Financing the Energy Transition 2025

Executive summary Investment in the net-zero energy transition needs to increase to $4.5 trillion a year. More financing must be channelled to developing countries, which receive just 15% of energy transition investment. Global investment in the energy transition has seen a significant increase since the Paris Agreement in 2015, with spending projected to reach $2 trillion in 2024. Despite these advances, current investment levels are insufficient to meet the global climate targets outlined by the International Energy Agency (IEA). To align the energy sector with net-zero emissions by 2050, annual investment needs to increase to approximately $4.5 trillion per year, indicating a substantial gap between current and required funding. This report argues that energy transition financing faces significant challenges, leading to an investment gap that can only be addressed through targeted measures. Challenges facing global investment in energy transition technologies include high upfront costs, increased risks, inflation, supply chain constraints and high interest rates. In addition, regional disparities pose significant challenges, with each region facing its own unique set of barriers to advancing its energy transition goals. Despite record levels of investment in the energy transition, most regions are falling short of what is needed to meet climate goals. The gap between current investment and required financing is even more pronounced in emerging economies and developing countries, which currently receive only about 15% of global energy transition investment. Addressing these challenges requires a standardized approach to reducing the cost of financing and mitigating the risks of energy projects. Collaboration between investors, industry executives, policy-makers and financial institutions is essential. To effectively manage the energy transition, several key issues that impact the financing and deployment of energy transition projects must be addressed: –Energy security and affordability: A successful energy transition requires a delicate balance between energy security and affordability. Energy security ensures a reliable and uninterrupted supply based on strong supply chains and resilient transmission and distribution grids, while affordability guarantees access for all. Both are essential for economic stability and social well-being. –Reducing financing costs: Current funding levels fall short of requirements, even with the high demand for infrastructure investment. To address this, it is important to distinguish between developed and developing economies. In developing countries, enhancing availability of long-term access to low-cost capital is crucial, which can be achieved through concessional Financing the Energy Transition: Meeting a Rapidly Evolving Electricity Demand 6