In emerging and developing economies, grid systems are ageing and fragmented, often too ill-equipped to handle the surge in renewable energy. While public and philanthropic efforts have laid the groundwork to fund, expand and modernise grids, a significant financing gap remains. Can private financial institutions move from the sidelines and become more active players?
Infrastructure is a resilient asset class, with market analyses showing that it offers lower-risk and stable returns even in turbulent markets. Between 2016 and 2022 alone, infrastructure funds saw average annual returns of 11.3%. This resilience likely contributed to the notable rise in private investment in infrastructure projects in 2023, which exceeded the five-year pre-pandemic average according to the World Bank’s Infrastructure Monitor.
However, this growth has been uneven. While developed economies continue to attract capital for their energy transition and digital infrastructure, investment in emerging markets – where the need for better electricity grids is more urgent – lags behind. Emerging markets and developing economies (EMDEs) currently receive less than 15% of global clean energy investments, despite housing more than half of the world’s population. This disparity in investment widens the gap between developed economies and EMDEs.
While governments and regulators have a role to play in closing this gap, there is an opportunity for private finance to step up.
The landscape so far
To understand where private finance fits, it’s important to recognise who’s already active.
Multilateral development banks, philanthropies, development finance institutions (DFIs)and NGOs have been instrumental in funding grid projects across emerging markets such as Haiti, Mozambique, and Uzbekistan, to name a few.
Current efforts by philanthropies, DFIs, and NGOs have proven what is possible and de-risked the early stages of grid development – but they fall short of the scale of capital required to achieve universal energy access.
This is where private finance has a critical role to play.
Private finance can build on the foundations already laid, leveraging market intelligence and lessons from early projects to attract capital at a level only commercial investors can bring. For private investors, the opportunity is twofold: delivering measurable social and environmental impact by enabling reliable, affordable energy access, while also tapping into long-term, resilient investment opportunities in fast-growing economies.
The challenge is not whether the opportunity exists, but how quickly private capital can align with and build on proven models to bridge the gap and accelerate the transition.
What’s working and where?
With the right structure, private finance can be mobilised, even in challenging markets. A variety of financial models have become popular in recent years, successfully tackling barriers to risk management and incentives. Some of the most successful financial models for grid infrastructure projects to keep an eye on include:
Public-Private Partnerships
Public-Private Partnerships (PPPs) are a powerful bridge between public ambition and private capital. By sharing risk and pooling resources, they unlock grid projects that might otherwise stall. For private investors, these collaborations aren’t just a workaround; they are an access point to public support and greater stability, which lays the groundwork for scaling solutions that move the needle.
Impact example: In Peru, PPPs have enabled grid expansion through Build-Own-Operate-Transfer (BOOT) contracts, which allow private investors to operate transmission assets for 30 years before returning them to the state. Since 1998, this has resulted in 18 tenders (worth $1.8 billion), delivering more than 6,000 km of transmission lines and accompanying substations, with investor payments built into user tariffs.
Sovereign loans financing public infrastructure projects
Building on the foundation established by PPPs, international financiers, development banks, or other countries provide loans directly to national governments in this type of model. The projects enable them to construct or upgrade essential public infrastructure such as power grids. Often, these loans come with favourable interest rates or extended repayment terms, making them an attractive source of affordable financing for governments aiming to scale grid investment alongside private sector collaboration.
Impact example: A pioneering example is the European Bank for Reconstruction and Development’s (EBRD) Sarimay-Muruntau Transmission Line in Uzbekistan. This project connects high-quality wind resources in the west with demand centres in the east of the country. Financed through a sovereign loan from the EBRD, the project avoids contingent liabilities (government guarantees or future payment obligations) while enabling the transmission of up to 3.4 GW of renewable energy.
Blended finance
Combining concessional public finance with private capital can often be used as a strategy to de-risk investments and enable long-term infrastructure projects to get off the ground. Similar to PPPs, blended finance aims to bring together public and private sectors to facilitate investments. In this case, the reference is only to the financing of the project rather than its operation and build-out. Blended finance is a proven way to improve risk-adjusted returns and channel private capital to close financing gaps across infrastructure.
Impact example: A combination of private equity, development finance and concessional capital helped to set up the Gridworks Chimuara-Nacala Transmission Project in Mozambique, which delivers a 450 km high-voltage transmission line connecting central and northern Mozambique.
Active investor engagement with grid stakeholders goes beyond financial arrangements. It requires collaboration and clear communication around risks and rewards. Forums such as the Grids Working Group (GWG), set up by the Institutional Investors Group on Climate Change, tackle this need effectively. By facilitating discussions among members aimed at addressing grid financing bottlenecks, the GWG has defined clear investor expectations to support investor engagement with corporates and public bodies. Involvement throughout the project further helps guide outcomes, align with regulations, and build trust. Such engagement enhances the impact of novel financial models and also encourages innovation and resilience across the grid sector for scalable, sustainable energy solutions.
A call to action to investors
Private financial institutions have a clear opportunity to drive global grid infrastructure by using proven models and strategic approaches, making it easier to invest and achieve impactful results. Whether seeking long-term stability, high returns, or ease of entry, investors must align their priorities with the right markets and frameworks. A financial institution that looks for low-risk returns will lean towards blended finance, while an impact investor that seeks to build on the impact of energy grids would benefit from pursuing innovative partnerships. Understanding the stakeholder landscape, market saturation, and openness to investment are key, where the time to act is now.
The most successful deals share common strategies: Early-stage de-risking. Clear revenue structures. Strong stakeholder alignment.
Regulatory and institutional readiness are also essential to ensure policies, incentives, and public finance align with long-term grid expansion goals; nonetheless, there is ample opportunity for financial institutions to catalyse the modernisation of our grids.
The grid investment landscape is increasingly navigable, with a variety of investment options primed for private capital. Now is the time to explore these opportunities, deepen engagements, and drive the evolution of our grid systems.
Contributors: Thank you to Polly MacCarthy, Head of Corporate Partnerships and Growth at the Carbon Trust, for contributing her insights to this piece.
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