Climate Action Costs More in the Global South. Here's Why.

"Clean energy technologies have become more affordable around the world. Yet for many countries in the Global South, the cost of transitioning to a low-carbon economy remains disproportionately high. But not because the equipment is more expensive: in fact, solar and wind components are often imported at comparable prices around the world, as global manufacturing scale and trade have helped standardize hardware costs. Instead, the disparities in financing costs reflect the way the global financial system fails to adequately capture, differentiate and price risk."

"In many emerging markets and developing economies, the cost of capital for renewable energy projects can be two to three times higher than in advanced economies. This gap is commonly observed through differences in the weighted average cost of capital (WACC), which reflects the risk-adjusted return that a project must offer to both lenders and investors. WACC captures how underlying risk perceptions in a given market are translated into financing costs, determining whether clean energy projects meet investors' required returns."

Clean energy technologies are increasingly affordable worldwide while many Global South countries face disproportionately high transition costs. Solar and wind hardware often trade at comparable import prices due to global manufacturing scale and standardized components. The main driver of cost disparities is financing: the global financial system inadequately captures, differentiates and prices market risk. In emerging and developing economies, WACC for utility-scale renewables commonly ranges 10–15%, versus about 4–6% in advanced markets. Elevated WACC raises project capital costs, reduces financially viable investments, slows clean energy deployment, and increases fiscal pressure on constrained public budgets.

Read at State of the Planet