Irena releases a report on financing the energy transition: An annual global investment of over USD 4.4 tn is needed to raise the share of renewable energy in the primary energy mix from the current 20% to the 75%, according to a report (pdf) by the International Renewable Energy Agency (Irena) and India’s G20 Presidency. The report provides recommendations for enhancing collaboration among stakeholders, with the aim of financing energy transition projects with low-cost capital in G20 countries and beyond. The cost and price figures reflected in the report were gathered in 2021.

The risk factors: Differences in the cost of financing between the G20 countries were found to be primarily driven by non-technical variables including country risk, exchange rate risk, and off-take risks (risk of off-taker not paying for energy generated), which add a premium to the cost of capital and makes borrowing for renewable related projects more expensive.

The MENA region lags behind: The Middle East had a simple average cost of capital of 8.7% for utility-scale solar PV projects — the highest in the six regions surveyed by Irena in 2020-2021. Egypt and Tunisia specifically have one of the highest cost of capitals, and Saudi Arabia also showed a high cost of capital for wind and solar projects, standing at 6.2% compared to 2.5% in China, 1.8% in France, and 1.3% in Germany.

Case studies provide a guideline for methods to reduce financing costs: Multilateral development banks (MDBs) administered guarantees to Argentina’s green fund, which indirectly mitigated country risk. Brazil converted a former development agency into a state-owned financial institution that prioritizes flexibility and independence from the state. India’s 35-year-old renewable-energy-focused non-bank finance corporation was behind much of its success in rolling out renewables, along with its issuance of sovereign green bonds. Indonesia’s recent launch of the new Just Energy Transition Partnership is supporting the country in its phase-out of coal-fired power plants and creating a market for green sukuk.

The G20 made recommendations for the global facilitation of green transition: Recommendations include investing in researching and mapping the reasons for the differences in the cost of capital between countries through extensive stakeholder surveys, as well understanding the role of MDBs and other financial institutions in lowering the cost of capital and growing the available pool. The role of the public sector in setting up risk mitigation measures was highlighted, as well as the need to learn from the successes of solar PV and onshore wind in becoming commercially mature solutions.