Strong economic growth, population increases, and rising levels of access are driving electricity demand to soaring new heights globally, and especially in developing countries. The International Energy Agency estimates that for the period through 2035, non-OECD countries will account for most incremental electricity demand, set to increase from 11,300 terawatt hours (TWh) to just over 26,000 TWh—more than the current generation capacity of the entire world. This makes electricity demand in developing countries the single greatest source of increased final energy demand from all sources—including liquid fuels—over the next 20 years.
Globally, the annual investment required to satisfy the demand growth is substantial: over $740 billion per year, close to $430 billion of that in greenfield project capacity. As electricity sectors in many countries deregulate and look to private capital for investment requirements, independent power producers (IPPs) will play an increasing role in providing the necessary generation capacity. Just how much private capital has been mobilized toward the power sector in recent years?
Mapping it out
Between 2002 to 2012, a total of $350 billion was invested into greenfield IPP assets in developing countries. About 44 percent of that investment was in renewable energy, which for the purpose of this article also includes large hydropower plants.
In the period between 2002 to 2012, $21 billion of investment has leveraged 31.5 gigawatts (GW) of non-renewable IPPs. The majority of this investment has been in natural gas-fired facilities. Renewable investments in the sector have contributed 140 GW of IPP capacity. However, 122 GW of this capacity consisted of hydro projects larger than 50 megawatts (MW).
Non-renewable investment IPPs in Sub-Saharan Africa totaled $4.2 billion, bringing a mixture of diesel-fired and natural gas generation. In natural gas, 19 plants over the last decade yielded $2.6 billion of investment for a total capacity of 3.2 GW. Nigeria led the way with 850 MW of new capacity. With $6.2 billion recorded, private finance of renewable facilities outstripped non-renewables. South Africa attracted two-thirds of this investment through the Renewable Energy Independent Power Producer program.
Europe and Central Asia
The region of Europe and Central Asia has seen $13.8 billion of investment in non-renewable IPP facilities over the last 10 years for a total capacity of 14.5 GW. Among these were 3 GW of coal-fired facilities and 10 GW of natural gas. Turkey attracted the greatest share of investment, with 10.2 GW of capacity—all but one 700 MW diesel facility financed since 2009. However, the region has also seen an explosion of renewable energy investment: $18 billion financing for 9 GW of power projects. Once again, Turkey was the recipient of the highest level of investment, with $10 billion financing for 5.1 GW of capacity. This included 2.6 GW of large hydro and also 1.8 GW of wind—the most significant generation technologies attracting investment.
The region of South Asia saw $128 billion of investment in non-renewable facilities during the decade, with a spurt of $96 billion coming in the five years from 2007 to 2011. This was followed by a steep drop in 2012 to $2 billion. Coal was the technology most invested in, with $90 billion of investment leveraging 100 GW of capacity growth. There was also significant investment in renewables, with $17.7 billion bringing 12 GW of new capacity. India attracted the vast majority of this investment into its wind and hydro sectors—$15 billion total investment. In Pakistan, capacity shortage has recently led to a number of investments. Of these, nearly 80 percent were supported by international finance institutions.
East Asia and the Pacific
Perhaps surprisingly, it was not East Asia and the Pacific which saw the greatest investment in both renewable and non-renewable IPP infrastructure. There was a total of $33.1 billion of investments over the decade in non-renewables, far less than registered in South Asia. Of this investment, $26 billion was in coal. Natural gas-fired projects followed coal with over 16 GW of new projects in the period. Of these, close to 8 GW were in Thailand, including 3.8 GW of capacity financed since 2012.
There was a similar level of investment in renewables—$22.5 billion—which includes large hydro and brought 18.7 GW of capacity. After large hydro (11.5 GW), there was 3.1 GW of wind financed and 720 MW of solar photovoltaic.
Middle East and North Africa
Though limited in absolute numbers, the Middle East and North Africa region experienced strong growth in privately financed greenfield capacity over the decade, from less than $1 billion in 2002 to over $4 billion in 2012. During that period, 7.7 GW of base load non-renewable capacity was financed, with 6.7 GW of that in natural gas-fired plants. Renewable investment was not high, but the 1.3 GW of capacity included the Ouarzazate signature solar thermal plant in Morocco and the 300 MW Tarfaya wind farm.
The World Bank Group (WBG) is well placed to assist developing countries to meet the growing demand for private investment in the power sector. Assistance is available via a range of programs, products, and initiatives across the project cycle to ensure that clients can structure successful projects. For example, downstream the WBG provides credit enhancement instruments including IBRD/IDA Guarantees to mitigate critical project risks and thus overcome the reluctance of private financiers to invest in key infrastructure projects. Upstream, the Public-Private Infrastructure Advisory Facility (PPIAF) assists with the development of enabling environments that facilitate private investment in power sector infrastructure.
Investment data is based on the Private Participation in Infrastructure Database. Updated annually, 2013 data is available in July 2014.