Energy Transition

These developing countries are leading the way on renewable energy

In developing countries, lack of access to finance under reasonable terms, makes the costly upfront investments in renewable energy unaffordable.

In developing countries, lack of access to finance under reasonable terms, makes the costly upfront investments in renewable energy unaffordable. Image: Zuzana Drovotkova/World Bank

Demetrios Papathanasiou
Global Director, Energy and Extractives Global Practice, World Bank
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Morocco

  • Developing countries may not have the same public funds as richer countries, but they are attracting private investment to well-crafted, larger-scale renewable power projects, the World Bank says.
  • Morocco has renewable energy projects that make up two-fifths of its installed energy capacity.
  • India has the fastest-growing rate of renewable electricity growth of any major economy.
  • Governments can pave the way for private-sector investment by setting ambitious clean energy targets, developing investor-friendly regulations and bringing in international financial institutions to mitigate risk.

Renewable sources of energy can help countries mitigate climate change, build resilience to volatile prices, and lower energy costs. This is especially critical now as spiking fossil fuel costs, triggered by the war in Ukraine, are debilitating poor energy importing countries.

For decades, economic and scientific organizations have urged leaders to create policies to promote renewable energy as part of vital global efforts to fight climate change. In addition to reducing carbon emissions, large-scale renewable power projects also provide demonstrable economic benefits for investors, governments, and especially consumers who need reliable, low-cost electricity.

Why are so many countries still stuck with imported fossil fuels today?

While developing countries may not have the public funds to build sufficient new infrastructure, well-crafted, larger-scale renewable power projects can, and do, attract the private investment needed to get plants up and running.

For years, fossil fuels were relatively inexpensive. So, investing upfront money in new clean energy infrastructure was difficult for countries, as well as for individuals.

Take, for instance, an individual investing in an electric car. While it may be more expensive to buy the new electric car, over the life of the vehicle, the savings from reduced costs for fuel and less servicing, will more than pay for the higher initial cost. Transforming the high up-front capital outlays to longer term benefits and dealing with the affordability question of higher initial costs, requires access to finance. In fact, the availability of credit and leasing options for vehicles in developed countries, is making possible a significant number of the sales of expensive electric cars.

But in developing countries, lack of access to finance under reasonable terms makes the costly upfront investments in renewable energy unaffordable. In addition, macroeconomic and political uncertainties discourage private sector investors from supporting renewable energy. Breaking free from fossil fuels is even harder during the current crisis as countries scramble to ramp up short-term solutions for fuel shortages.

Renewable energy is the path we must choose

Fortunately, there has been increasing interest in building modern, large-scale infrastructure. In 2020 alone, the public and private sectors invested over $300 billion in renewable energy, although annual investments in clean energy need to more than triple by 2030 to reach net-zero emissions by 2050.

To attract vitally needed private financing, developing countries must deploy a pipeline of large-scale renewable infrastructure projects that ensure a return on investment, while also keeping costs affordable for consumers, even for the poorest.

At the 2022 Spring Meetings of the International Monetary Fund (IMF) and the World Bank Group (WBG) we heard from some countries that are blazing new paths toward self-sufficiency and economic growth through renewable resources.

Morocco is moving ahead full steam towards a sustainable future

Morocco has developed renewable energy projects that now contribute almost 40 percent of its installed energy capacity, and it is targeted to exceed 50 percent by 2030. Dr. Leila Benali, Morocco’s Minister of Energy Transition and Sustainable Development shared that her country set out more than a decade ago to craft comprehensive policies in support of renewable infrastructure that has created 60 projects attracting more than $5 billion in investments. The pipeline of viable large-scale renewable infrastructure projects is supported by government policies, giving private investors confidence to supply needed capital.

“We are trying to ensure that the return on capital invested on projects, particularly those most competitive in wind, solar and now hydrogen, improves so that it is a sustainable strategy,” Dr. Benali told us.

Morocco’s Noor Ouarzazate Solar Complex is the largest concentrated solar power plant in the world, spread over 3,000 hectares of desert and with an overall capacity of 580 MW of power , enough to meet the energy needs of a million households. The country has also developed more than a dozen large-scale windfarms, as well as provided incentives for businesses and residences to invest in their own solar panels to save on energy costs.

Boosting solar in India

Another example comes from India, which has achieved the fastest-growing rate of renewable electricity growth in any major economy. Indu Shekhar Chaturvedi, the country’s Secretary of the Ministry of New and Renewable Energy, shared that India adopted a proactive approach by providing incentives and risk-management instruments early on, so that utilities could incorporate renewable sources of energy without suffering economic losses.

These examples serve as a guiding light to other countries, which still lack a reliable pipeline of bankable projects. Challenges include grid integration technical constraints, inadequate regulatory frameworks, and weak procurement and planning capacity. Governments need to pave the way for the private sector by setting ambitious clean energy targets, developing investor-friendly regulations, and bringing in international financial institutions to mitigate risk.

The World Bank Group supports Morocco, India and other countries in developing renewable energy resources cheaper, faster, and better by unlocking a pipeline of bankable renewable energy projects.

In the last few years, the World Bank has invested more than $8 billion in clean energy, renewable energy access, and related infrastructure, and catalyzed over $20 billion in private investments in renewable energy generation capacity . Our financing for distributed renewable energy solutions has been rising, with investments already exceeding $2 billion, most of them in Sub-Saharan Africa.

Weaning the world off fossil fuels may seem daunting in these troubled times, but it will only become costlier the longer it takes. We have the technology and financial tools needed to create a greener world, while also boosting economies and resilience. We must invest in our future now, not later.

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Related topics:
Energy TransitionClimate ActionGeographies in Depth
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