Cheap Finance Can Make Renewables Cost-Competitive Faster in Developing Countries

A new report pinpoints how concessional finance can make wind, solar, and batteries cost-competitive faster in developing countries, accelerating the shift from fossil-fuelled power.

Cut-rate financing has the potential to substantially speed the transition from fossil-fuelled power generation to renewable energy in developing countries, according to a new report produced by BloombergNEF (BNEF) and commissioned by the Clean Technology Fund (CTF), a program of the $8.3 billion Climate Investment Funds (CIF). That, in turn, could potentially slow or even halt the rate of CO2 emissions growth in these less developed countries.

Development finance institutions (DFIs) can lend concessional capital to projects in non-OECD countries at interest rates well below those they might ordinarily offer. Such funds have historically been strategically deployed to support ventures regarded as particularly risky. For years, concessional finance has been recognised as a “secret sauce” for accelerating development of low-carbon technologies in emerging economies. Pairing clean energy with affordable, flexible financing can make infrastructure like wind or solar power more cost-competitive, even more so than fossil-fuel sources.

The new report, Clean Technology Fund and Concessional Finance: Lessons Learned and Strategies Moving Forward, quantifies for the first time how much reduced-price cash can lower the “levelised cost of energy (LCOE)” for different clean energy technologies in specific countries. It then identifies two critical “tipping points” when clean energy becomes more viable than its fossil competitors:

First, When a clean energy facility becomes cheaper to build than a new gas or coal plant.

And second, when building a new clean energy facility becomes cheaper than running an existing gas or coal plant.

The report also found that there is vast potential for concessional finance to create markets for next-generation low-carbon technologies, in particular, batteries. As generation from intermittent sources such as wind and solar grows so does the need for grid flexibility and energy storage. While batteries are still expensive, BNEF found that the higher the cost of technology, the greater the potential impact concessional finance can make.

“Concessional finance has the potential to take developing nations’ clean energy markets to the next level,” said Luiza Demôro, lead author of the report. “With access to cheaper finance, many emerging countries would be able to kick-start their battery storage sectors and avoid capacity additions from fossil fuel-fired plants.”

“Concessional finance has a proven ability to push the boundaries of clean innovation, “said Mafalda Duarte, head of CIF. “Over the next ten years and beyond, this capital will be essential to fighting climate change and building a more prosperous future for all.”

For more information click here.