Reducing the cost of capital to finance the energy transition in developing countries (Calcaterra et al., September 2024)

Models used to evaluate the energy transition do not differentiate regional financing costs and therefore cannot study risk-sharing mechanisms for renewable electricity generation. In this study, the authors incorporated the empirically estimated cost of capital differentiated by country and technology into an ensemble of five climate–energy–economy models. They quantified the additional financing cost of decarbonization borne by developing regions and explored policies of risk premium convergence across countries. The study found that alleviating financial constraints benefits both climate and equity as a result of more renewable and affordable energy in the developing world. This highlights the importance of fair finance for energy availability, affordability and sustainability, as well as the need to include financial considerations in model-based assessments.
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