Cite report
IEA (2024), COP28 Tripling Renewable Capacity Pledge, IEA, Paris https://www.iea.org/reports/cop28-tripling-renewable-capacity-pledge, Licence: CC BY 4.0
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Policy priority areas for developing and emerging economies
Cluster 2: Countries with considerable share of hydropower and rapidly increasing VRE capacity
These markets have rapidly or moderately growing electricity demand and require additional power capacity. They are partially or almost fully tapped into their hydropower resources and have begun to develop large-scale VRE and support distributed generation. Countries in this cluster have fully transitioned to wholesale markets or are at least partially there (i.e. they have regional pilot programmes or low liquidity in wholesale markets). In these markets, flexibility issues emerge progressively but the system is usually able to cope with them through minor operational modifications. However, rapidly rising VRE generation will increasingly affect system operations.
Financing costs
Elevated financing costs and project risks hamper renewable energy expansion
Possible policy priorities to consider:
Continue to provide long-term policy visibility. Countries could continue developing their renewable energy market with competitive procurement programmes linked to clear long-term strategies and schedules, and they should avoid retroactive policy changes and stop-and-go measures at all times. This would help reduce risks by strengthening investor confidence, while also providing visibility for future grid investments. Continue to strengthen the financial health of the main power purchasing entities. The financial health of state-owned enterprises, especially utilities, is crucial to reduce renewable energy financing costs. Countries could consider putting public offtakers of renewable power on a firmer financial footing to increase project bankability. They could also consider creating creditworthy intermediaries to reduce revenue-related risks.
Unlock corporate PPA potential. Countries could consider removing regulatory barriers to further foster renewable energy deployment through corporate PPAs as an alternative to government-led deployment. Additionally, they could institute a reliable and transparent certification mechanism for renewable electricity.
System integration
Rapidly increasing VRE penetration creates subnational system integration challenges
Possible policy priorities to consider:
Incentivise power system flexibility. Countries could consider introducing appropriate regulations, market rules and technical standards to increase power system flexibility and prepare the grid for greater VRE penetration. Policy measures should cover system operation protocols, demand-response mechanisms and storage.
Introduce system-friendly VRE incentives. Countries could consider adapting solar PV and wind auctions to incorporate and reward solutions that improve system flexibility, including frequency regulation, storage and demand-response instruments, or introduce locational (price) signals in auctions. Hybrid renewable energy and storage auctions could be implemented, particularly in specific locations where transmission constraints have already emerged, especially because of higher solar PV generation. Gradually exposing renewable energy generators to market price signals could facilitate their integration.
Plan to increase transmission and distribution capacity, including interconnections. In addition to enacting policies to encourage grid investment, countries could consider preparing tenders to allocate transmission lines around “green” corridors.
Cluster 3: Markets with ambitious long-term decarbonisation goals and current fossil fuel overcapacity
Many emerging economies in this cluster have pledged to achieve net zero emissions in the long term and introduced ambitious power sector decarbonisation goals. These countries usually have single-buyer electricity markets with plans for wholesale market liberalisation. Hydropower (or geothermal, depending on resource potential) accounts for most of their renewable energy portfolio, with limited growth in other renewable energy technologies. However, these economies already have large-scale fossil fuel capacity in place and have signed long-term “take-or-pay” contracts to meet growing energy demand. This established fossil fuel fleet, along with plants that have already been financed and are under construction, thus leaves only limited space to develop new renewable electricity power plants. Countries in this cluster include Indonesia, Thailand, the Philippines, Malaysia, Egypt among others.
Locked in young fossil fleet
It is costly for utilities to displace young fossil fuel-fired power fleets – established on long-term contracts with takeor-pay clauses – with new renewables
Possible policy priorities to consider:
Accelerate the phasedown and repurposing of fossil fuel-fired plants. Countries could consider 1) creating a long-term plan for power system development, including early retirements, repurposing for flexibility and fuel switching; 2) introducing a market for flexibility services and adequate revenue streams for repurposed plants; 3) providing concessional financing and grants for early retirement and repurposing.
Renegotiate inflexible PPA and fuel supply contracts. Countries could consider creating a comprehensive legal, policy, regulatory and financing solution to enable PPA and fuel supply contracts renegotiation. They could also offer new transition-aligned revenue streams for fossil fuel-fired power plants, encouraging flexibility, providing firm capacity and creating market space for new renewable energy installations.
Further electrify heat and transport end uses to displace fossil fuels while absorbing additional renewable energy supplies. Countries could consider 1) incentivising the electrification of low-temperature industrial processes by fostering the use of industrial heat pumps and electric steam boilers, as well as electromagnetic heating; 2) encouraging the use of electric motors in industry; 3) supporting the shift to electric cooking; and 4) fostering the deployment of electric public transport.
Ensure that policies to transition away from fossil fuel-fired power are people-centred and just. Schemes to retire existing fossil fuel (especially coalbased) capacity early should 1) include policies that support workers and communities through direct payments and compensation, and that allocate funds for retraining/education in new skills; and 2) support economic diversification through coal decommissioning/retrofits, clean-energy projects and opportunities in non-energy industries.
Perceived high RE costs
Renewable energy technology costs exceed international benchmarks, making them less competitive
Possible policy priorities to consider:
Enable renewable energy installations to be more cost-competitive with fossil fuel-fired plants. Countries could consider 1) introducing policies that derisk initial exploration and development costs for hydropower and geothermal projects and streamline permitting for all renewable energy installations; 2) reducing or removing fossil fuel subsidies (direct and indirect) with accompanying compensation measures to protect vulnerable consumers.
