Financing the Energy Transition 2025

Export-import guarantees 3.3 3.4 FIGURE 1: Export credit agencies (ECAs) are crucial for enabling companies to participate in international energy transition projects. These government-backed institutions provide financing for exports by domestic companies through export credit guarantees (ECGs), which protect exporters from non-payment risks by foreign buyers. Essentially, ECGs act as insurance policies covering exporters’ losses if buyers fail to pay. Although ECAs have reduced financing for fossil fuel projects since COP26, the increase in renewable energy investment has not kept pace.38 Lenders are more likely to support projects with ECGs due to reduced default risk, significantly lowering the cost of financing ECA-backed capital and extending payback periods. A number of ECAs already offer special conditions for energy transition projects, offering lower fees, high coverage and flexible loan conditions allowing investment management optimization.39 ECGs therefore have the double benefit of increasing revenue certainty and fostering trade and technology adoption across markets and in countries with higher risk profiles. Blended finance and philanthropy Philanthropic funds are an underutilized resource for targeted support to energy transition investments. Philanthropy can take on greater risks in financing unproven technologies, acting as a catalyst for additional investment by absorbing first loss. These so-called concessional funds typically provide capital through equity, grants and project-specific support, including funding project preparation studies and support with just transition planning. By combining concessional finance from philanthropic sources with commercial investment, blended finance ensures financial viability, by de-risking corporate investments for technologies, sectors and geographies that are currently underfunded. Other sources of concessional financing such as low-interest loans, public grants and guarantees can be used to reduce risks or improve returns for private investors, enabling funding for innovative or high-risk technologies. Blended finance is a dynamic and transitional tool that steps in before private markets can work effectively. So it is vital that, in addition to larger corporations, developers and SMEs are also able to leverage these funds. In addition to direct funding, philanthropies can play a catalytic role by providing a range of non-financing support (see Figure 1). Creating the right conditions to activate this support requires coordinated efforts and strategic initiatives, such as the World Economic Forum’s Giving to Amplify Earth Action (GAEA) initiative. Combining philanthropic funding with commercial investment ensures financial viability, by de- risking corporate investments for technologies, sectors and geographies that are currently underfunded. The catalytic role of philanthropies Source: Giving to Amplify Earth Action (GAEA), World Economic ForumFinancing support Non-financing supportCommercial / catalytic equity Commercial / catalytic debt First-loss / subordinated capitalStart-up capital Guarantees Supporting policy changes to enable marketsFunding research gaps and white spaces in R&DProject preparation facilities and technical assistance (TA) Convening and coordination of strategic stakeholdersEvaluating and ensuring impact Financing the Energy Transition: Meeting a Rapidly Evolving Electricity Demand 20