Regional Formation and Development Studies

As the global economy grows, so does the demand for energy. Investment in clean energy projects, including geothermal, is increasingly important to help meet these growing energy needs. Clean energy projects are also important for environmental reasons and as part of the battle against climate change. Many clean energy sources in the world are located in developing countries, including emerging market economies. Investors in developing countries are normally faced with higher risks than those investing in high income developed economies. Higher risks in turn reduce capital flows to developing countries. This is particularly true during times of economic and financial crisis. At the same time energy projects tend to be large and capital intensive with long repayment periods. Energy projects also often require partnership between the public and private sectors i.e. public private partnerships (PPPs). Efficient allocation of risks among the different partners in PPPs is important for success, generally results in more profitable projects, and is more likely to benefit all parties involved. This article discusses public private partnerships in the energy sector in developing countries, characteristics of developing countries, the risk faced by investors, the absence of an international regime for investment, and risk mitigation instruments offered by international financial institutions to manage risks.