Almost ninety-one percent of new renewable energy projects undercut the costs of fossil fuel counterparts, according to data from International Renewable Energy Agency (IRENA) in the year 2024.
The International Renewable Energy Agency (IRENA) has released its 2024 report titled Renewable Power Generation Costs, which sheds light on the specific challenges and solutions for financing renewable energy projects in the Global South.
Challenges:
The report highlights several challenges that hinder the deployment of renewable energy in developing regions. These include financing risks, grid bottlenecks, and uneven cost structures. Projects in the Global South face higher perceived risks due to political instability, currency fluctuations, and credit risk, leading to higher financing costs. Limited grid infrastructure in many Global South countries constrains renewable integration and raises project costs. Structural factors can also keep costs higher in the Global South than in regions like Asia or Europe.
Solutions:
The report proposes several solutions to address these challenges. Technological innovation and economies of scale can reduce capital costs and improve competitiveness. Strengthening local and regional supply chains can lower costs and risks. Deploying financial instruments such as guarantees, blended finance, and concessional loans can reduce perceived risks and attract private investment. Upgrading and expanding grid infrastructure to accommodate renewable capacity can alleviate bottlenecks. Stable, transparent policies help create an enabling environment that lowers investment risk.
The report also emphasizes the importance of stable revenue models, such as power purchase agreements (PPAs), in mitigating investment risk.
Battery Energy Storage Systems (BESS):
The cost of BESS has decreased by 93% since 2010, now averaging USD 192/kWh for utility-scale systems in 2024. This decline in costs, combined with the increasing importance of energy storage in renewable energy systems, offers a promising outlook for the future of renewable energy in the Global South.
The Transition to Renewables:
Francesco La Camera, IRENA's Director-General, emphasized that the transition to renewables is influenced by the choices made today. He emphasized the need for international cooperation, open and resilient supply chains, and stable policy and investment frameworks, especially in the Global South.
In summary, the Global South’s renewable financing challenges are rooted in risk perception, infrastructure gaps, and cost disparities. These challenges can be addressed through innovation, financial risk mitigation, grid improvements, and supportive policies, according to the 2024 IRENA report. Despite these challenges, 91% of new renewable projects commissioned globally in 2024—including many in the Global South—delivered electricity cheaper than new fossil fuel alternatives, demonstrating the strong cost competitiveness of renewables when properly financed and integrated.
- The report suggests that technological innovation and economies of scale can help reduce capital costs and improve the competitiveness of renewable energy projects in the Global South.
- Strengthening local and regional supply chains in the Global South can lower costs and risks for renewable projects, according to the 2024 IRENA report.
- Deploying financial instruments like guarantees, blended finance, and concessional loans could lower perceived risks, thereby attracting private investment for renewable energy projects in the Global South, as mentioned in the report.
- Upgrading and expanding grid infrastructure in the Global South can help alleviate bottlenecks and accommodate renewable energy capacity, as proposed by the 2024 IRENA report.
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