Investors are twice as likely to invest in renewable energy in developed markets as in developing markets

As mentioned in a previous insight, renewables dominate private investment in infrastructure, accounting for around half (47%) of all private investment in infrastructure projects in 2020, the vast majority of which occurred in high-income countries (90%).

Investor appetite for renewables in developed markets is clear. Considering total private investment in energy generation projects in 2020, renewables represent 91% in high-income countries. Investment in renewables has long been the preferred type of investment for energy generation in high-income countries and this trend has strengthened in recent years.

The picture differs in middle- and low-income countries. In middle- and low-income countries, 55% of total private investment in energy generation was in non-renewables in 2020, leaving only 45% to be directed to renewables. This difference between renewable investment in high-income countries and that in middle- and low-income countries exists despite evidence indicating that clean energy investment in emerging markets is a very cost-effective way of reducing emissions on a global basis.

While private investment in non-renewable projects remains significant in middle- and low-income countries, there has been progress towards greener energy over the past decade. Total private investment in non-renewable energy generation projects in these countries was 77% in 2010.

Despite these investment levels, the landscape is not wholly discouraging. Considering the number of energy projects, rather than their value, paints a more nuanced picture, given that the average deal size for renewable projects is much smaller than for non-renewable projects. In 2020, while the value of private investment in non-renewable projects outstripped that in renewables in middle-and low-income countries, the number of renewable projects was 5 times the number of non-renewable projects – indicating a clear appetite for renewables even in emerging markets. It is again notable, however, that in high-income countries, this figure was almost 20 times higher.

Overall, there is significant progress towards cleaner energy, with private investment in renewables increasing while investment in non-renewables has decreased in both developed and developing markets. But there is still ample opportunity to do much more – and it is critical to do so. Current levels of renewable investment are not sufficient to reach net-zero targets, even in high-income countries, and private capital is still flowing into fossil fuels.

In middle- and low-income countries, despite clear challenges at both the project and broader macro-level, the need to ramp up private investment in renewables is a significant opportunity to meet global infrastructure needs and emerge from the COVID-19 crisis while complying with the UN Sustainable Development Goals.

Investors are twice as likely to invest in renewable energy in developed markets than in developing markets

Source: GIH calculations based on IJ Global data.
Notes: All figures refer to primary investment in infrastructure projects, which includes greenfield and brownfield infrastructure, as well as privatisations. It excludes secondary transactios such as acquisitions and refinancing.