The trend is clear – the world is rapidly shifting from emission-intensive energy sources toward a growing share of renewable power. According to the IEA, global additions in renewable electricity capacity rose by 22% in 2024 to nearly 685 GW − a record high. Overall renewable power capacity is expected to double by 2030.  Yet, while the clean energy transition is gaining momentum, global progress still needs to accelerate significantly to meet international climate and energy targets. A successful transition begins with using less energy in the first place, but here too the pace is lagging: The IEA finds that average annual efficiency improvement between 2019 and 2025 is only 1.3%  – far short of the 4% needed each year through 2030 to achieve the global energy efficiency target.

The clean energy transition however is not just a priority to meet climate, energy security and economic competitiveness goals. It presents a USD 31.5 trillion business opportunity by 2030, mostly in EMDEs. But unlocking this potential means overcoming steep barriers.

Take energy efficiency projects for instance. They require significant upfront investment, comprise a multitude of measures and business models that can appear risky to financial institutions. Common challenges include repayment through achieved savings, limited collateral and creditworthiness of small borrowers, often small project size and limited performance data for energy efficient technologies, resulting in limited access to finance and high transaction costs. 

As for grid-scale renewable power projects, they depend heavily on the financial health of utilities and their ability to honour obligations set in power purchase agreements.  

Off-grid renewable energy projects also face uncertainty in their revenue streams. They do not benefit from the stability of such agreements nor other pricing structures such as net-metering and rely on direct sales to end-users, whose demand and ability to pay can be highly variable.

Such barriers across clean energy projects are compounded by the challenging financial conditions that many EMDEs face, marked by tight public budgets, currency mismatches and persistent risk perceptions.

Unlocking the clean energy investment opportunity in EMDEs, with annual capital expenditure to reach USD 2.2–2.8 trillion by 2030, requires targeted financial instruments. Here’s where guarantees and other risk mitigation instruments come into play. These are not silver bullets, but when used right, they can enhance credit quality, ease access to finance and change risk perceptions. 

A recent OECD survey identified credit risk guarantees as the most relevant instrument for both renewable energy and energy efficiency projects, followed by portfolio guarantees. 

So what did the responses reveal? Here are a few real-world examples that show how guarantees and innovative insurance products are making a difference in the energy efficiency and renewable power sectors in EMDEs. 

Partial credit guarantees for local currency loans helped a solar developer in Pakistan access domestic debt despite high collateral requirements and limited experience among local financiers with clean energy projects. This financing solution supported the construction of approximately 21 MW small rooftop and ground mounted solar plants across many sites in Pakistan. A technical assistance grant also trained female engineers, boosting gender inclusion in the solar energy sector.

High perceived risks and weak enabling environments hold back decentralised energy solutions. A USD 50 million portfolio guarantee helped a revolving debt fund with a target size of USD 400 million de-risk aggregated small transactions and target underserved markets, mobilising investment in solar, electric mobility and clean cooking. The guarantee’s risk-sharing approach – offering higher coverage for loans in Least Developed Countries and risky technologies – is a promising approach to incentivise lending to underserved markets that would otherwise be commercially unattractive. 

A partial risk sharing facility, set up in 2015 by India’s Bureau of Energy Efficiency together with the World Bank, helped overcome the high-risk perception and lack of collateral that constrained energy services companies’ access to finance. By 2024, 79 credit guarantees were issued with USD 78.5 million guaranteed amount and mobilising total energy efficiency investment of around USD 132 million in micro-, small- and medium-sized enterprises, municipalities, hospitals, large industries, office buildings and hotels, generating long-term energy savings and emissions reductions.

When small- and medium-sized enterprises need financing for energy efficient technologies but actors have limited trust in projected savings, the energy savings insurance scheme can increase investor confidence in the ability to repay loans and make profit from energy savings, and raise the willingness of local financial institutions to finance such projects. This scheme consists of an insurance product covering projected energy savings, an energy performance contract with guaranteed savings, independent technical validation, and dedicated credit lines, which can be blended. In Colombia, insurance company SURA issued 600+ policies with a less than 1% default rate, and the scheme proved commercially viable and scalable.

Despite their potential, these instruments remain underutilised, making up only 4% of multilateral development banks’ commitments. Donors are showing renewed interest on guarantees – spurred by recent changes such as on international accounting rules for official development aid and calls for greater private finance mobilisation, but there are opportunities to scale up their use.

Persistent challenges such as product complexity and a lack of viable project pipelines in some regions are sticking points. The transaction costs associated with deploying risk mitigation instruments can be substantial and the current regulatory treatment of guarantees can pose limits to their use, as the capital relief provided by guarantees can vary significantly across jurisdictions, types of users and instruments. 

In addition, global capital is not always responsive to marginal risk-adjustments. Institutional investors often lack familiarity with EMDEs, and their mandates do not always align with the characteristics of sustainable investments in these countries and regions. 

Evidence also suggests that risk mitigation instruments rarely work in isolation. Their success often hinges on complementary support, such as technical assistance, concessional finance, enabling regulations and a pipeline of viable projects. 

Improving transparency and data on guarantee performance, such as call rates and pricing, can help build confidence and unlock broader uptake. To be effective, guarantees should be:

• Targeted at transformative sectors and technologies
• Used to familiarise investors and shift risk perceptions 
• Paired with strong, well-allocated incentives and accompanied by demand and supply-side measures, such as green public procurement, minimum energy performance standards and capacity-building. 

Guarantees and insurance cannot do it all, but under the right conditions, they can help unlock financing for the clean energy transition in EMDEs, using financial engineering to support clearly defined public purposes. 

Find out more about how guarantees and other risk mitigation instruments in the OECD Environment working paper  “Guarantees and other risk mitigation instruments for clean energy: Harnessing blended finance to scale investments in emerging markets and developing economies”, developed under the OECD Clean Energy Finance and Investment Mobilisation (CEFIM) Programme.

The virtual event From risk to reality: Guarantees and risk mitigation for clean energy in EMDEs, will be livestreamed on the OECD COP30 Virtual Pavilion on 14 November, from 11:30 AM to 1:00 PM (CET). Register here to attend the event virtually and join the Q&A, or to watch the replay.