Cost of Capital for Renewable Energy Investments in Developing Economies And the need for a Global Credit Guarantee Facility

This research paper by the Climate Policy Initiative (CPI) examines the disparity between solar energy potential and installed capacity in developing economies, attributing the gap to high costs of capital driven by sovereign and off-taker risks. The authors propose the establishment of a Global Credit Guarantee Facility (GCGF) to de-risk cross-border financing and lower risk premiums for renewable energy projects in Emerging Market & Development Economy (EMDE) countries.

• There is a significant disconnect between solar radiation potential and actual installed capacity; lower-income countries often possess higher radiation potential but lower installed capacity per unit land area compared to high-income countries.
• Regional analysis shows that Sub-Saharan African countries have abundant solar potential but are limited by economic constraints, while Middle East and North African (MENA) countries face modest installations due to inconsistent political environments.
• The cost of capital for climate projects varies widely by country risk; for example, the required rate of equity return for a climate project in Germany is 8.3%, whereas it reaches 59.7% in Argentina.
• To meet the 2030 solar installation targets of the analyzed countries, approximately USD 175 billion in capital is required, with debt accounting for 70% (USD 120 billion) of that total.
• The proposed Global Credit Guarantee Facility (GCGF) would be a trust fund providing partial guarantees to mitigate sovereign and off-taker credit risk for lenders, with a proposed size of USD 6.6 billion based on a 10% capitalization and callable capital from OECD countries.
• Under a theoretical model where the guarantor is a AAA-rated supranational institution, the GCGF could reduce the average climate investment risk premium by 6% and improve credit ratings by 5-6 notches, with the most significant benefits accruing to riskier countries.

APA

Gautam, K., Purkayastha, D., & Widge, V. (2023). Cost of Capital for Renewable Energy Investments in Developing Economies And the need for a Global Credit Guarantee Facility. Climate Policy Initiative. https://www.climatepolicyinitiative.org/wp-content/uploads/2023/06/Discussion-Paper-EM-Cost-of-Capital-for-RE-and-GCGF-FINAL-Jun-2023.pdf

Chicago

Gautam, Kushagra, Dhruba Purkayastha, and Vikram Widge. Cost of Capital for Renewable Energy Investments in Developing Economies And the need for a Global Credit Guarantee Facility. Climate Policy Initiative, 2023. https://www.climatepolicyinitiative.org/wp-content/uploads/2023/06/Discussion-Paper-EM-Cost-of-Capital-for-RE-and-GCGF-FINAL-Jun-2023.pdf.

Wikipedia

{{cite report |last1=Gautam |first1=Kushagra |last2=Purkayastha |first2=Dhruba |last3=Widge |first3=Vikram |title=Cost of Capital for Renewable Energy Investments in Developing Economies And the need for a Global Credit Guarantee Facility |publisher=Climate Policy Initiative |date=June 2023 |url=https://www.climatepolicyinitiative.org/wp-content/uploads/2023/06/Discussion-Paper-EM-Cost-of-Capital-for-RE-and-GCGF-FINAL-Jun-2023.pdf |access-date=17 August 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{gautam2023cost, author = {Gautam, Kushagra and Purkayastha, Dhruba and Widge, Vikram}, title = {{Cost of Capital for Renewable Energy Investments in Developing Economies And the need for a Global Credit Guarantee Facility}}, institution = {Climate Policy Initiative}, year = {2023}, month = jun, url = {https://www.climatepolicyinitiative.org/wp-content/uploads/2023/06/Discussion-Paper-EM-Cost-of-Capital-for-RE-and-GCGF-FINAL-Jun-2023.pdf}, urldate = {2026-08-17}, note = {Indexed by Climate Insights Directory} }