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.
Geothermal and hydropower projects tend to be capital intensive and with long repayment periods. These projects can be challenging, especially in developing and emerging countries in transition often characterized by changing and unpredictable political and business environments. Developing and emerging countries are eligible for support from international financial institutions (IFIs) such as the World Bank Group and regional development banks and can also receive assistance from bilateral donor institutions. PPPs enable pooling of public, private and donor funds for clean energy investment. A well designed PPP can be a venue for scaling up funding for clean energy investment internationally. However, little point exists in forming PPPs if, for example, the private sector partner captures most or all the benefits, or if the government keeps changing the rules of the game resulting in a non-viable project. The focus of this article is on PPPs, potential benefits and challenges for host governments and various partners, including the private sector, bilateral donors, and multilateral institutions such as IFIs. When disputes occur between the private sector and host governments, IFIs can potentially play an important role in resolving disputes and help ensure the fair sharing of the risks and the rewards of the PPP for all the parties involved. The objective of this article is to review some recent theoretical research recently done on PPP, potential benefits as well as some challenges using this model in developing and emerging countries.