Financing the Energy Transition 2025

Energy transition investments reached ~$68 billion in Latin America in 2024 – however, a fourfold annual increase is needed between 2026 and 2030 to achieve the region’s climate targets.Investment priorities for realizing the region’s climate pledges include power transmission and distribution, as well as renewable generation capacity.34 Investment in the end-use sector to increase energy efficiency is low, with few countries having energy performance standards or mandatory building codes; improving end-use efficiency would help decrease investment needs in new generation assets and the energy transition overall. LATAM faces high inflation, debt, fiscal issues and weak currencies, leading to slow growth and low levels of investment in the energy transition. The region’s investment environment will remain challenging while high cost of capital and high levels of macroeconomic risk persist.Raising funds from external sources is crucial due to financial constraints across the region, with most countries having less-developed financial markets that cannot yet provide enough capital at attractive rates to finance the region’s transition. In 2020, FDI in Latin America was $105 billion, while green finance was only $22.9 billion.35 Expanding green finance by promoting private sector investment is essential. In July 2023, the UN Environment Programme’s Finance Initiative established a Common Framework for Sustainable Finance Taxonomies for Latin America and the Caribbean to ensure a high level of transparency and interoperability. The aim of this voluntary framework is to unlock financing and facilitate cross-border capital flows for social and environmentally sustainable investments.36 Regional disparities and common financing challenges2.8 This chapter has demonstrated that the starting points, pathways and timelines for energy transitions vary across regions. Many countries are starting to accelerate their adoption of clean energy sources, but the pace of this shift varies significantly due to differences in policy, economic capabilities and geographic characteristics. Despite these differences, financing remains a common challenge for all countries in achieving clean, affordable and secure energy supply. Countries on track to meet their decarbonization targets potentially need to maintain or even increase their investment levels, while keeping costs under control to keep energy affordable. Countries that are under-investing must find ways to raise funds, often within the constraints of limited government and private budgets. This underscores the global need to create an ecosystem that supports efficient and cost-effective investment in energy transition assets. Mobilizing the public and the private sectors can address the funding gaps and promote the timely deployment of energy technologies. Given the different conditions that each market or country operates under, investment mechanisms must be tailored to fit local requirements. There is no one-size-fits-all solution and it is essential to address the key issues that affect the financing and implementation of energy projects in each jurisdiction. These issues include reducing financing costs, de-risking innovative technologies, hedging offtake agreements and mobilizing capital for developing countries by creating an enabling environment for investments. Financing the Energy Transition: Meeting a Rapidly Evolving Electricity Demand 17