Renewable energy financing in the Pacific Island Countries

Abstract

Realising a net zero economy warrants deep decarbonisation of the energy sector. Renewable energy technology will play the primary role in decarbonising the energy sector. However, transitioning from a carbon-intensive energy system to a renewable energy system is not smooth in developing countries, particularly for small island states (SIDS), which face several challenges in transitioning to a net-zero economy. The lack of access to finance and the unaffordable cost of finance are two key challenges to adopting RE technologies in SIDS. In this paper, we have suggested financial solutions that can address access to and cost of finance essential for Pacific Island Countries (PICs) to meet their net-zero goals while meeting other social goals. Under Nationally Determined Contributions (NDCs), PICs require a commitment of large capital to sustainably develop renewable energy infrastructure to harness the region's economic prosperity. However, the region's poor economic status, small domestic financial market, limited institutional capacity, and small size of renewable energy projects make it economically unviable for private investors to invest in renewable energy infrastructure in PICs. The paper recommends financing solutions to de-risk renewable energy financing in the region and make it attractive for domestic and international private financiers. The paper is the first to present an array of financial solutions to accelerate the adoption of renewable energy technologies to reduce carbon emissions in the region while meeting their SDGs, including climate action (SDG 7), sustainable cities and communities (SDG 11), and affordable and clean energy (SDG 13).