IEA and partners launch new tool to track borrowing costs for energy projects

The IEA estimates reducing financing costs by 2% would bring down the investment needed to reach net zero emissions in emerging and developing economies by $16tn until 2050

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The International Energy Agency (IEA) and its partners have launched a new tool to help help track the borrowing costs for energy projects around the world.

The Cost of Capital Observatory, developed by the IEA together with the World Economic Forum, ETH Zurich and Imperial College London, aims to help identify and address risks that have delayed or prevented vital investments to emerging and developing countries.

It has been established to address the lack of transparency about the cost of capital, which the IEA believes has made it harder for investors to price risk and for policymakers to act.

According to latest IEA estimates, reducing financing costs by 2% would bring down the investment needed to reach net zero emissions in emerging and developing economies by a total of $16 trillion (£15tn) until 2050.

It also estimates global clean energy investment will increase by more than 10% in 2022 to reach a total of $1.4 trillion (£1.3tn) but this is due almost entirely to advanced economies and China.

However, clean energy spending in emerging and developing economies outside China remains at levels seen in 2015, with many countries “finding themselves in a trap” with underdeveloped financial markets that are deterring investment and a lack of projects preventing the establishment of reliable pricing benchmarks.

An IEA analysis found the cost of capital for a utility-scale solar power plant in 2021 was between two to three times higher in key emerging economies than in advanced economies and China.

As a result, financing costs accounted for around half of total levelised costs of a solar plant, higher than the 25% to 30% seen in advanced economies and China.

IEA Executive Director Fatih Birol said: “A high cost of capital is a roadblock for investors and the data provided by our Observatory is essential to understand how this roadblock can be dismantled.

“This will allow more capital to flow to clean energy, where it is urgently needed to tackle today’s energy crisis and reach sustainable development goals.”

The online tool will be hosted on the IEA’s website and regularly updated with new data, analysis and features.