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Investment in clean energy, such as wind and solar, in developing countries – seen as critical by their governments if they are to maintain economic growth and bring power to poor communities – must double on average between now and 2020, a new report shows. But, the report argues, governments of richer countries must come forward with some up-front cash to help give the private sector confidence to make the transformational investments needed.

The new study, by the Global Climate Network, a unique alliance of think tanks called Investing in Clean Energy, examines in detail the costs of large increases in clean energy projects in four developing countries. It finds that investment in clean energy must grow from $34 billion in 2009 to an average of $63.6 billion a year between 2010 and 2020 if existing ambitions to meet climate change and energy supply targets are to be met.

The key to achieving this change is for developed countries to provide up front finance and guarantees so that private investors feel it is safe and profitable to invest. If this was done according to some of the mechanisms recommended in the study, every $1 of public finance could leverage up to $10 from the private sector.

The GCN urges governments to set aside a proportion of the finance pledged at last year’s Copenhagen climate summit to help attract private investment in this way. 

Kate Gordon, Vice President for Energy and Climate Policy at the Center for American Progress, the Network’s US member said:

'If developed countries hope to fulfill their promises in Copenhagen, they must adopt strategies to use public dollars as a way to leverage private investment into clean energy markets in developing countries. Not only is this the right thing to do, it will also ensure massive growth in these countries' clean energy use, which will bring down the cost of low-carbon technologies the world over.’

Chinese GCN member, Professor Pan Jiahua, Director of the Research Centre for Sustainable Development in Beijing, said:

‘The massive up front costs of shifting to clean energy require that private investors in the world’s major capital markets take the opportunities seriously. For that to happen,financial incentives are needed for pump-priming to reduce what the private sector still sees as a risky market without enough promise of reward.’

Underlying the GCN’s global study are four separate pieces of research in China, India, Nigeria and South Africa by members of the Network. This work looks at hydro, solar and wind power in China, solar in India, gas and small-scale hydro in Nigeria and solar and wind in South Africa.

The GCN proposes five separate debt and equity finance mechanisms that could be used either by developed country governments acting alone or as part of the work of a new international climate fund. Across the five mechanisms, which involve governments either providing up front incentives or agreeing to provide sovereign guarantees to private investors, the GCN’s research suggests that for every $1 of government money invested, between $2 and $10 of private investment will follow.

Nick Pearce, Director of the Institute for Public Policy Research, which coordinates the GCN said:

‘In the longer term, we must hope that richer countries recognise it is in their interest to put forward much larger sums to help the developing world to convert to cleaner energy. But in the meantime, the GCN’s study shows how the cash already pledged could be made to work harder to attract private money in. It may seem difficult to argue for more investment by governments at a time of spending cuts, but it will reduce the amount of government money that’s required in future.’

Notes to editors.

1. The Global Climate Network (GCN) is a collaboration of independent, influential and progressive research and policy organisations in countries key to tackling climate change. Together, members of GCN are committed to addressing the constraints faced by sovereign governments in agreeing international action.

2. Its members are:

The Bellona Foundation, Norway
Center for American Progress, USA
The Climate Institute, Australia
The Energy and Resources Institute, India
Institute for Public Policy Research (ippr), London
IMBEWU Research Ltd, South Africa.
International Centre for Energy, Environment and Development, Nigeria
Research Centre for Sustainable Development, China

3. The study finds that capital expenditure across the sectors and countries must almost double from around $34 billion in 2009 to an average of $63.6 billion between 2010 and 2020. Excluding China, for which 2009 investment in its wind sector exceeded estimated average costs for 2010–20, the average annual investment needed is $15.93 billion but the current gap is around $15.73 billion; India, South Africa and Nigeria are currently only investing $0.2 billion, a tiny fraction of what would be required to fulfil existing government ambitions.

4.  Investing in Clean Energy: How can developed countries best help developing countries finance climate-friendly energy investments? is available at http://www.globalclimatenetwork.info/publicationsandreports/publication.asp?id=785    

Contacts:

Tim Finch, ippr Director of Communications t.finch@ippr.org  0207 470 6110; 07595 920899 
 
Andrew Pendleton, Senior Fellow and Convenor of the Global Climate Network a.pendleton@ippr.org  0207 470 6100; 07789997376

David Nash, ippr Research Fellow d.nash@ippr.org 0207 470 6100; 07889 092730