As global demands for cleaner energy escalate, project finance is emerging as a critical instrument for funding green and sustainable infrastructure initiatives. The International Energy Agency (IEA) has reported that energy investments surpassed $3 trillion for the first time in 2024, highlighting a distinct trend towards utilizing project finance as a key mechanism for funding large-scale energy projects. This surge underscores a transformative shift in the energy sector, particularly as many nations strive to modernize their power systems in a bid to combat climate change and enhance resilience against environmental uncertainties.
In regions with limited public capital, project finance serves as an essential avenue to develop energy infrastructure, particularly for substantial renewable energy projects in developing nations. By leveraging structured finance mechanisms, private investments can be mobilized more effectively, thus enabling a broader range of private stakeholders to engage in energy initiatives that align with sustainability goals.
A closer examination of the IEA’s findings reveals that out of the $3 trillion allocated to energy investments in 2024, approximately $2 trillion was directed toward clean energy technologies—including renewables, electricity grids, energy storage, nuclear energy, and low-emission fuels. In contrast, investment in fossil fuels accounted for just over $1 trillion, signaling a pronounced shift in capital allocation patterns. Notably, the investment ratio for clean energy compared to fossil fuels has significantly improved from 2:1 in 2015 to a staggering 10:1 by 2024 in the power generation sector. Solar photovoltaic (PV) technology has been particularly favored, with projections indicating that investment could reach $500 billion in 2024 alone, outpacing all other electricity generation technologies combined.
China is taking the lead in global clean energy spending, with investments totaling approximately $680 billion, followed by the European Union at $370 billion and the United States at $300 billion. Financial institutions like Oversea-Chinese Banking Corporation (OCBC) are at the forefront of supporting energy infrastructure projects, collaborating with various stakeholders—ranging from Chinese sponsors to engineering, procurement, and construction (EPC) contractors—to facilitate renewable energy initiatives across Southeast Asia. OCBC’s project finance team emphasizes their commitment to net-zero emissions by 2050 in key sectors, focusing on enhancing energy efficiency and scaling renewable energy projects.
A prime example of this commitment is OCBC China’s recent issuance of a green loan amounting to ¥220 million (approximately $30 million) to Jiangsu Financial Leasing Co. This funding is allocated for renewable energy power projects in several Chinese provinces, including Hebei, Guangxi, and Jiangsu, aimed at not only enhancing energy output but also improving water quality and robust energy infrastructure.
Beyond China, OCBC has been instrumental in financing energy projects in various regions, including Australia, other Southeast Asian nations, and the United Kingdom and United States. These projects often focus on energy security, highlighting the role of liquid natural gas as a transitional fuel in the broader energy mix. Recently, OCBC secured financing for two key projects in the UK—one a large-scale carbon capture and storage facility and the other a gas-fired power plant featuring integrated carbon capture technology. These initiatives showcase OCBC’s strategic positioning in the evolving energy landscape.
Despite the noted advancements, challenges such as curtailment risk—where renewable energy generation is intentionally limited due to grid oversaturation or inefficiencies—persist in certain areas. This issue is particularly evident in the wind-rich northern provinces of China, where curtailment rates can exceed 20%. Other regions experiencing rapid renewable energy growth face similar challenges due to inadequate transmission infrastructure.
Brazil, in particular, has garnered attention for its energy growth, although potential curtailment risks loom as a significant concern. Recent analyses by Fitch Ratings depict an anticipated increase in curtailed energy generation in Brazil due to its high reliance on intermittent renewable sources and the lengthy timelines associated with constructing new transmission lines. The Associação Brasileira da Infraestrutura e Indústrias de Base reports that total infrastructure investment in Brazil reached R$259 billion (approximately $46 billion) in 2024, with nearly half dedicated to energy projects, reflecting a 15% increase from the previous year.
Investor confidence in Brazil remains buoyed by robust regulatory frameworks, even as structural challenges such as curtailment persist. Hugo Assunção, CFO at Perfin Infra, notes that Brazil’s energy market shows consistent growth supported by solid regulatory oversight. He points out that countries throughout Latin America are experiencing increasing capital deployment from Brazilian investors, particularly in renewable energy and sustainable infrastructure sectors, emphasizing Chile and Colombia as emerging frontiers for investment opportunities.
Assunção underscores that despite prevailing macroeconomic headwinds, the Brazilian capital market demonstrates a persistent appetite for investment in well-structured infrastructure projects. The stability of Brazil’s regulatory environment combined with the growing demand for clean energy solutions presents a compelling case for investors looking for opportunities in the green financing space.
Regulatory certainty plays a pivotal role in the advancement of renewable investments, with effective policies and streamlined permitting processes being essential. The importance of good governance is complemented by investor concerns surrounding regulatory changes that can hinder progress, as evidenced by recent regulatory actions in the U.S. under the previous administration targeting offshore wind and other renewable projects. According to Marcia Hook, an Energy Regulatory and Markets Partner at Clifford Chance, consistent investment in renewables, free from obstructionist regulations, offers a clear competitive advantage.
For private-sector financiers, the navigation of risks hinges substantially on regulatory frameworks that ensure lender protections and foreclosure rights. This clarity is crucial in informing private equity investors’ strategies, especially regarding exit opportunities and asset valuations. As a result, there is a noticeable shift within the energy financing landscape, with private capital increasingly stepping in to fill gaps left by traditional banking avenues.
Private illiquid funds are now often taking the lead as primary financiers, engaging from the project’s inception through to the construction phase. Assunção of Perfin predicts this trend toward private capital will only grow, especially as projects in alignment with the global energy transition and innovative technologies such as green hydrogen and energy storage attract increasing investor interest.
As the global landscape for energy investment continues to evolve, the intersection of project finance, regulatory frameworks, and investor priorities will undeniably shape the future of sustainable energy financing. The ongoing commitment of both public and private sectors to prioritize clean energy initiatives reflects not only the urgency of addressing climate change but also the profound opportunity that exists within the realm of sustainable investment.