Using Natural Gas Resources to De-Risk Renewable Energy Investments in Lower-Income Countries

Abstract

Combatting climate change necessitates a substantial global increase in renewable electricity capacity. Many low-income and lower-middle-income countries suffer from unfavorable green financing conditions. Fifteen of these countries possess substantial natural gas reserves. To overcome green financing constraints in such countries, we propose an integrated energy contract that awards a renewable energy project in parallel with an upstream natural gas project to interested energy companies. The state returns from the natural gas project provide a guarantee for renewable energy investments, reducing their associated risks. We conduct Monte Carlo simulations for each of the targeted countries after populating the input parameters for the upstream natural gas and renewable energy projects, including forecasting country-specific natural gas prices. When accounting for 10% of their existing natural gas reserves in the proposed contract, Nigeria, Myanmar, and Indonesia can achieve more than 60% of their 2030 renewable energy target capacity additions while countries with low access to electricity can significantly upscale their installed capacities. The guarantee mechanism provides protection levels exceeding 96% on renewable energy investments. The proposed contract enables the considered countries to increase their renewable energy capacities while inducing economic development.

Keywords

• natural gas
• renewable energy
• upstream oil and gas
• developing countries
• climate change
• investment risks