Provide long-term VRE market visibility and policy certainty. Countries could consider 1) increasing the bankability of renewable energy projects by implementing internationally accepted PPA contract standards; 2) fairly sharing risks between generators and energy buyers; and 3) introducing large-scale, competitive long-term policy support for renewable energy.
Create a legal framework for timely and cost-effective project development. Countries could consider 1) fostering stakeholder consultations and participation; 2) introducing fixed timelines for approvals and clear legal procedures to limit the risk of delays and related cost overruns; and 3) ensuring the availability of lowcost equipment (especially for solar PV) by co-ordinating trade restrictions with local manufacturing capabilities.
Ensure that the legal framework lays out renewable energy curtailment rules. Countries could consider 1) increasing data transparency for economic and technical curtailment by improving the regulatory framework; 2) setting clear and fair curtailment rules based on electricity security; and 3) advancing towards an economic dispatch of the power system to ensure that renewables can also contribute. In cases where economic dispatch is not implemented, support participation of VRE in the system by measures such as a minimum full load hour guarantee, with clear timelines for phasing out as VRE capacity further expands.
Cluster 4: Nascent markets with high potential and strong ambitions
Having high VRE resource potential, many developing economies could use this potential and deploy renewable technologies to meet rising power demand costeffectively as access to electricity and energy services expands. However, many of these countries usually have elevated macroeconomic risks, restricted budgets, limited experience with renewable energy, weak grid infrastructure, and vertically integrated or single-buyer electricity markets.
Starting from a very small capacity base, many developing countries have introduced high ambitions to meet their growing energy needs primarily with renewable electricity technologies because the generation costs are generally lower than for fossil fuel alternatives. Moreover, in many of these countries, the unexploited potential of renewables is huge. This cluster includes low-income developing countries with minimal renewable energy penetration in Africa, Asia and the MENA region.
Weak grid
Weak/slow grid infrastructure expansion limits electricity access and services
Possible policy priorities to consider:
Deploy off-grid and mini-grid renewable energy solutions in coordination with grid expansion plans. In many developing countries in this cluster, generation costs for PV-plus-battery systems are lower than for diesel generators. Countries could therefore consider 1) removing barriers to off-grid applications and mini-grid systems to improve electricity access for consumers in areas where grid extension is not cost-effective; and 2) incentivising individuals and private sector to build and operate renewable energy projects, gaining skills and experience. Concessional financing (potentially in the form of microcredits) could further spur deployment, potentially stimulating the participation of national capital in the sector (likely through credit lines for SMEs).
Develop untapped hydropower potential. Incorporating new, large-scale wind and solar PV capacity into an already-weak grid can be challenging, but, where available, hydropower projects (both small and large) can cost-effectively increase electricity access and provide dispatchable electricity generation. While large hydropower projects require simultaneous grid development to connect the plant, expanding the electricity infrastructure, small projects either on- or off-grid can also boost electricity access rapidly. Countries could consider 1) establishing necessary governance and institutional structures to ensure sustainable project development, taking into account the long-term availability of water and its multiple uses for flood management, irrigation and drinking; and 2) increasing access to concessional financing and introducing business models such as public-private partnerships with a balanced risk allocation through project finance structures, to allocate risks to the appropriate stakeholders (see the next challenge for more detailed policy priorities).
High financing costs
High financing costs reduce renewable energy project bankability
Possible policy priorities to consider:
Introduce a long-term vision and implementation plan. Countries could consider 1) providing clear visibility over procurement plans and project pipelines to create positive investment signals; and 2) introducing policies and regulations to ensure timely implementation to reduce project risks and attract low-cost financing.
Reduce price, inflation and exchange-rate risks. Countries could consider 1) introducing standard long-term public purchase contracts with guaranteed offtake to reduce the price risk for developers and help attract international private and concessional financing; and 2) implementing additional contract design elements, i.e. price indexation to account for inflation and exchange-rate risks. For instance, initial contracts could be at least partially denominated in USD or EUR to reduce revenue risks for developers.
Support projects in the predevelopment phase. Governments can do this by reducing project development and exploration risks for large-scale hydropower or geothermal plants, or by defining suitable ready-to-develop areas for initial wind and solar PV expansion before competitive procurements are organised. For competitive auctions, countries could consider conducting resource assessments and obtaining all necessary permits and/or land rights on behalf of winning bidders while ensuring grid access for the renewable energy project. In addition to reducing bidder risks significantly, auction site predevelopment creates expertise and strengthens institutional capacities within the government.
Reduce offtaker risk while ensuring affordability for consumers. Countries could improve the offtakers’ financial health by reducing losses, improving collection rates and having a progressive pathway towards cost-reflective tariffs as socio-economic development increases. Moreover, countries could consider introducing or expanding credit enhancement mechanisms. Covering nonpayment delays is essential to strengthen a sector in which state-owned enterprises (SOEs) with generally low creditworthiness are the main counterpart in PPAs with private investors. Additionally, governments could introduce ceiling prices for competitive auctions to safeguard against excessive financial burden for offtakers. At the same time, derisking and support policies need to be designed carefully to limit short, medium- and long-term impacts on household budgets.