Three Strategies for Financing Clean Energy Goals in Southeast Asia

With rapid economic growth on one side and its net-zero commitments on the other, the ASEAN region must innovate in order to close the clean energy investment gap.

South-East Asia faces a critical $150 billion annual shortfall in clean energy investment required to meet its 2050 climate commitments amid rising economic growth and energy demand. To bridge this gap and reduce reliance on costly fossil fuel imports, the region must implement strategic reforms to enhance financial transparency, leverage blended finance through development institutions, and mitigate currency risks for private investors. Ultimately, a successful energy transition depends on coordinated public-private collaboration to dismantle barriers to foreign capital and capitalize on the region’s sustainable economic potential.

Key Points

• South-East Asia requires $180 billion in annual clean energy investment by 2030, yet only $30 billion was invested annually between 2016 and 2020.
• Rapid urbanization and industrialization are driving energy demand, and failing to transition could result in oil and gas import bills exceeding 5% of the region’s GDP by 2030.
• Major ASEAN economies, including Indonesia, Vietnam, Thailand, and Malaysia, have committed to net-zero emissions or carbon neutrality by 2050.
• A significant barrier to global investment is the lack of transparent data regarding the cost of capital and financial performance of renewable projects in emerging markets.

1. Greater transparency and the wider availability of data around the financial performance and cost of capital for clean energy projects

The scarcity of data on clean energy in Southeast Asia poses a significant challenge for global investors considering investments in ASEAN renewables. Enhanced transparency regarding the cost of capital, both in emerging markets broadly and the ASEAN region specifically, is essential.

The Cost of Capital Observatory, launched by the International Energy Agency in partnership with the World Economic Forum, Imperial College London and ETH Zürich, aims to address this need. By providing reliable data and improving transparency around clean energy investment in emerging economies, the Observatory will help address data obstacles experienced by investors.

2. An enhanced role for development finance institutions (DFIs) and blended finance

Renewable energy investments in South-East Asia encounter significant challenges, including financing constraints and bankability issues, which hinder the mobilization of capital from commercial and financial providers. Blended finance, by utilizing catalytic capital from public sources, can play a pivotal role in addressing these barriers and boosting private sector investments. Notably, an increased deployment of blended finance by Development Finance Institutions (DFIs) could help ensure that projects adhere to stringent climate and compliance standards while facilitating the establishment of robust contractual and financing frameworks for renewable energy initiatives.

The World Bank has been working with governments in the ASEAN region to develop carbon pricing mechanisms that could help put renewable energy on a level playing field with other fossil fuel-based generation technologies. Initiatives such as the Climate Action Data Trust illustrate the type of solutions that can provide technical assistance in building a regional voluntary carbon market.

3. Greater access to risk-hedging tools to address credit and currency risks for private investors

Private investors often encounter heightened credit and currency risks in South-East Asia. Safeguarding against foreign currency fluctuations proves particularly difficult, especially given the long timeframes commonly associated with clean energy infrastructure projects.

A proposal to address this risk was made by the Center on Global Energy Policy of Columbia University, the World Economic Forum and the World Bank Climate Change Group’s Invest4Climate programme. A clean energy Exchange Rate Coverage Facility (ERCF) would increase clean energy finance in emerging economies by protecting foreign currency lenders and domestic sponsors against the depreciation of local currency payments by leveraging credits generated by clean energy projects, blended finance mechanisms and private international capital.

ASEAN faces a critical challenge: balancing rapid economic growth with ambitious net-zero emissions targets. To achieve this, the region must bridge a significant clean energy investment gap. This requires innovation in financial mechanisms, policy frameworks, and technological solutions. By fostering an environment conducive to investment in renewables, energy efficiency, and sustainable infrastructure, ASEAN can drive economic development while simultaneously decarbonizing its energy sector. Innovative approaches are crucial for unlocking the necessary capital to transition to a clean energy future and meet its climate commitments.

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