This is an extract from a recent report “A Call to Action: Developing Sustainable Capital Markets, Financing Energy Transitions and Building Project Pipelines” led by ESCAP and jointly prepared with ADB, Climate Bonds Initiative, IRENA and UNFCCC RCC Asia-Pacific.
In 2023, global investment in technologies linked to the energy transition exceeded a record $2 trillion. The top recipients were China (48 per cent), the United States (17 per cent), Germany (5 per cent), the United Kingdom (4 per cent) and France (3 per cent). Regionally, the Asia-Pacific region is still a leading recipient of investment relating to the energy transition and clean energy. In 2023, $940 billion was invested in the region, equivalent to more than 45 per cent of the global total. Since 2010, there has been a substantial rise in investment in the energy transition in the region. This has been driven by the region’s abundant resources, growing demand, favourable policy and regulatory interventions in some countries, and the increased cost-competitiveness of clean energy technologies.
However, current investment in the region linked to the energy transition remains far below required levels. Meeting the targets of Sustainable Development Goal 7 and aligning economies with net-zero emissions objectives will require annual energy investment to grow to between $2.2 trillion and $2.4 trillion by 2030, with 90 per cent of this investment directed towards clean energy, depending on the pathway and level of ambition. Misaligned priorities persist. In 2023, the Asia-Pacific region accounted for over 90 per cent of global investment in coal, representing 13 per cent of energy investment globally. Demand for coal in ASEAN economies is projected to grow by five per cent annually, from 491 million metric tons (Mt) in 2024 to 567 million Mt by 2027. Without urgent steps to phase out coal and scale up diversified clean energy infrastructure, the region risks locking-in carbon-intensive pathways, undermining both climate goals and long-term energy security, and missing out on the opportunity to reduce air pollution.
Investment remains concentrated in a limited number of countries
Progress in investing in energy transitions to date has mostly been concentrated in a few markets, notably China and high-income countries in the region including Australia, Japan and the Republic of Korea. China has consistently led these investments, with an almost 14-fold increase from approximately $48.6 billion in 2010 to $664.78 billion in 2023. High-income countries and territories also saw growth, albeit at a slower pace, from $14.6 billion in 2010 to just over $69 billion in 2023. India, Indonesia and Viet Nam have shown varied investment patterns, with India peaking at $29 billion in 2021, Indonesia at $4.8 billion in 2021, and Viet Nam at $29 billion in 2020.
At a subregional level, South-East Asia requires $190 billion annually in clean energy investment by 2035 to align with regional climate goals. However, in 2023 only $32 billion was invested, leaving a significant investment gap. On the other hand, the outlook is encouraging in countries where investment levels have so far been lower. For example, the Philippines recently signed a $15 billion renewable energy deal with the United Arab Emirates state energy firm Masdar to develop solar, wind and battery energy storage systems to provide up to 1 GW of clean power by 2030.
Per capita metrics further illustrate disparities in energy transition investment in the region. From 2020 to 2023, investment relating to energy transition in the Asia-Pacific region averaged $115 per capita, roughly 10 per cent below the estimated global average of $131 per capita. However, excluding the largest recipients – China and Asia-Pacific high-income economies – the regional average was only $18 per capita, just 14 per cent of the global average. Australia led the region with $422 per capita, followed by China at $301, while India, Indonesia and the Philippines attracted between $3 and $10 per capita, highlighting stark disparities.
The Asia-Pacific region includes 10 Least Developed Countries (LDCs), which receive only a fraction of the total invested, despite their urgent energy needs. The 10 LDCs secured just 1.4 per cent of total energy transition investment between 2020 and 2023, underscoring the stark financial disparities in clean energy financing. These countries had set renewable energy targets under their Nationally Determined Contributions (NDCs) for COP29, aiming to increase their renewable energy capacity from approximately 20 GW in 2023 to 58 GW by 2030. Of this total, 28 GW is expected to be installed unconditionally, while the remaining 30 GW is conditional on securing international financial support.
