Niall Hannigan, Chief Financial Officer of Abu Dhabi Future Energy company Masdar, explains how private sector developers can help emerging economies achieve their clean energy goals.
The future of the Earth’s climate and energy transition increasingly hinges on the capacity of emerging economies to transition to cleaner energy production effectively and quickly.
Development of clean energy is not only going to help countries reach their climate objectives, but also crucially build resilience to volatile prices, improve energy security and ease overall energy costs. This is particularly important in countries which we know are most vulnerable to the climate crisis.
Commercially viable renewable energy will be key to ensure that developing countries can make good progress towards their climate goals, while simultaneously meeting economic challenges. Increasing energy access for these countries is undoubtedly a challenge, but it is also a significant opportunity to develop an even more economical renewable energy sector.
This dual task of renewable energy development and meeting net-zero climate goals will require investment in renewable energy amounting to trillions of dollars – considerably more than can be raised through public funds alone, which means both private and institutional capital have a key role to play.
It will be key for private sector developers, such as Masdar, to consider how we can support these developing countries in creating an attractive environment for private and institutional capital and continuing to grow as investment destinations.
The private sector investment needed by emerging economies
We know that developing countries and regions are particularly vulnerable to the climate crisis, so it is crucial that they have access to competitive and affordable clean energy. Key to this is scaling up private-sector investment.
A recent report from the Intergovernmental Panel on Climate Change (IPCC) shows that despite record levels of interest in sustainable investing, the financial flow required to limit warming to below 2 °C by 2030 is three to six times lower than needed. Clean energy investments in emerging and developing economies need to change considerably. According to the International Energy Association, annual clean energy investment in these countries needs to increase by more than seven times – from less than USD 150 billion last year to over USD 1 trillion by 2030 – if we are going to put the world on track to reach net-zero emissions by 2050.
There is more provision for the successful transition to green energy than ever before – in addition to the well-established wind, solar and hydro technologies, exciting developments in the advancement of green hydrogen, carbon capture utilisation storage (CCUS) and battery storage, will all be key.
But these require substantial investment to become commercially viable. This funding gap needs a two-pronged approach with investment in existing and newer technologies, and this should be a central focus for the private sector.
Collaboration across the board is key
Growing amounts of investment are pouring into sustainability and green energy, yet this capital is not always being directed towards the emerging economies that need it the most. It can often be challenging to cultivate reliable and attractive investment ecosystems in these regions, and to generate investment appetite and attract both private and institutional capital.
This is why collaboration is central to bringing together key stakeholders from across government, the development and investment community, and financial institutions. In this way, we can create a stable investment environment and framework, establish credibility for the renewables program, and ultimately support the ability for companies like Masdar to deliver competitive renewable energy on a sustainable basis. With the urgent need for successful and affordable renewable energy, it’s increasingly important that stakeholders work together effectively to really lay the groundwork for success.
To this end, Masdar has developed strategic relationships with international development finance institutions (DFIs), including the European Bank for Reconstruction and Development (EBRD), the Asian Development Bank and the International Finance Corporation (IFC). Masdar has been successfully working with DFIs including these to successfully progress and present ground-breaking renewable energy projects in different developing countries.
Collaboration will also be important to generating innovative financing solutions that allow developers and financiers to build their involvement in emerging markets. For example, at Masdar we have been working closely with Etihad Credit Insurance (ECI), the UAE’s export credit agency, to work on solutions which support and enable the participation of commercial banks in the financing of renewable energy projects in these emerging economies. These partnerships are essential to ensuring we can attract the additional capital needed, thereby boosting cost competitiveness.
As partners continue to effectively collaborate, opportunities will increase. If governments in emerging economies continue to work with DFIs and developers such as Masdar, the development of large-scale renewable energy programs focused on competitively priced clean energy for citizens can progress sustainably, providing real energy security for these countries.
Today’s energy challenges are so wide-reaching that no single company or sector can tackle clean energy alone. Close collaboration between government, finance and industry is key. The three must work as partners to ensure that both short and long-term investments in industrial decarbonisation are sustainable and affordable.
Established in 2006, Masdar, Abu Dhabi Future Energy Company, is a global leader in renewable energy and sustainable urban development. Masdar means “source” in Arabic.
Their mandate is to help maintain the leadership of the United Arab Emirates (UAE) in the global energy sector, while supporting the diversification of both its economy and energy sources for the benefit of future generations.
Masdar is developing commercially viable renewable energy projects in the Middle East & North Africa (MENA) and international markets, and champions innovation in clean technologies. The company is currently building the world’s most sustainable city.