Voices: Utilities Hold The Keys To The Energy Transition In The Global South

This anticipated growth in consumption will put these countries on track to make up 70% of global greenhouse gas emissions by 2050, according to The World Bank.

Tackling the huge climate impact of the Global South’s growth will require a singular focus on an often-overlooked segment of its energy infrastructure: utilities.

They may not be shiny and exciting pieces of the energy transition, but as stewards of the world’s power grids, utilities play a central role in bringing more clean energy online, allowing for both higher production and lower carbon emissions. In the Global South, they are especially crucial.

In this large and least-wealthy swath of the globe, the energy sector is dominated by vertically integrated, state-owned utilities with immense control. They ensure grid reliability and resilience, govern how customers and third-party renewable energy developers interconnect small-scale renewables and storage, influence off-grid development, and directly incentivize customer behavior around energy use.

But even though these utilities are at the center of the global energy transition, many lack the basic capability to conduct planning required for evaluating new clean energy options for investment. Many also do not have national procurement frameworks in place to ensure new renewables projects are in-line with competitive market rates.

As a result, fewer than half of the utilities across the Global South are profitable, compounded by rising national debt levels and global interest rate hikes. They have been largely left out of United Nations planning for carbon reduction targets and lagging in philanthropic and foreign aid, as utilities are seen as cumbersome, slow and a vehicle for political favoritism.

To build a net-zero future, however, Global South countries will need trillions of dollars in external financing and investments in modernizing power grids to make them more flexible.

But how? It will be a huge challenge for the Global South to finance its energy transition when its national debt is unsustainable, its utilities are broke and under capacitated, the enabling environment for clean energy is weak and foreign investment is increasingly risk averse.

A well-coordinated effort must simultaneously address utility debt and fiscal constraints, promote clean-energy uptake programs and economically decommission aging fossil-fuel electricity generation assets.

All this can only happen with private-sector investment and access to public financial instruments that address the perceived and real market risks.

Just Energy Transition Partnership (JETP), launched in 2021, was one of the first efforts to create that kind of coordinated public and private financing mechanism for Global North countries to support Global South countries transitioning to cleaner energy. South Africa and Indonesia received $8.5 billion and $21.6 billion, respectively, to move toward net zero.

But fundamental reform is needed in how the international community and global climate philanthropy engages and channels funding. What’s more, these JETP agreements may be at risk with the Trump administration pulling out of the International Partners Group if European partners do not step up to fill the void.

A first critical step is tying clean energy investment plans to U.N. nationally determined contribution (NDC) commitments. Under this approach, utilities would have to meet future demand with more renewables and energy storage in their generation mix in order to receive international funding. Foreign governments, the international community, climate philanthropy and civil society working hand in hand with the private sector can help utilities with investment planning strategies, modernizing utility business models and strategies to restructure debt and attract capital.

Such coordinated clean-energy investment planning can both help push out increasingly costly and dirty fossil fuel assets, and force reform of regulatory and policy frameworks that enable investment in clean energy by the private sector while creating good paying jobs. The plans should be based on reliable data and employ best practices from previous sweeping technological and societal advances, like the proliferation of the internet and cell phones and global vaccination models.

Well-developed, multi-year clean energy investment plans would also enable a more catalytic use of public financing designed to address clean energy market and project risks to enable private-sector investment. This would bring down renewable energy technology costs for utilities and their customers through economies of scale and promote the use of global aid and other public funds such as philanthropy.

The world’s clean energy future will rise or fall based on how the Global South meets its rapidly growing energy needs. Global and local stakeholders in the energy transition must recognize that utilities hold the keys to winning the war against climate change.