Why do some countries receive more international financing for coal-fired power plants than renewables? Influencing factors in 23 countries

Abstract

Construction of new coal-fired power plants (CFPPs) continues around the world, jeopardizing efforts to mitigate climate change. In 2020, some 500 GW of projects are under construction or being planned, mostly in developing countries. Because of high costs and technological hurdles, construction in developing countries is largely assisted by public finance from richer nations. Troublingly, in recent years, financing has provided more support to coal-fired electricity than to renewables. An important question thus arises: What factors drive the flow of international financing toward coal or renewables? Prior research has not tackled this question systematically with quantitative methods and a large sample of countries. This study thus examines 23 countries receiving international financing from government-affiliated bilateral institutions for both coal and renewables. We use a novel “coincidence analysis” method to systematically identify the factors that explain why some countries received more investment for CFPPs than renewables. Two combinations of influencing factors are identified: countries with: (i) a bilateral agreement to promote coal industry development, and weak or absent carbon pricing; or (ii) weak policy support for renewable energy, and weak or absent carbon pricing. We explore the influence of these factors in four countries—Indonesia, Pakistan, Mongolia, and Vietnam—to deepen understanding of why some countries receive higher investment for coal than renewables. This analysis leads to important policy implications.