The International Energy Agency (IEA) reports that global energy investment surpassed $3 trillion in 2024, yet only 25% went to emerging markets and developing economies (EMDEs) outside China. A significant barrier is the high cost of capital, which is 2–3 times higher than in advanced economies, driven by regulatory, political, and currency risks. The IEA’s Cost of Capital Observatory, now in its third year, highlights that clean energy projects like solar and batteries are especially affected due to their upfront-heavy costs. While some markets have improved, most financiers expect capital costs to remain high in 2025. Lowering these costs is critical to scaling clean energy in EMDEs, requiring regulatory reforms, international support, and innovative de-risking strategies. The IEA writes:
Global energy-related investment grew to over USD 3 trillion in 2024, but only around 25% of this was directed towards emerging markets and developing economies other than China, a fall in real terms over the last decade. One of the principal factors holding back investment is the high cost of capital, driven by on a range of perceived and real risks facing investors in EMDEs. For clean energy investments, which are typically characterised by high upfront costs with minimal ongoing expenditures, project viability is highly sensitive to the cost of capital, but data on the actual terms facing project developers is scarce, out of date and geographically limited. In 2022, in recognition of the importance of accessing empirical data on the cost of capital for energy projects in EMDEs, the IEA launched its Cost of Capital Observatory. […]
Our findings confirm that the cost of capital for renewable power projects and batteries in EMDEs is at least double the amounts seen in advanced economies, with substantial variations across the surveyed countries. The survey results show that the cost of capital has generally increased in all major markets compared to the previous update in 2023, with some divergence at a country and technology-level due to changes in local market interest rates and regulatory environments. […]
Early last year, the IEA developed recommendations to reduce the cost of capital for clean energy projects in EMDE, which was published and presented at the IEA’s Ministerial Meeting in 2024. The IEA was then mandated by the G20 Brazil Presidency ahead of COP29 to develop a roadmap for scaling up energy investments in EMDE. This roadmap explored in greater depth de-risking solutions and innovative approaches to unlocking private capital at affordable rates for EMDE. The IEA remains committed to providing valuable insights through the Cost of Capital Observatory and related work.
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