Tracing the export financing trail, from fossil fuels to renewable energy
A new study(opens in new window) has analysed over 900 energy deals backed by export credit agencies and export-import banks (collectively referred to as ECAs) to identify energy financing trends from 2013 to 2023. Supported by the EU-funded GREENFIN(opens in new window) project, the study reveals we need new ECA mandates, stronger international climate-related cooperation in export finance and greater transparency. ECAs de-risk and enable energy projects in overseas markets by providing state-backed guarantees and, outside of Europe, direct loans. The study authors provide an example of how ECAs work in an article(opens in new window) posted on the ‘Springer Nature’ website: “Imagine vast quantities of gas are found in a politically or economically unstable country. To develop such resources, energy companies are dependent on numerous specific project components from specialized exporters all over the world: dredging services for clearing the seabed in offshore installations, engineering services to install the extraction facilities, liquefaction plants, and LNG tankers or pipelines for transport. Commercial banks that finance the exports of such deliveries can obtain ECA guarantees that mitigate against a variety of risks, e.g. repayment risks. In case the buyer (here the energy company) defaults, the bank can then claim compensation from the ECA (i.e. the state).” To fill the research gap on ECA financing patterns and the role that these institutions play in the low-carbon energy transition, the research team analysed 921 energy deals backed by ECAs from 31 OECD and non-OECD countries (excluding Canada). Focusing on the period between 2013 and 2023, they leveraged information from the database of TXF Limited(opens in new window) to quantify the long-term trends of ECA energy finance flows.
Towards renewables, but…
Key findings from the analysis include that “ECA portfolios are indeed shifting away from fossil fuels and towards renewables; even though far from a full exit.” According to the researchers, the global share of renewables has risen from below 10 % in 2013 to around 40 % in 2022-2023. “This trend is largely driven by offshore wind, hydro, and more recently, green hydrogen financing by European ECAs that are members of the E3F(opens in new window) coalition,” the authors go on to explain. However, despite the rise in renewables, in most years the majority of ECA energy finance still goes to the fossil fuel sector – oil and gas. In addition, ECA portfolio ‘greening’ is mainly driven by E3F members, leading to energy finance flows shifting away from developing countries. “Renewable energy projects are more likely to be in high-income countries, which, as a result, attracted 70% of total ECA energy finance in 2022-23. By contrast, that share was only between 40-50% between 2013 and 2021.” The findings of the study supported by GREENFIN (Effective green financial policies for the low-carbon transition) highlight the need for new policies, greater transparency and better international cooperation in export finance. The project ends in December 2025. For more information, please see: GREENFIN project web page(opens in new window)
Keywords
GREENFIN, energy, finance, energy transition, export credit agency, renewable, fossil fuel, energy finance
