Investigating Determinants of International Clean Energy Investments in Emerging Markets

Abstract

Although renewable energy investments in developing and emerging economies play a crucial role in accelerating the clean energy transition, investments remain limited. Building on previous research, this study takes a unique approach by analyzing determinants of clean energy investments from investors from one country, the United States, which represents the largest single source of investments. Based on panel data sourced from Bloomberg New Energy Finance (BNEF)’s Climatescope, we analyzed renewable energy investments by investors from the United States between 2008 and 2019. The analysis included four factors (i.e., economic, socio-environmental, political, and proactivity) and covered 61 emerging/developing countries. Our results suggest that the most significant factor that determines renewable energy investment by investors from the United States is commercial ties between the investing and recipient country. Our findings also demonstrate the importance of a strong legal system and clean energy promotion mechanisms, such as feed-in tariffs, in recipient countries. When breaking down investment flows, the effects of different economic factors may vary, depending on whether the renewable technology is solar or wind, which further highlights the importance of understanding determinants of renewable energy investments.

Fossil fuels, stranded assets, and the energy transition in the Global South: A systematic literature review

“…A shift away from FF requires large‐scale RES deployment, particularly in the Global South, where the impacts of climate change, rising energy demand, and energy security concerns are more pressing (IEA, 2021a). Nevertheless, such RES investments remain limited, especially from private capital, geographically concentrated in few frontrunner countries, and skewed toward specific technologies, such as grid‐connected electricity generation (Azarova & Jun, 2021; IPCC, 2022a; Quitzow et al, 2019; Ragosa & Warren, 2019).…”

“…International private developers have been pivotal first movers for wind and solar in some developing countries (e.g., Algeria, or Pakistan), with an increasing level of internationalization and spill‐over effects of RES‐support measures (Steffen et al, 2018). The supportive role of international public finance, regulatory backing, and commercial ties with the recipient country explains, with variations, private capital's decision to invest in renewables in, for example, South Africa or Indonesia (Azarova & Jun, 2021; Ragosa & Warren, 2019). If consistent with the recipient country's main energy goals and concerns, development cooperation can drive RES experimentation at the niche level to enable energy regime change (Geels, 2010; Marquardt et al, 2016).…”

“…A shift away from FF requires large-scale RES deployment, particularly in the Global South, where the impacts of climate change, rising energy demand, and energy security concerns are more pressing (IEA, 2021a). Nevertheless, such RES investments remain limited, especially from private capital, geographically concentrated in few frontrunner countries, and skewed toward specific technologies, such as grid-connected electricity generation (Azarova & Jun, 2021;IPCC, 2022a;Quitzow et al, 2019;Ragosa & Warren, 2019). Among the economic factors, the existing energy supply gap and financial constraints, when combined with RES higher capital costs and low capacity factors, may result in increased energy costs and an aggravated degree of unmet energy demand, exacerbating the already limited affordable access to energy (Afful-Dadzie et al, 2020).…”

“…in, for example, South Africa or Indonesia (Azarova & Jun, 2021;Ragosa & Warren, 2019). If consistent with the recipient country's main energy goals and concerns, development cooperation can drive RES experimentation at the niche level to enable energy regime change (Geels, 2010;Marquardt et al, 2016).…”

Financing Climate Targets: A Study of Select G20 Countries

“…There have been studies that have looked at whether public funds crowd in private climate funds (Haščič et al 2015), the role domestic climate policies play in attracting climate funds (Azarova and Jun 2021;Wall et al 2018;Ragosa and Warren 2019), and catalyzing innovation (Ang, Röttgers, and Burli 2017).…”