaching about USD 818 billion (INR 71.01 lakh crore)—a 20 percent rise from 2023. This accounted for two-thirds of the world’s total investment growth. In contrast, the US saw no growth, holding at USD 338 billion (INR 29.34 lakh crore), while investments declined in the EU (USD 381 billion or INR 33.07 lakh crore) and the UK (USD 65.3 billion or INR 5.67 lakh crore), highlighting the need for a sector boost. India and Canada contributed to global growth, increasing their investments by 13 percent and 19 percent, respectively.

Growth in 2024 was driven by electrified transport, renewable energy, and power grids, which all reached new highs last year, along with energy storage investment. Electrified transport – passenger EVs, electric two- and three-wheelers, commercial electric vehicles, public charging infrastructure and fuel cell vehicles – remained the largest investment driver, reaching USD 757 billion in 2024. 

Investments in renewable energy reached USD 728 billion (INR 63.20 lakh crore), covering wind, solar, biofuels, biomass, waste, marine, geothermal, and small hydro projects. Additionally, power grid investments totaled USD 390 billion (INR 33.85 lakh crore), including transmission and distribution lines, substation equipment, and grid digitalization.

However, the current level of financing is much less than half of what is needed to realise the clean energy goals worldwide and is required to increase significantly to get on track for global net zero by 2050, in line with the Paris Agreement. To align the energy sector with the 2050 target, global annual investment needs to increase to approximately USD 4.5 trillion (INR 390.5 lakh crore) per annum, indicating a substantial gap between current and required funding. 

Transmission Infra Needs More Cash Inflow

The record investment in 2024 was nearly double the total spending on oil, gas, and coal. While this is a positive trend, power infrastructure remains underfunded. Global grid investment averaged USD 300-400 billion (INR 26.03-34.71 lakh crore) per year over the last decade, but the International Energy Agency says this must double by 2030.

The world needs to expand its power grid infrastructure, as growing electrification, integration of variable renewable energy, and adaptation to climate change all require larger and more modern electricity networks. 

Investment is needed in transmission infrastructure to connect new power generation to grids, as well as to support system-wide electrification of all sectors including electric vehicles and heat pumps. At the same time, existing, often ageing, infrastructure will need to be upgraded. 

An increasing number of utilities across the world are exploring various alternative financing models. These include from full public financing to full privatization, including merchant lines, minority private participation in the equity of a transmission project, as well as public-private partnerships (PPP).

The Independent Transmission Project (ITP) is a PPP model where private firms bid to finance, build, and operate power transmission assets. The winner earns a stable, long-term fee from the public sector. Revenue is based on asset availability, not power flow, reducing investor risk while spreading costs for the public TSO. India and Brazil have used ITP for over a decade, attracting many bidders and boosting competition. The model optimizes risk and system costs while drawing low-cost capital from pension funds and insurers. In India, ITP assets remained liquid, helping firms free up capital for new projects. 

Bridging the Financing Gap

There is an urgent need to curb the financing gaps in order to help countries comfortably meet their clean energy targets. One International Energy Agency’s (IEA) assessment predicted that the world would face an average annual investment shortfall of USD 400 billion (INR 34.71 lakh crore)in its renewable sector during 2024-2030, a key barrier to triple the renewable energy capacity. This is a major hindrance in the overall clean energy future that the world envisions.

Challenges facing global investment in energy transition technologies include high upfront costs, increased risks, inflation, supply chain constraints and high interest rates. In addition, regional disparities pose significant challenges, with each region facing its own unique set of barriers to advancing its energy transition goals.

Despite record levels of investment in the energy transition, most regions are falling short of what is needed to meet climate goals. The gap between current investment and required financing is even more pronounced in emerging economies and developing countries, which currently receive only about 15 percent of global energy transition investment, highlighting the inequality in clean energy financing. This picture needs to change. 

For example, as per IEA estimates, India needs to invest USD 160-200 billion (INR 13.88-17.35 lakh crore) every year to meet its targets – two or three times more than the current levels of investment, which reached USD 68 billion (INR 5.90 lakh crore) in 2023.

Given the different conditions that each market or country operates under, investment mechanisms must be tailored to fit local requirements. There is no one-size-fits-all solution and it is essential to address the key issues that affect the financing and implementation of energy projects in each jurisdiction. These issues include reducing financing costs, de-risking innovative technologies, hedging offtake agreements and mobilizing capital for developing countries by creating an enabling environment for investments. This requires fair risk-sharing among stakeholders and leveraging blended finance, including government aid, DFIs, and export-import guarantees.