Clean energy in emerging economies

In 2024, Pakistan imported solar panels with a combined capacity of roughly 17 gigawatts, according to analysis of customs data by the energy think-tank Ember. That is a large fraction of the country’s entire installed power capacity, bought not by a utility or a government programme but, for the most part, by households, shops and small factories. They were escaping electricity bills that had soared after the 2022 fuel-price shock, and a grid that could not be relied upon.

The Pakistani boom is a vivid example of something larger. For two decades the energy transition was a story of rich countries subsidising technologies that were too expensive for anyone else. That story has ended. Wind and solar are now cheap enough to compete on cost alone. The question has shifted from whether clean energy makes sense in emerging economies to how quickly they can afford to build it, and who will pay for the upfront cost.

Why emerging economies decide the outcome

The geography of energy demand is shifting. Most of the growth in the world’s use of electricity over the coming decade is expected to come from emerging and developing economies, driven by industrialisation, urban growth, rising incomes and, increasingly, the need for cooling. Every household that buys its first refrigerator or air-conditioner adds to demand, and under the old model of development that demand was met largely with coal and gas.

That makes the type of power these countries build the single most consequential energy decision of the century. Power plants last for decades. A coal plant commissioned today is, in effect, a commitment to emissions through the 2060s unless it is retired early at a cost. Each country that builds clean power instead avoids that lock-in, and does so without waiting for richer countries to cut their own emissions.

The case is not only about the climate. Many emerging economies import most of their fuel, which exposes them to price spikes they cannot control. When gas prices surged in 2022, Pakistan and Bangladesh were among the countries that suffered long blackouts because they could not afford to buy enough liquefied natural gas. Domestic sun, wind, water and heat are insulated from that risk. In the language of the polycrisis, locally generated clean power loosens one of the tightest couplings between global energy markets and national stability. It also helps meet the surge in demand for cooling that a warming world is creating.

The economics have flipped

The most important change of the past fifteen years is how much cheaper clean power has become. According to the International Renewable Energy Agency (IRENA), the average cost of electricity from newly built solar farms fell by roughly 90% between 2010 and 2023. The cost of onshore wind fell by around two-thirds over the same period. IRENA also found that more than 80% of the renewable capacity added worldwide in 2023 produced electricity at a lower cost than the cheapest new fossil-fuel alternative.

2010$0.460

2022$0.049

2023$0.044

Levelised cost of electricity, in constant US dollars. Source: IRENA, Renewable Power Generation Costs in 2023

These falls were not luck. They followed a learning-curve pattern: each doubling of the world’s solar capacity cut costs by a roughly consistent share. Research by Rupert Way and colleagues suggests that this regularity makes rapid deployment of clean energy likely to save money overall compared with a slower transition. It is also a direct example of the diffusion dynamics that make a technology cheaper for everyone as more people adopt it. Emerging economies are the beneficiaries of a cost decline that rich countries helped to pay for.

There is a catch. Solar and wind have high upfront costs and almost no running costs. A coal or gas plant is the opposite: cheaper to build, expensive to fuel. So a clean-energy project’s cost depends heavily on how much it costs to borrow the money to build it. That is where emerging economies face their biggest obstacle.

The financing gap

The International Energy Agency (IEA) has found that emerging and developing economies outside China account for roughly two-thirds of the world’s population, but only about 15% of global clean energy investment. Most clean-energy investment is concentrated in advanced economies and China.

Share of world population66%

Share of clean energy investment15%

Rounded figures. Population share is approximate. Source: IEA, Scaling Up Private Finance for Clean Energy in Emerging and Developing Economies

The IEA estimates that the cost of capital for a solar project in an emerging economy is often two to three times higher than for an identical project in a rich country. Because clean energy is front-loaded with costs, financing becomes a large share of the lifetime price of electricity. The same panel on the same roof can be a bargain in one country and uneconomic in another, purely because of how risky lenders consider the country to be.

Lenders price in several risks that have little to do with the technology: the possibility that the currency will fall (so that revenues in local money cannot repay debts in dollars), the chance that a state-owned utility will not pay on time, the risk of changes in regulation, and the general level of sovereign debt. Many governments are also squeezed. According to the United Nations Conference on Trade and Development, more than 3 billion people live in countries that spend more on interest payments than on either health or education. Governments in that position struggle to guarantee projects or fund the grids that connect them.

Four routes, four lessons

There is no single path to clean energy in an emerging economy. Four patterns stand out.

State-led scale: India

India used competitive auctions, run by the government, to secure long-term contracts for solar and wind. The resulting tariffs have been among the lowest in the world. By mid-2025 India reported that non-fossil sources had passed half of its installed power capacity, five years ahead of its Paris Agreement pledge. The picture is less rosy for generation: coal still produces the majority of India’s electricity, because solar and wind produce power only part of the time and demand keeps growing. The lesson is that capacity milestones are not the same as emissions cuts, and that scale requires grids, storage and reliable payment to developers.

