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Energy companies may invest where other capital stays away because a particular project offers valuable resources, contracted revenue, future market access, or strategic importance. That does not make the country low-risk—or guarantee a higher return. The key is how the project’s economics fit an investor’s goals and how its risks are allocated among companies, lenders, governments, and insurers.
Why one investor proceeds when another does not
“Other investors” can mean private companies, commercial lenders, portfolio investors, governments, or state-owned enterprises. These groups have different mandates and constraints. A government-backed energy company may value supply security, while a private developer weighs expected project cash flows and a lender focuses on repayment, credit quality, and currency exposure. The International Energy Agency (IEA) distinguishes the actors who decide to invest from the institutions that provide capital.
That distinction matters: a development bank or commercial lender might finance a project without being the company that chose to build it. Likewise, a state-owned enterprise may invest for strategic reasons that do not apply to a private investor.
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What can make a specific energy project worth pursuing?
Resources, revenue, and market position
An energy-producing asset may offer access to resources or a durable market position. Power generation, grids, storage, and clean-energy manufacturing have different revenue models: a generator may depend on a power-purchase contract, while a grid or storage project has its own demand, pricing, and regulatory exposure. Large upfront costs can make future contracts and demand especially important.
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Energy security and industrial strategy
Companies and governments may value reliable energy supply, domestic industrial capacity, or access to technology alongside financial returns. In its 2025 outlook, the IEA linked recent energy-transition spending growth to economic, technology, industrial, and energy-security considerations as well as climate policy.
A market’s risks are not uniform
Country-level risk does not determine every project’s economics. A project with credible contracts and a clear revenue source may be financeable even where the broader investment climate is difficult. The relevant question is not simply whether a country is “safe,” but what cash flows a project expects, what could disrupt them, and who bears each exposure.
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Who invests in emerging and developing economies?
Energy investment is not limited to foreign private companies. The IEA reported in 2024 that governments and state-owned enterprises make about half of energy investments in emerging-market and developing economies, compared with 15% in advanced economies. National oil companies and state-owned utilities are significant participants.
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Outbyte Driver Updater FREEScan for outdated or missing drivers - takes under a minuteDriver Scan →Outbyte PC Repair FREEClear out junk files and repair common Windows errorsFree Scan →For context, the IEA estimated global energy-sector capital flows of USD 3.3 trillion in 2025, a 2% real increase over 2024. Of that estimate, USD 2.2 trillion was directed collectively to renewables, nuclear, grids, storage, low-emissions fuels, efficiency, and electrification, compared with USD 1.1 trillion for oil, natural gas, and coal. These are IEA estimates for 2025, not final audited results.
How risk-sharing can make a project financeable
High political, regulatory, or currency risk can increase financing costs, weaken expected risk-adjusted returns, or prevent a project from securing capital. Public finance and contractual protections can change who carries some of that risk. They mitigate exposure; they do not remove it or promise a profit.
- Concessional finance: Financing on more favorable terms can improve a project’s credit quality and help mobilize other capital, particularly in frontier markets or projects exposed to foreign-exchange risk. The IEA says such financing can enable projects that otherwise might not be funded, but it is not a substitute for policy and institutional reform.
- Guarantees and political-risk insurance: The World Bank Group says its private-sector arms, the International Finance Corporation (IFC) and the Multilateral Investment Guarantee Agency (MIGA), offer financing, equity, guarantees, and political-risk insurance to help lower risk and improve bankability and market access. Availability, eligibility, and terms are project-specific; these tools do not protect against every loss.
- Contracts and public participation: Long-term contracts or a government’s participation may support a project’s revenue or share certain exposures. Their value depends on enforceable terms and credible counterparties; changes to regulation or contract terms can still lead to disputes.
The scale of the financing challenge is substantial. In a 2023 estimate, the IEA put the need for private energy-transition finance in emerging and developing economies outside China at USD 0.9–1.1 trillion annually, and estimated concessional finance needs of USD 80–100 billion per year by the early 2030s. Those figures describe estimated financing needs, not money already invested or committed.
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Which risks can change the economics?
| Risk or constraint | Why it matters to a project |
|---|---|
| Political stability, rule of law, and contract enforcement | Weak protections can affect property rights, raise expropriation exposure, and make disputes harder to resolve. |
| Regulatory change and procurement uncertainty | Changes to tariffs, procurement rules, or contract terms can undermine expected revenue after substantial upfront spending. |
| Licensing, permits, and land acquisition | Unclear approvals or delays can increase costs and postpone construction by months or years. |
| Currency exposure and shallow capital markets | When financing is in a hard currency but revenue is local-currency, exchange-rate changes and hedging costs can make repayment or financing unaffordable. |
| Resource governance and community impacts | Weak transparency and accountability can contribute to corruption, inequality, instability, or conflict, undermining lasting public benefits. |
| Technology, demand, and transition uncertainty | Future demand, policy, technology costs, and security needs can change whether an asset or its contracts remain economic. |
Regulatory risk can have consequences beyond higher borrowing costs. The World Bank Group reported more than 1,300 investor-state disputes across sectors by December 2023; renewable energy accounted for approximately 10% of such disputes as of February 2022. The reference dates differ, and the figures are not a measure of dispute risk for any one country or project.
How to assess the investment rather than the headline
“High risk, high return” is not a reliable rule. Risk may reduce expected, risk-adjusted returns rather than increase them. Compare a specific project on the factors that determine its cash flows and who absorbs losses:
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- Revenue and contract quality: Identify how the asset earns money, who pays, and what happens if demand, tariffs, or contract terms change.
- Country and regulatory exposure: Consider policy predictability, legal protections, procurement rules, and the capacity to enforce contracts.
- Currency and financing costs: Compare the currency of project revenues with its debt and operating obligations, including the cost and availability of hedging.
- Risk-sharing terms: Determine whether guarantees, insurance, concessional capital, or public participation cover specific risks, and read their limits and conditions.
- Governance and local benefits: Examine fiscal terms, transparency, anti-corruption measures, and how the project affects communities and public revenues.
The IEA and IFC have warned that unpredictable policy and regulatory environments in many emerging-market and developing economies can increase investment risk and lower risk-adjusted returns. Resource wealth alone is not evidence that investment will be responsible or broadly beneficial: EITI emphasizes transparency, accountability, fair fiscal terms, and anti-corruption measures as important conditions for attracting investment and improving public benefits.
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