In 2023, global investment in technologies linked to energy transition exceeded a record $2 trillion. The Asia-Pacific region is one of the key recipients of investment relating to energy transition and clean energy. In 2023, around $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 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 energy transition remains far below required levels. Meeting the targets of Sustainable Development Goal 7 and aligning economies with net zero emission 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. However, misaligned priorities persist in the region. 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 increase by 5 per cent annually, from 491 million metric tonnes (mmt) in 2024 to 567 mmt by 2027.
Investment concentration in limited 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. Other high-income countries and territories also saw an increase in investments, albeit at a slower pace from $14.6 billion in 2010 to just over $69 billion in 2023. India, Indonesia and Vietnam have shown varied investment patterns, with India peaking at $29 billion in 2021, Indonesia at $4.8 billion in 2021 and Vietnam at $29 billion in 2020.
At a subregional level, Southeast 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 and wind energy, 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.
Public finance, including from international sources, plays a significant role in providing the required funding to emerging market and developing economies (EMDEs), particularly the least developed countries (LDCs), in the region, 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 that drive large-scale infrastructure investments, although this mix is now changing. In India, Thailand and Vietnam, most investments made between 2015 and 2022 were 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.
By affecting the risk-return profiles of renewable energy projects, the level of participation is critically determined and so is the 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 the levellised 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 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 and international funds must play a greater role.
Charting the way forward for transition
Coal plays a very important role in the region as a source of secure and affordable energy, and as a sector that provides revenue 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 cases, policy inertia. This leads emerging economies in Asia and the Pacific to keep investing in coal even as cleaner alternatives become cheaper.
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 face 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 mobilising 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 monetising early plant retirements through carbon markets) face their own hurdles like complex methodologies for verifying emissions reductions, concerns over additionality and fears of greenwashing. However, continued focus and increase in funding is expected to address these issues.
Extracts from the report titled “A Call to Action: Developing Sustainable Capital Markets, Financing Energy Transitions and Building Project Pipelines” led by ESCAP.
