Renewable energy financing in emerging economies faces particularly daunting challenges, but there are policy solutions that could potentially reduce the cost of renewable energy support by as much as 30%.
In a recent CPI series, we look at two potential solutions:
Reducing the cost of debt dramatically reduces the total amount of support renewable energy requires, and makes those subsidies cheaper to provide. Our analysis demonstrates that policy makers could reduce the cost of supporting renewable energy in rapidly developing economies by 30% if it were delivered through subsidized debt rather than through higher tariffs or subsidies on top of wholesale energy prices.
By indexing renewable energy tariffs to foreign currency a group of middle-to-low-income countries with ambitious renewable energy targets including Turkey, India, Indonesia, South Africa, and Mexico could attract additional foreign debt to the sector. This measure reduces the currency risks that would otherwise erode the cost advantages of cheaper, longer-term foreign debt and could save these countries 30% on their renewable energy support.