These challenges hinder emerging nations' green transition

Energy access remains to be one of the major challenges in emerging countries.

As the race towards transitioning to clean energy sources continues, emerging markets remain to be haunted by these challenges that impede their progress. 

According to a report by S&P Global, the long-standing underinvestment in emerging markets poses a challenge on energy access. 

“Not all supply resources and business models are scalable at a fast pace, especially in emerging markets, where access to capital is often challenging,” it added.

Availability of local resources is another problem for emerging nations. Whilst renewables are abundant, their intermittency can cause grid instability, raising reliability concerns.

Given the urgent need for clean energy sources, many countries offer subsidies that keep retail power prices artificially low for end users. However, this creates market distortions and financial burdens for project developers, utilities, capital providers and governments, altering the risk profile of investments. 

For example, Indian distribution companies incur losses from the gap between the average cost of supply and the average revenue realised from the retail sale of electricity. Government subsidies only partially compensate for these losses, S&P Global said.

Another challenge S&P Global raised was support of primary industry. In the case of India, where coal remains a key energy source, renewable energy projects must integrate with existing coal-based industries.

Emerging markets' highly regulated power sector was also cited as a challenge as this limit the role of private players.

“Emerging markets often require major reforms, such as clarifying the role of private players (South Africa), opening the wholesale market (Vietnam) or implementing tariff reforms (India),” the report read.

Lastly, S&P Global said access to capital can be a struggle in emerging markets. Multilateral funding is often crucial, but delays in disbursement, as seen in Vietnam and Indonesia, can hinder projects, it said.