The International Energy Agency (IEA) says development finance support for clean energy must triple by the 2030s, accompanied by a huge mobilisation of private capital, in order to meet net-zero targets. 

National and multilateral development finance institutions (DFIs) play a “crucial role” in supporting energy transition investments, the agency says in a July report. 

“In 2022, global climate finance surpassed the goal of US$100bn for the first time since it was established in 2010,” it says. “Public climate finance coming from DFIs played the biggest role in achieving this target.” 

The agency finds that between 2019 and 2022, DFIs disbursed an average of US$24bn per year towards the energy sector, of which around 80% was in support of clean energy projects. The largest beneficiaries were in Africa, Asia and Latin America. 

However, it estimates that by the early 2030s, between US$80bn and US$100bn in concessional financing for emerging and developing economies will be required in order to hit 2050 net-zero emissions targets. 

In addition, the amount currently provided by DFIs represents just 1% of total financing for the energy sector. Private sector capital for clean energy is far more likely to be deployed in middle or upper-income markets, with just 3% of investments reaching the world’s 48 lowest-income countries, the IEA finds. 

“There is much room for improvement when looking at the distribution of private capital mobilised by income group,” it says. “85% of today’s clean energy projects [are] in advanced economies and China.” 

The report says that despite the vital role played by DFIs in increasing the viability of projects – including through guarantees, concessional loans and technical assistance – insufficient private sector investment is currently mobilised as a result of their involvement. 

“Today, the amount of private capital mobilised by DFI interventions is relatively small,” it says. “For every dollar disbursed by DFIs into energy-related fields between 2016 and 2022, only around 33 cents were mobilised from the private sector.  

“Meeting investment needs under a net zero by 2050 scenario would require each dollar of concessional funding provided by 2035 to unlock a further US$7 in private capital over the same time horizon.” 

Jamie Fergusson, global director for climate business at the International Finance Corporation (IFC), tells GTR that emerging and developing economies currently receive “only a fraction of the investment they need for the clean energy transition”. 

“Limited climate finance dollars therefore need to multiply their impact by catalysing the private sector and mobilising private capital,” he says.  

“Development finance institutions like IFC can help by supporting project preparation, developing standards to boost investor confidence, by derisking private investment with blended finance, and by creating innovative mechanisms to mobilise institutional investors.” 

Maya Hennerkes, director for green financial systems at the Climate Strategy and Delivery Department of the European Bank for Reconstruction and Development (EBRD), says: “The focus on private mobilisation is important because the bulk of the finance for the green transition will have to come from the private sector.” 

Multilateral development banks are well-placed to catalyse the systemic changes needed to mobilise private capital,” she tells GTR.  The EBRD and our business model  one quarter of its investments in the public and three quarters in the private sector is particularly well suited for this role.” 

Several multilateral development banks have already pledged to expand capacity, including by identifying capital adequacy framework measures that could generate additional lending of US$300-400bn in the next decade, according to a 2023 joint statement. 

But the IEA says “more can be done based on their mandate and expertise”, recommending that DFIs and local governments work together to further de-risk private investments in lower-income economies. 

“Joint efforts are needed to create enabling environments that attract and sustain private investment, fostering long-term, sustainable development,” it says. 

Valérie Levkov, IFC’s global industry director for sustainable infrastructure advisory and energy, metals and mining, adds that the institution – which acts as the World Bank’s financing arm – is already working to expand strategic partnerships to support scalable and replicable financing solutions. 

“Our recent energy transition partnerships with global companies encompass a comprehensive set of services, including advisory, early-stage project development and various financing solutions, all with a long-term approach,” she tells GTR. 

IFC has also collaborated with the Asian Development Bank to produce a reference note on sustainable trade finance, which aims to help companies understand what goods and services could benefit from support, as well as how to present financing requests. 

The IEA also suggests institutions increase their focus on encouraging investment in energy efficiency, storage or clean fuels, as well as more traditional clean energy sources such as wind and solar. 

“In the case of India, Latin America and Southeast Asia, considerable investments are going into end-use sectors, especially in transportation,” it adds. “Such trends need to be expanded to other regions, particularly those that still receive sizable investments in fossil energy.” 

Though noting its call to action represents a “tall order” for DFIs, the agency says they have the potential to “catalyse transformative change towards a more sustainable and inclusive energy future”.