Enabling Foreign Direct Investment in the Renewable Energy Sector: Reducing Regulatory Risks and Preventing Investor-State Conflicts
Increasing investment attractiveness is critical to meet the growing energy needs of developing countries, including the modernization of energy infrastructure.
The International Energy Agency (IEA) estimates that by the end of 2030, 663 million people worldwide, most of whom will live in Asia and Africa, will still not have access to electricity. Energy crisis 2022–2023 outlined the need to develop energy efficient technologies and increase investment in renewable energy (from $390 billion in 2022 to $1.3 trillion by 2030).
Attracting FDI in renewable energy is difficult due to significant investments in the initial stages of projects and low working capital. However, according to World Bank experts, political risks are the main factor limiting investment opportunities in developing countries. Such risks can also lead to costly legal disputes between investors and the state.
The authors of the report identified two groups of measures to minimize political risks and attract additional investment in renewable sources. The first complex includes holding auctions for the selection of promising projects, the introduction of preferential tariffs and the use of incentive tax instruments. The second is aimed at the development of sustainable projects based on public-private partnerships, the localization of "green" enterprises (hiring local workers and reinvesting profits).