Financing the green energy transformation

Innovative financing can reduce costs through an effective, efficient and timely combination of de-risking instruments. These instruments, which address market information asymmetries and regulatory framework adjustments, can drastically reduce systemic and project-specific risks, yielding up to $40 trillion in savings.

Thanks to financial learning effects, as investors and lenders improve their perception of the risks associated with green projects over time, and markets and the regulatory environment mature, the cost of capital could decline further.

As interest rates for sustainable projects are expected to decline over time, projects can benefit from financial learning, and further cost reductions can occur even after construction is complete. The cost of debt and equity for completed projects can be designed to be reviewed annually and adjusted based on market rates for new projects. Enabling refinancing of long-term green projects can help make the transition more affordable by allowing projects to reduce their financing costs as capital markets mature. Refinancing debt and equity could unlock as much as $10 trillion in combined savings by 2050.

Together, de-risking instruments and innovative financial mechanisms can significantly reduce the cost of capital, making the green transition both possible and affordable. Detailed analysis by Deloitte suggests that these strategies could save US$50 trillion globally by 2050.

Policymakers, investors and lenders, development finance institutions and international organizations should work together to help transform the current project finance environment.

For the green energy transition to become profitable, stakeholders need to fully integrate the green energy transition into their capital raising strategies, adapt to new methods for assessing and quantifying green energy and fossil fuel-based projects, manage systemic risks and implement appropriate instruments to support the first waves of green energy projects, activate and maintain both technical and economic knowledge to reduce upfront costs and financial knowledge to minimize financing obstacles.

The window to put the world on course toward net-zero emissions for an affordable and just energy transition is closing fast. Policymakers, investors, lenders, and international organizations must work together to transform the current project finance environment into a functional green finance ecosystem. This report presents steps, mechanisms, and solutions for stakeholders to support an affordable transition, turning urgency into action.