Financing the Energy Transition 2025

In 2023, the US spent over $300 billion on energy transition investment, equivalent to $1.40 on clean energy projects for every dollar spent on fossil fuels.for renewable energy, electric vehicles and other low-carbon technologies, through the following instruments: –Production tax credits (PTC). –Investment tax credits (ITC). –Fuel tax credits. –Carbon management. –Transmission loans and grants. –Community investment and energy justice. Meanwhile, the bipartisan Infrastructure Investment and Jobs Act (IIJA) of 2021 reserved around $550 billion for energy transition technologies and infrastructure. By the end of 2023, $75 billion had been allocated to the following projects: –Grid improvement and expansion ($21.3 billion). –Energy transition demonstration projects ($21.5 billion). –Energy efficiency ($6.5 billion). –Clean energy technology manufacturing and workforce development ($8.6 billion). Other initiatives in the US include the Renewable Portfolio Standards (RPS) and Clean Energy Standards (CES) programmes, which set goals for energy producers to supply low- to zero- carbon energy. RPS accounted for 30% of all US renewable capacity additions in 2022. Many developers enter tax equity partnerships or sell the tax benefit to third parties in order to reduce their capital requirements. Challenges include high financing costs due to elevated interest rates, permitting issues, an ageing grid and extended connection queues, regulatory uncertainty and rising demand linked to advances in artificial intelligence (AI) and associated data centre power consumption. In addition, political swings, such as during the US presidential election in November 2024, could negatively impact the availability of governmental funds or increase the regulatory scrutiny developers must follow. Latin America 2.7 Almost half of Latin American (LATAM) countries have net-zero pledges by 2050. Energy transition investments reached ~$68bn in 2024 and are rising slightly faster than overall energy investments, which will reach $185 billion in 2024. However, achieving climate targets requires a fourfold increase in annual energy transition investment between 2026 and 2030. Around 55% of 2024’s energy investments are in fossil fuel supplies, with 35% in the power sector and 10% in end-uses.31 Fossil fuels account for 65% of LATAM’s total energy mix, below the global average of 80%.32 Within the electricity sector, renewables make up 60% of total installed capacity, mainly due to hydropower.33 However, growth prospects for hydropower are limited, as available sites for new dam installations are limited and infrastructure maintenance is required. In terms of the current pace of deployment, solar PV is the leading renewable technology across the region. Storage investment is accelerating and less- mature technologies such as offshore wind are also starting to attract investment in key markets such as Brazil and Colombia. For a world map denoting which countries fall within which regions, see Annex. Financing the Energy Transition: Meeting a Rapidly Evolving Electricity Demand 16