Inheriting a clean base: Brazil and Kenya

Brazil gets close to 90% of its electricity from renewable sources, mostly hydropower, supplemented now by wind and solar. Kenya draws most of its electricity from geothermal, hydropower and wind. Both illustrate how countries with good natural resources can build clean systems at scale, and both also face the limits of that approach: hydropower depends on rainfall, and drought can force them to turn to fossil fuel backup. Kenya also pioneered a different model, pay-as-you-go solar. The company M-KOPA, which launched in 2011, lets households buy solar systems in small instalments by mobile money, an example of how one technology (mobile payments) can speed up the spread of another.

Bottom-up adoption: Pakistan

Pakistan shows what happens when the grid fails to deliver affordable power and cheap panels are available. Households and businesses installed solar themselves, at speed. The benefits are real, and so are the side-effects. As better-off customers leave the grid, the fixed costs of the system are spread across fewer paying users, raising the bill for those who remain. The lesson is that a bottom-up boom still needs planning of the grid and its finances.

Boom, then bottleneck: Vietnam and South Africa

Vietnam introduced generous guaranteed prices for solar and went from almost no solar capacity to roughly 16 gigawatts within about three years, by 2021. The grid could not keep up, and some solar farms were told to switch off for lack of transmission capacity. South Africa, meanwhile, has endured years of rolling blackouts from an ageing coal fleet, which triggered a surge in rooftop solar and batteries. Both cases show that generation is the easy part. Transmission lines, storage and flexible management of the grid are what determine whether the clean power actually gets used.

Generation is the easy part now. Grids, financing and the ability to keep the lights on are what limit clean energy in emerging economies.

What can go wrong

Clean energy is not automatically a success story. Four risks deserve attention.

Debt. If clean-energy projects are financed with foreign-currency loans, a currency fall can make them unaffordable. Adding to a country’s debt burden to build clean power can crowd out other spending. Financing needs to be in local currency, concessional or guaranteed, wherever possible.

Supply-chain concentration. The IEA found that China accounts for more than 80% of every major stage of solar-panel manufacturing. Cheap imports are what make emerging-economy solar affordable, but dependence on one supplier creates its own risk, from trade disputes to export controls. In 2025, analysts at Ember reported a steep rise in Chinese solar-panel exports to Africa, which shows how fast the technology can spread, and also how concentrated the supply is.

Grid bottlenecks and unreliable utilities. Without investment in transmission, storage and distribution, clean power is wasted or fails to reach users. State utilities that are already in financial trouble struggle to buy more power from private developers, which makes lenders more cautious still.

An unjust transition. Coal mines, plants and the communities around them provide jobs and public revenues. A transition that ignores them risks political backlash. Several countries, including South Africa, Indonesia and Vietnam, have signed “just energy transition partnerships” with wealthy donors to fund retirement of coal plants, backed by pledges of billions of dollars. Much of this finance is in loans rather than grants, and the United States withdrew from these partnerships in 2025, so delivery has been slower than promised.

What would speed things up

The most useful interventions tackle the cost and risk of capital rather than the technology.

• Lower the cost of borrowing. Guarantees, currency-hedging facilities and blended finance, in which public money absorbs the riskiest part of a project, can pull in private lenders at lower rates. The reform of multilateral development banks to lend more against their capital matters here.
• Invest in the grid. Transmission, storage and digital grid management are the unglamorous infrastructure that makes wind and solar usable. They are often the best-value clean-energy investment in a country.
• Run transparent auctions. Competitive, well-designed auctions with creditworthy buyers cut costs, as India’s experience shows.
• Build local skills and supply. Installers, technicians and local assembly create jobs and spread the benefits. They also diversify supply chains.
• Finish the unfinished business of access. For hundreds of millions of people the immediate task is a first connection. Mini-grids and off-grid solar are often faster and cheaper than extending the national grid, and clean cooking deserves equal priority.
• Tackle the debt problem. Where sovereign debt is crushing, debt relief and swaps that convert repayments into clean-energy investment can free the fiscal room needed.

What it implies

For emerging economies, the case for clean energy has never been stronger: lower costs, less exposure to imported fuel, cleaner air and a route to growth that does not lock in decades of emissions. The obstacle is no longer a lack of technology but the high price of money.

That reframes the global agenda. Money spent lowering the cost of capital in emerging economies buys more clean energy per dollar than almost anywhere else, because the underlying technology is already cheap and the sunshine is plentiful. For richer countries, financing that transition is not charity. Emissions from fast-growing economies affect everyone, and the energy shocks that disrupt supply chains in one region reach all of them.

The countries that manage to pair cheap clean power with strong grids, sound finance and a fair deal for affected workers will have the most secure and affordable energy of the century. The rest will pay more, for dirtier power, for longer.