Achieving both conditional and unconditional renewable energy targets in Least Developed Countries will require a minimum investment of $44 billion by 2030 (or $6.3 billion annually) to develop renewable energy projects alone, excluding additional costs of supporting infrastructure, technical assistance and capacity-building. Public finance, including from international sources, plays a significant role in providing the required funding in EMDEs and particularly LDCs, primarily through concessional loans and grants. However, actual financial flows remain insufficient. Since 2010, LDCs in the Asia-Pacific region have received an annual average of just $0.9 billion in international public finance (from a total of over $800 billion for the region), which includes concessional loans, grants and other international support.
Types of investors, sources of finance and cost of capital
The type of investor and source of finance significantly shape where investments are directed, the technologies invested in, and the cost of finance. There are clear differences in the composition of renewable energy investors across selected countries. In China, for example, the renewable energy sector has been heavily financed by state-owned enterprises and financial institutions which drive large-scale infrastructure investments, although this mix is now changing. In India, Thailand and Viet Nam, the majority of investments made between 2015 and 2022 was driven by private investors, including commercial financial institutions, households and corporations. This shows the important role of policies such as feed-in tariff programmes and auctions, which are policy mechanisms designed to promote renewable technologies.
The tariff is technology-specific (so it is different for wind, solar etc.) to reflect differences in initial capital expenditure and generation cost but is set high enough to cover the cost of production and offer a reasonable return. They may also feature purchase obligations, requiring utility companies or system operators to purchase all renewable electricity that is produced and is eligible under the programme (ensuring demand and investor confidence). As renewable energy technologies mature, many jurisdictions have replaced or complemented feed-in-tariffs with competitive auctions, enabling governments to procure electricity at an even lower market-determined price and driving rapid deployment in countries such as India and China.
By affecting the risk-return profiles of renewable energy projects, such programmes critically determine the level of participation and investment provided by private investors, public entities and concessional providers, households and consumers. In less developed markets where such programmes do not exist or are not designed well, risk-averse actors such as institutional investors and commercial financial institutions play a far more limited role, reflecting persistent barriers such as high perceived risk, currency mismatches and limited project bankability.
Globally, renewable energy sources such as solar and wind have become cost-competitive in terms of levelized cost of electricity (LCOE), but in EMDEs, higher upfront capital requirements and elevated costs of capital can erode these cost advantages. For example, in recent years solar projects in countries such as India and Indonesia have experienced Weighted Average Cost of Capital (WACC) rates of between approximately 8.5 per cent and 13.5 per cent, which is two to three times higher than those in advanced economies. In LDCs with lower sovereign credit ratings, the cost of capital is much higher and attracting private capital becomes more challenging. In these contexts, public funds must play a greater role. In particular, international flows of public funds are instrumental in countries such as LDCs which have limited domestic public funds.
Continued dependence on coal and challenges in retiring coal-fired power plants
Coal plays a very important role in the region as a source of secure and affordable energy, and as a sector that provides revenues and employment in several economies. Although globally renewables are growing rapidly, coal retains a foothold across the Asia-Pacific region, driven by cheaper upfront costs, favourable financing and, in some examples, policy inertia. This leads emerging economies in Asia and the Pacific to keep investing in coal even as cleaner alternatives become cheaper.
The flow of international public finance to support clean energy in coal-dependent emerging markets and developing economies (EMDEs) continues to be highly uneven, with deep structural barriers hindering the energy transition. Between 2018 and 2023, India received the largest share of international public financial flows, receiving over $9 billion, driven by liberalized foreign direct investment policies, robust institutional frameworks and strong global partnerships. In contrast, the Philippines, which relies on coal for over 40 per cent of its electricity, received just $375 million.
A variety of international and multilateral initiatives have emerged to help bridge the financing gap for coal-dependent EMDEs in the Asia-Pacific region. These initiatives hold great promise in the medium term. However, these mechanisms are facing significant implementation challenges, often rooted in fractured coordination between stakeholders. For example, blended finance partnerships such as the ASEAN Catalytic Green Finance Facility (ACGF) Fast Track have faced difficulties in mobilizing private capital at scale, as investors deem risks to be high due to nascent carbon markets and regulatory uncertainty. Newer tools such as transition coal credits (aimed at monetizing early plant retirements through carbon markets) face their own hurdles: complex methodologies for verifying emissions reductions, concerns over additionality and fears of greenwashing.
Access the report here
