The global energy system will have to undergo a major structural transformation in a very short period to meet the climate goals under the Paris Agreement. This transition can be felt across the entire energy supply chain and in all sectors (e.g., power, industry, transport, buildings). The speed and scale of the energy transition in Asia is crucial to this global transformation and the pace of change will differ across countries in the region. Millions of low-income households are still using coal, kerosene or biomass for cooking which is detrimental to the quality of indoor air and associated health risks, primarily for women and children who spend the most time, and are therefore the most exposed, to indoor pollution. Providing access to basic energy infrastructure and 24/7 electricity is yet to be fully addressed in the region.

The annual investment in renewable energy in China has grown at a Compound Annual Growth Rate (CAGR) of 9%, increasing from $42 billion to $90 billion during 2010–2019. In India, investment in renewable energy increased from $8 billion to $11 billion showing CAGR of 4%. Other than China and India the rest of Asia and the Pacific experienced growth in investment at a CAGR of 11% during the period and investment in renewable energy increased from $19 billion to $48 billion.

The annual investment needs for renewable energy and energy efficiency in Asia and Pacific region, for the period 2016-2050, are estimated to be in the range of $825 billion to $1.22 trillion. The investment needs for renewable energy and energy efficiency have been assessed for the power, industry, transport, and buildings sectors. The investment needs of the power sector are the largest ($375 billion to $562 billion). Among the subregions, the level of annual investment would be the highest in East Asia.

For the period 2010-2019, annual investment in the Asia Pacific region has increased from $69 billion to $149 billion. However, even though annual investments have more than doubled, it is not nearly enough. The quantum of financing required at the speed and scale needed to achieve the clean energy transition for the Asia Pacific region in time to keep global warming at or below 2 degrees C. cannot be provided by governments alone, and will require massive private sector flows and innovative green and sustainable financing solutions for clean energy projects.

Clean energy projects can attract a large pool of domestic and international capital to fund climate friendly projects. Some of the possible options to enhance clean energy financing are as follows:

1. Enhancing traditional sources of capital - Support the existing debt market through measures such as strengthening existing lending institutions and enhancing the use of thematic bonds, including sustainability and green bonds.
2. Strengthening green taxonomies to inform and guide investors and to guard against greenwashing.
3. Enhancing equity investments through interventions like asset monetization and enhancing environmental, social, and governance related reporting by corporates.
4. Creating new capital sources and instruments to complement traditional debt and equity sources, such as:
• Infrastructure investment trusts that allow tapping into long-term, low-cost debt from insurance and pension funds (both domestic and foreign) to refinance bank debt.
• Blended finance instruments with access to concessionary government and international funds to reduce the risk and cost of private capital.
• Tax efficient trusts which provide pass-through benefits for investors and can be traded publicly.
5. Enabling new business models and industry players through:
• The development and implementation of models for public-private partnerships such as pay-per-service, utility-based business models for distributed energy resources (DERs), results-based financing, sustainable public procurement, and others.
• Viability gap funding (VGF) support for complex RE technology tenders to test and refine models and keep tariffs at a reasonable level.

USAID, with its focus on accelerating the clean-energy transition, enhancing private sector participation, and advancing transparent procurement and market-based instruments, seeks to facilitate the financing of clean energy in the Asia Pacific region. It is imperative that suitable financing instruments, efficient procurement mechanisms, and conducive policy and regulatory frameworks are in place to allow private investors to enter the energy sector and fund its expansion.