Concessional financing will accelerate the transition to renewable energy in developing countries

According to a new report from Bloomberg New Energy Finance (BNEF), low-interest financing/concessional financing has the potential to significantly accelerate the transition
from fossil fuel power generation to renewable energy in developing countries.
This, in turn, could slow or even halt the growth rate
of CO2 emissions in these less developed countries.

Development finance institutions (DFIs) can provide concessional capital to projects in non-OECD countries at interest rates much lower than they normally offer
.
Historically, these funds have been strategically used to support businesses
deemed "particularly dangerous.
" For years, low-interest/concessional financing has been considered the "secret sauce" for accelerating the development of low-carbon technologies in emerging economies, combining clean energy with affordable, flexible financing that can make infrastructure such as wind or solar more cost-competitive and even more competitive
than fossil fuel resources.

For the first time, the new report quantifies the level of energy that concessional financing can reduce the "levelized cost of energy"
for different clean energy technologies in a given country.
Then, when clean energy became more viable than fossil competitors, it identified two key "tipping points":

Tipping Point 1: When clean energy facilities cost less to build than new natural gas or coal plants, it could take five to ten years from today to achieve in developing markets where this is not yet happening, or even longer
.
However, BNEF's analysis found that concessional financing could help shrink this time period
.
In Thailand, for example, concessional financing has the potential to reduce clean energy costs by 5 to 7 percent, accelerating that tipping point by two years and preventing the construction of new fossil fuel power plants
.
When the market crosses this threshold, building clean energy facilities is not only the right thing to do, but also the most economical thing to do
.

Tipping Point 2: Building new clean energy facilities becomes cheaper
than running existing natural gas or coal plants.
In the long run, to combat climate change, some existing sources of heavily polluting electricity will need to be replaced without sacrificing countries' development goals
.
In the case of India, which installed a one-third of the size of U.
S.
coal power in just five years, BNEF found that concessional financing could bring that scale to new wind in just four years
.
This is a crucial step towards the deep decarbonization the world needs, because unless there are more profit options, there will be thousands of gigawatts of coal capacity that will continue to operate for decades
.

The report also found that concessional financing has great potential to create markets
for the next generation of low-carbon technologies, particularly batteries.
As intermittent power generation such as wind and solar grows, so does the need for grid flexibility and energy storage
.
While batteries are still expensive, BNEF found that the higher the cost of the technology, the greater the impact of concessional financing
.
For lithium-ion battery projects, reducing capital costs by one percentage point can reduce the cost of power generation by $10/MWh
.

"Concessional financing has the potential to push clean energy markets in developing countries to new levels," said Luiza Demôro, lead author of the report and head of BNEF's annual Climatescope program.

”

Mafalda Duarte, CIF director, said: "Concessional financing has proven capable of pushing the boundaries of
clean innovation.
Over the next decade and beyond, this capital is critical
to tackling climate change and building a more prosperous future for all.
”