Reforming institutions critical to scaling energy access solutions

U.S. Development Finance Modernization

In October 2018, legislation was signed into law in the United States to overhaul the government’s ability to support the financing of energy projects and other developmentally impactful investments in low and middle-income countries through the creation of a newly organized development finance institution called the U.S. International Development Finance Corporation.

As the debate unfolded in the months preceding the passage of these reforms, the Energy Access Project engaged with policymakers and broader stakeholders around critical financial tools and authorities needed to ensure the new institution could mobilize capital to help in closing the energy financing gap in emerging markets.

Government-sponsored development finance institutions (DFIs) have become key delivery mechanisms for poverty alleviation and the exercise of soft power. Energy, and the power sector in particular, represents both a leading sector of bilateral DFI investment—more than manufacturing, transportation, health care, and agriculture combined—and a critical enabling sector for broader development that requires significant additional investment in the coming decades. A reformed and fully equipped U.S. DFI would directly provide billions of dollars in additional energy sector investment and would catalyze many billions more in private investment. Such an institution could also expand employment opportunities, in emerging markets and the United States, and enable broader growth. In the process, it would strengthen economic and political ties with U.S. allies and provide an alternative to Chinese infrastructure finance—an alternative that is more transparent, more deeply rooted in democratic institutions, and more market oriented.

With earnest and bipartisan consensus building around U.S. development finance reform, the Nicholas Institute engaged with policymakers and broader stakeholders around critical financial tools and authorities needed to ensure the new institution could mobilize capital to help in closing the energy financing gap in emerging markets. The work is summarized in the policy brief, Can a Modernized U.S. Development Finance Institution Help Close the Energy Financing Gap?” It summarizes the importance of energy sector finance in the context of development and foreign policy, outlines the energy financing gaps in emerging markets, and analyzes how the new tools and authorities proposed under the Better Utilization of Investments Leading to Development Act (BUILD Act) legislation would equip the U.S. DFI to respond to those financing needs.

Duke Staff/Faculty: Jonathan Phillips

Student: Harry Masters

Non-Duke Staff: Hannah Girardeau

Related Publications: Can a Modernized U.S. Development Finance Institution Help Close the Energy Financing Gap? 

 

$25

BILLION IN FOREIGN ENERGY PROJECTS

BUILD Act authorities would help leverage U.S. funds by mobilizing at least $50 in investment for each $1 of grant funding, using equity investments to accelerate capital flows into early-stage companies and the least electrified markets, and helping local entrepreneurs through guarantees that facilitate local lending and build capital markets.
In 2017 alone, Chinese policy banks financed more than $25 billion in foreign energy projects, more than the US Development Finance Institution’s entire investment portfolio across all sectors.

50:1

FUNDS MOBILIZED

Funding