IEA – Reducing the Cost of Capital

The International Energy Agency (IEA) has been tasked with finding ways to reduce the cost of capital for clean energy investment in emerging and developing economies (EMDEs). Investment in these countries needs to increase significantly to limit global temperature rise to 1.5°C, but the high cost of capital makes it difficult to attract investment. The IEA's report is based on previous analysis and new survey data collected for the Cost of Capital Observatory project. Clean energy projects, which have high upfront costs, are particularly affected by the cost of capital. Compared to advanced economies and China, EMDEs face higher costs due to risks related to countries and sectors. These risks include currency fluctuations, the rule of law, revenue flows, regulatory uncertainty, and access to grids. To lower the cost of capital and encourage clean energy investment in these areas, it is crucial to reduce these risks. The IEA's special report provides insights into the risk factors that affect financing costs in different clean energy sectors in EMDEs and offers recommendations to address them.