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Reducing the cost of capital through international climate finance to accelerate the renewable energy transition in developing countries

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  • Thibault Briera

    (CIRED - Centre International de Recherche sur l'Environnement et le Développement - Cirad - Centre de Coopération Internationale en Recherche Agronomique pour le Développement - EHESS - École des hautes études en sciences sociales - AgroParisTech - ENPC - École nationale des ponts et chaussées - Université Paris-Saclay - CNRS - Centre National de la Recherche Scientifique)

  • Julien Lefèvre

    (CIRED - Centre International de Recherche sur l'Environnement et le Développement - Cirad - Centre de Coopération Internationale en Recherche Agronomique pour le Développement - EHESS - École des hautes études en sciences sociales - AgroParisTech - ENPC - École nationale des ponts et chaussées - Université Paris-Saclay - CNRS - Centre National de la Recherche Scientifique)

Abstract

Despite a vast potential, the accessibility of low cost finance remains a critical barrier to the deployment of Variable Renewable Energy (VRE) in many developing countries. High financing costs threaten the competitiveness of renewable energy technologies and impede progress in the energy transition. This study aims to assess the extent to which international climate finance could help reduce the cost of capital for VRE investments and accelerate the renewable energy transition in developing countries. We employ the IMACLIM-R multi-regional Integrated Assessment Model (IAM) to examine various climate finance scenarios, factoring in the interaction between public and private capital through a dedicated model for the average cost of capital (CoC). The results show that international climate finance can significantly enhance the adoption of renewable energy in regions that receive this support. For instance, Africa could achieve +43% electricity generation from VRE by 2030 in a scenario with deep risk sharing and mitigation for VRE investments, compared to a no-policy scenario. Our study demonstrates that reducing the financing costs of VRE investment through international climate finance encourages clean and affordable energy development. However it must be complemented by other policies to achieve more ambitious climate and sustainable development objectives.

Suggested Citation

  • Thibault Briera & Julien Lefèvre, 2024. "Reducing the cost of capital through international climate finance to accelerate the renewable energy transition in developing countries," Post-Print hal-04824002, HAL.
    • Handle: RePEc:hal:journl:hal-04824002
    DOI: 10.1016/j.enpol.2024.114104
    Note: View the original document on HAL open archive server: https://hal.science/hal-04824002v1
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    8. Yuzhu Fang & Chi-Chuan Lee & Xinghao Li, 2025. "Financing a sustainable future: the effectiveness of climate finance across the primary, energy, and water sectors," Humanities and Social Sciences Communications, Palgrave Macmillan, vol. 12(1), pages 1-16, December.
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    10. Shahbaz, Muhammad & Dinçer, Hasan & Yüksel, Serhat & Jiao, Zhilun, 2025. "An assessment of circular economy-oriented renewable energy projects via artificial intelligence recommender systems and a hybrid quantum fuzzy decision-making approach," Renewable Energy, Elsevier, vol. 244(C).
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    16. Ullah, Alishba Rahman & Khurshid, Shahzeb & Ullah, Asma Rehman & Wojewodzki, Michal & Yoon, Seong-Min, 2025. "ReFi tokens as climate-finance assets: Connectedness with renewable energy token and fossil energy," Finance Research Letters, Elsevier, vol. 86(PF).
    17. Lin, Boqiang & Zhang, Zongyou, 2025. "Extreme spillovers among green finance, energy, and energy metals markets in China: Evidence under the dilemma of energy transition," Renewable Energy, Elsevier, vol. 241(C).
    18. Lee, Chi-Chuan & Fang, Yuzhu, 2025. "Climate finance for energy security: An empirical analysis from a global perspective," Economic Analysis and Policy, Elsevier, vol. 85(C), pages 963-978.
    19. Magdalena Zioło & Iwona Bąk & Anna Spoz, 2025. "The Nexus Between Green Bonds, Green Credits, and the Energy Transition Toward Renewable Energy Sources: State of the Art," Energies, MDPI, vol. 18(16), pages 1-21, August.
    20. Yann Robiou du Pont & Mark Dekker & Detlef van Vuuren & Michiel Schaeffer, 2025. "Effect of discontinuous fair-share emissions allocations immediately based on equity," Nature Communications, Nature, vol. 16(1), pages 1-13, December.
    21. Zhao, Zhenyu & Xu, Hanting & Bao, Geriletu, 2025. "Two-stage clustering-focusing measurement modeling for national new energy market development level: An empirical analysis of 81 economies," Energy, Elsevier, vol. 340(C).

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