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emerging markets

On the COP27 Agenda: How Public Financing Can Help Developing Countries Make the Energy Transition

Gregor Macdonald
November 15, 2022

One reason the energy transition is hard is because the old systems need care and maintenance while the new systems are being born. Those challenges are even more pronounced for developing economies in Africa, Asia, and Latin America. In many of those emerging countries, transmission infrastructure, political uncertainty, and capital markets can be lacking, creating unique hurdles for development. That’s why, says Susan Flanagan, president and CEO of GE Energy Financial Services (GE EFS), developing markets now more than ever need government-backed financing for renewables and gas power generation to support the energy transition.

“With the 27th Conference of the Parties (COP27) being held now in Egypt, there is no time to waste,” Flanagan writes in an opinion piece. She points out that public capital providers, such as export credit agencies (ECAs) and development finance institutions (DFIs), have traditionally played an important role in catalyzing private-sector investment — and they are urgently needed to meet net-zero emissions goals. By providing a range of tools and solutions, they “increase a project’s probability of success,” she says.

Public capital plays an essential role in accelerating energy infrastructure projects that solve the energy trilemma, writes Flanagan. “Sustainability is more urgent for countries hardest hit by climate change and often exposed to greater environmental risks. Reliability remains an elusive goal in many countries still working to bring basic electricity to their citizens in a secure and dependable way. Many of these developing economies also face roadblocks to electricity affordability due to weak government finances and credit, and corresponding higher cost of capital for infrastructure development.

GE EFS has extensive experience in emerging markets, often playing a coordinating role that stitches together stakeholders when development routes are clogged. “We’ve found that you have to have a tailor-made solution for each region or country,” says Seyi Akinwale, a senior vice president with GE EFS. For example, when international lenders get into position to make development loans to developing countries, they can often impose broad targets for growth or decarbonization that don’t easily fit the needs of individual economies, explains Akinwale. “But education and understanding are improving.”

A typical case is that many developing nations historically have a reliance on coal and heavy fuel oil for baseload energy generation, according to Subha Nagarajan, managing director of GE EFS. But because coal is reliable and secure, leapfrogging to renewables can present a challenge to grid stability. “There are two issues,” she says. “First is reducing GHG [greenhouse gas] emissions without subtracting power from the grid. This can be achieved by converting existing coal power plants to operate on less GHG-emission-intensive fuels. Second, increasing renewable energy generation for countries facing electrification and grid challenges can be supported only by expanding baseload generation. This requires continued investments in turbines that can run on gas today, knowing these turbines can be decarbonized in the future when carbon capture and hydrogen fuel solutions are commercially available.” As in the developed world, natural gas is increasingly a stable platform that can be paired with renewables.

“As a global manufacturer, we have an extensive footprint, and as a result we’ve been able to consistently work with and build relationships with export agencies and development financing institutions,” says Nagarajan. Since 2015, she says, “we’ve supported our customers in raising over $22 billion in public capital financing. It will be critical for these financing agencies to support customers, including governments, seeking to convert coal power generation to gas. Without access to affordable long-term finance, these customers may have no choice but to continue operating their coal power plants.” For shorter-term financing, GE can support a structured trade finance solution that helps customers get to the banking facilities they require, like lines of credit or letters of credit.

As Flanagan puts it, “To drive global decarbonization and increase electrification in developing countries, policymakers and financial institutions must partner with project sponsors to tailor capital solutions that best fit each region and country.”


Image credit: GE