Introduction

The report examines how concessional finance can accelerate the deployment of offshore wind (OSW) in developing nations. OSW is recognised as a significant renewable energy source to mitigate climate change, but its expansion is hindered by financial barriers. Concessional finance, provided at below-market rates by multilateral funds and development banks, is highlighted as a key tool to unlock OSW investment in these regions. The report outlines two key strategies for leveraging concessional finance to support OSW and improve its feasibility in developing markets.

Context and financial landscape

Globally, OSW capacity has grown, with 10.8 GW added in 2023, bringing the total to 75.2 GW. However, developing nations lag behind. Vietnam is currently the only developing country with operational OSW projects, although others, such as Tunisia, South Africa, and India, are exploring OSW potential. Small Island Developing States (SIDS) like Cabo Verde are also working on policy frameworks to enable OSW.

One of the major financial challenges for developing countries is the high capital expenditure required for OSW. A model OSW project outlined in the report requires approximately US$2.9 billion in CAPEX, with 76% allocated to turbine and foundation construction. Despite this, climate finance avenues have yet to provide substantial support for OSW. For example, in 2021, only US$0.44 billion was allocated to wind projects (both onshore and offshore), far below the necessary level to drive significant OSW development.

Exploring opportunities for supporting OSW in developing countries

The report identifies two primary avenues for supporting OSW through concessional finance. The first is to provide technical assistance and concessional loans to national governments. This would help create a supportive regulatory environment, collect relevant OSW data, and upgrade the grid infrastructure needed to integrate OSW into national energy systems. The World Bank’s Offshore Wind Development Program, launched in 2019, has been instrumental in assisting countries like Vietnam, India, and Sri Lanka in creating such enabling environments.

The second strategy is to blend concessional finance with commercial capital to support private sector developers. This approach aims to reduce the perceived risks associated with OSW projects in developing countries, making them more attractive to investors. Blended finance could lower the cost of capital and improve the risk-return profile of OSW investments. Guarantees and insurance mechanisms are recommended to mitigate risks related to political instability and off-taker non-payment, thus encouraging private sector participation.

The report also explores the use of green and blue bonds as a tool to mobilise finance for OSW. Since 2019, global green bond issuance has reached US$575 billion, with US$6.8–9 billion allocated to blue bonds, which are aimed at marine-related projects. While these bonds present a viable financing option, they come with challenges, such as high repayment costs for developing nations.

Conclusion and recommendations

To drive OSW development in developing countries, concessional finance must be scaled up through mechanisms like the Green Climate Fund (GCF) and the Climate Investment Funds (CIF). Technical assistance to governments should continue, with a focus on creating regulatory frameworks, improving data availability, and enhancing grid infrastructure. The report stresses that concessional finance, when blended with commercial funding, can play a critical role in reducing the financial risks of OSW projects and encouraging private sector investment.

Additionally, partnerships between multilateral development banks, donors, national governments, and private developers are essential for coordinating efforts to support OSW projects. Ensuring that OSW projects deliver positive biodiversity outcomes, in line with international standards, is also crucial to securing public and political support for OSW expansion in developing regions.