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Some of the ingredients for catalyzing clean energy investments in Asia, Africa and other emerging markets have their own unique nomenclature—“blend 2.0,” “de-risking” and “national investment catalogues.” Yet there is a more straightforward recipe: A mix of national clean energy policies with the needs of institutional investors looking for opportunities that are safe and relatively profitable.
To date, creating this relatively simple blend has been largely elusive. While clean energy investments in developing countries are growing at a rapid clip, it has been done with minimal help from pension funds, insurers and other institutional investors who manage enormous amounts of capital—tens of trillions of dollars among U.S. institutional investors alone.
But the momentum could be changing as clean energy environments are ripening worldwide.
On the heels of another year of record high temperatures and a historic global climate agreement in Paris, investors are opening their eyes to the urgency of shifting significantly more capital to clean energy in developed and developing countries. Developing countries, whether in Asia, Africa or Latin America, are especially in need of capital because their economies, populations and overall carbon footprints are growing far more quickly compared to Europe, the U.S. and other industrialized countries.
Barring major changes, energy-related pollution in developing countries will be more than double that from developed countries by 2040, according to the U.S. Energy Information Administration. The fact that these countries are also working feverishly to provide electricity to the more than one billion people who have no access to power today further exacerbates the challenge.
“If you don’t have access to energy, you’re not going to see economic growth,” said Rachel Kyte, CEO of Sustainable Energy for All, speaking to 500 global investors at the Investor Summit on Climate Risk: Advancing the Clean Trillion, last month at the United Nations. “This has to be a just energy transition where everyone can imagine they will prosper.”
— disrupt (@disruptideas1) February 8, 2016
For institutional investors, the opportunities are especially enormous after the recent climate accord in Paris, which aims to limit average global temperature rise to well below 2 degrees Celsius. The linchpin of the agreement is the carbon reducing commitments of 187 countries and their pledge to ratchet up those efforts in the years ahead.
But which of these countries have the necessary policy frameworks in place that will induce institutional investors to open their wallets? Is India truly ready to attract the sizeable investment flows it will need to become a solar super power by 2022? To what extent are Sub-Sahara African countries open for business to ever-cheaper wind and solar power over costly, high-polluting diesel generators?
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