Investment in electricity networks, including transmission and distribution infrastructure, needs to be significantly scaled up in the next decade in emerging markets and developing economies (EMDEs) to support the rapid scaling-up of clean energy globally as well as broader energy access, demand and safety goals. Yet investment in transmission grids faces significant challenges, linked to regulatory, market and financing issues associated with transmission grid infrastructure planning, investment and provision.
The OECD Clean Energy Finance and Investment Mobilisation (CEFIM) programme, in collaboration with the International Energy Agency (IEA) convened a workshop on Unlocking transmission grid finance and investment for the clean energy transition in emerging markets and developing economies to share emerging international best-practices on transmission grid financing to inform domestic strategies. The workshop brought together experts from international organisations, governments, transmission network operators, regulators, financial institutions and project developers to deepen collective understanding of these issues. The workshop’s lessons will help inform follow up activity by the OECD, including providing tailored support for CEFIM partner countries on transmission grid infrastructure financing.
Substantial investments in electricity networks, mainly transmission and distribution infrastructure, will be required to support the rapid scaling-up of clean energy underway globally. Investments in transmission and distribution grids will need to double from current level to an estimated USD 600 billion per year globally by 2030 in a Paris-aligned emissions scenario (IEA, 2023).
The precise needs will vary across local, national, and regional contexts. Investment needs include significant investment in new transmission infrastructure to connect new power generation to grids, as well as to support system-wide electrification of industry, transport, heating and cooling. At the same time, existing, often ageing, infrastructure will need to be upgraded to accommodate greater capacity, manage renewables intermittency, and improve safety, including through digitalisation and development of new interconnections.
Many countries are now grappling with this investment challenge. But the challenge is magnified in emerging markets and developing economies (EMDEs), which account for around half of overall investment needs in transmission and distribution infrastructure this decade (IEA, 2023). Although EMDEs have constructed around 1.17 million km of new transmission lines in the past decade, largely to meet growing electricity demand and access, the pace of investment has slowed in the last five years, declining on average by 7% per year in EMDEs excluding China. In most EMDEs, a large share of grid investments rely on funding from government through state-owned enterprises (SOEs) and energy utilities.
Long-standing economy-wide and sectoral barriers to investment, including financially strained SOEs and limited regulation for private sector participation, make the financing challenge more acute for EMDEs. Additionally, there is a lack of robust regulatory frameworks that are clear, transparent and ensure profitability of systems in a sustainable way. The latter is a necessary step to bring in the investment needed for transmission and distribution.
Another key challenge in transmission and distribution financing lies in enhancing state-owned utilities’ ability to secure commercial capital, rather than relying heavily in preferential rate loans, grants and subsidies. More focus is need on de-risking strategies and refining tariff structures that strengthen SoEs’ capacity, making it easier to bring in private investment. By mitigating risks and optimising tariff frameworks, the objective is to create a more conducive environment for SoEs to attract commercial capital, ultimately fostering sustainable growth in the transmission and distribution sector.
EMDEs are also starting from a lower baseline, generally with smaller, weaker and less modern networks, which currently experience significantly more outages as compared to high-income countries. This lower technical baseline compounds wider challenges surrounding investment in EMDEs.