Global climate finance rules are excluding more than 60 percent of grid projects worldwide, creating a structural barrier that threatens the pace of the energy transition, according to a new report released by the Green Grids Initiative.
The paper warned that grids remain stranded outside mainstream climate funding because most taxonomies do not recognize their role in driving future decarbonization, rather than reflecting current emissions profiles.
Why Most Grid Projects Miss Out on Climate Finance
Although renewable power generation is expanding rapidly, grid upgrades are lagging as electricity demand is expected to triple over the next 20 years.
As a result, annual grid investment must double to more than $700 billion by 2030 and then exceed $1 trillion from 2035 onward. The report said that without clear, standardized climate-finance principles, much of that investment will not materialize.
COP30 High-Level Climate Champion Dan Ioschpe emphasized that while renewable energy generation is advancing rapidly, the challenge now lies in ensuring grid efficiency, resilience and distribution capacity.
According to him, investments in these systems increased by only 9 percent in 2024, revealing a significant financing gap. “If we can align capital, capacity, and collaboration, we can accelerate this transition together—not as an obligation, but as the greatest economic opportunity of our generation,” he stated.
New Framework Targets Fragmented Standards
The new set of Climate Finance Principles aims to create a common framework for assessing which grid investments should qualify for climate or green finance.
Until now, inconsistent methodologies have made co-financing difficult, especially in emerging markets where grid carbon intensity remains high.
Current classification systems often judge projects on the emissions of existing generation rather than on what will connect in the future, the report said.
Francesco La Camera, director-general of the International Renewable Energy Agency, warned that slow action would jeopardize transition goals. “If we do not finance grids and flexibility, the speed and scale of the transition will be compromised,” he said.
System-Level Criteria Aim to Align Power Planning
To address these challenges, the principles introduce a two-tier system that covers both sector- and project-level assessments.
They allow utilities, investors, multilateral banks and climate funds to apply a consistent set of criteria. They also support blended finance structures that combine public, private and concessional capital.
At the system level, the guidelines require power-sector plans to demonstrate a “Net Positive Contribution” to national climate goals. This includes progress on key indicators such as the grid emission factor or the share of low-carbon electricity.
By focusing on rates of change rather than absolute starting points, the framework avoids penalizing countries with fossil-heavy grids that are nonetheless transitioning.
Additionally, the principles demand internal alignment across energy plans. Many countries maintain separate documents for generation, transmission and distribution.
When these plans conflict, the transition can slow down as infrastructure is not built in step with renewable additions. A coordinated approach, the report noted, gives investors confidence that grid investments will support long-term climate targets.
Project-Level Rules Bring Measurable Climate Gains
Project-level assessments add further requirements. They mandate consistency with national power-sector plans and call for clear measurability.
Performance must be tracked for at least five years after commissioning. Indicators should be relevant and time-bound. They should also rely on regularly collected, accessible data.
When necessary, simulation tools can be used to model expected reductions in emissions or increases in low-carbon electricity until real data becomes available.
Moreover, the framework highlights categories of investment that should automatically qualify for climate finance. These include transmission lines that exclusively transport low-carbon electricity, storage that boosts grid flexibility, and stabilization devices that support frequency control.
Also included are grids with carbon intensity below 100 grams of carbon dioxide emitted per kilowatt-hour of electricity generated, or those where at least two-thirds of added capacity in the past five years has been low-carbon.
Meanwhile, fossil-fuel radial lines and projects that harm sensitive ecosystems are automatically excluded.
Automatic Eligibility Seeks to Speed Investment
Beyond mitigation, the principles also integrate adaptation and resilience. As climate extremes intensify, grid systems face higher risks of outages, heat stress and storm damage.
The report said that resilience investments, such as undergrounding lines in cyclone-prone areas or installing digital fault-response systems, should be considered climate-aligned even when they do not directly cut emissions.
Stronger grids, it argued, safeguard communities and reduce recovery times after extreme events.
Investors are expected to benefit from improved clarity. Until now, many grid projects in emerging markets have been unable to access climate finance because they did not fit rigid taxonomy definitions.
However, new guidelines allow financiers to support projects that advance long-term decarbonization even when current grid mixes remain fossil-heavy. This could accelerate capital inflows to regions where investment needs are most acute.
Resilience Measures Gain Priority Amid Climate Extremes
Furthermore, the principles are designed to help climate funds that lack grid-specific assessment methods. They can use the new framework to evaluate proposals consistently across countries, especially in multi-national portfolios. Third-party validators may also verify compliance, helping institutions standardize reporting.
Despite these gains, the report stressed that broad adoption will be essential. Fragmented standards currently force developers to meet different criteria depending on the source of financing. A shared methodology, the authors said, would reduce transaction costs and speed deployment.
Ultimately, the principles aim to ensure that grid investments are judged not on what they are today but on what they enable. They position grids as critical infrastructure that enables renewables, electric mobility and energy-efficiency technologies to scale at the required pace.
As the world heads through COP30, the report argues that solving the grid-finance gap will determine whether global decarbonization goals remain achievable. Without stronger commitments from governments, investors and development banks, delays will continue to slow the clean-energy transition and raise long-term costs.
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