IRENA: How to raise RE’s annual investments to $900bn by 2030

The International Renewable Energy Agency (IRENA) has identified 5 key areas where governments, public finance institutions, and other investors can take action to grow annual investments in global renewable energy sector to $900 billion by 2030.

In a recent report, IRENA estimated that deploying renewables on the scale necessary to limit global temperature rise below 2 degrees would require current investment to double by 2020, and triple by 2030 to around $900 billion annually.

It said in 2015, $286 billion was invested in renewable energy, which may not be enough to keep renewables on track as the energy demands of the future.

“Unfortunately it’s not even close to enough,” said Joanne Jungmin Lee of IRENA’s Knowledge, Policy, and Finance Centre.

Lee stated that: “More money must be invested in renewables to meet the world’s growing energy demand and to realise their socioeconomic and environmental benefits.”

Also, Lee admitted the $900 billion investment mark was a huge sum but achievable, given renewable energy’s increasing cost-competitiveness.

Lee equally explained that if sound policies and targeted financial instruments are used to enable markets and attract more investment from the private sector, it was likely to galvanise this sum.

“It’s unlikely that more money can come from the public sector above its current levels, which is about 15% of total investment in renewables, so we must focus on attracting private investors by making renewables more attractive,” she said.

Removing barriers and reducing risk

IRENA from this said that making renewables more attractive for investors means removing market barriers and mitigating risks.

It explained that governments and public finance institutions can provide technical assistance and grants for project preparation and development, while structuring and designing on-lending and co-lending options can improve access to finance and build local lending capacity.

“Through public finance institutions, private investors and lenders can get access to risk mitigation instruments like guarantees, currency hedging instruments and liquidity facilities,” Lee stated.

She then said: “However, the use of guarantees in renewable energy investment remains limited. In 2014 IRENA completed a survey of different public finance institutions around the world, and found that on average these institutions only spent around 4% of their total infrastructure risk mitigation issuance value on renewables.”

It noted that by increasing awareness of existing risk mitigation instruments, streamlining institutional procedures, redirecting institutional incentives to enable greater provision of risk mitigation instruments, and promoting the importance of renewable energy investment to the issuers of risk mitigation instruments, public finance institutions could play a more influential role in attracting further large-scale investment from the private sector.

Also, standardising project documentation such as Power Purchasing Agreements, and aggregating small projects, Lee noted would make renewable energy project more accessible to mainstream investors.

Specific areas for action

From the analysis, IRENA thus summarized the 5 potential ‘toolboxes’ to include:

Using tools and grants to support project preparation, which are vital to advance renewable energy projects from initiation to full investment maturity.

Directing dedicated resources to local financial institutions and designing on-lending facilities to improve access to capital and build local lending capacity.

Leveraging private investment by increasing the use of existing guarantees and developing new, targeted risk mitigation instruments to address power-off taker, currency and liquidity risks.

Standardising contracts and project documentation processes to facilitate aggregation of projects while governments develop guidelines for green bonds issuance to mobilise more capital market investment.

Developing dedicated financing facilities to issue risk mitigation instruments and support design and implementation of structured finance mechanisms for renewables.