Lessons from small islands: why equitable partnerships are key to funding the energy transition

Many developing countries such as small island developing states (SIDS) have energy sectors which are faced with a trilemma: low energy access; energy insecurity vulnerability due to a high dependence on oil imports; and substantial barriers to renewable energy sector development such as institutional and regulatory obstacles. Compared to developed countries, developing countries rely more heavily on external or foreign sources of technology, knowledge, and financial resources, including donor interventions to drive their energy transition towards cleaner power sources.

Developing countries such as small islands have some of the most ambitious clean energy targets in the world. In these geographies, especially small and vulnerable economies like SIDS, donor funding and other external resources have played an integral role in filling capacity gaps (financial and human) needed to support the energy transition. Furthermore, even when these countries’ national governments possess the finances to largely support the transition, donor funding or other external resources still play an important supplementary role.

However, this could be a double-edged sword. For instance, feedback from energy transition stakeholders across Barbados and Mauritius revealed that where external resources outweighed internal resources to transition, the country had less control over their overall transition journey. This was because external actors controlled the allocation of the crucial capacity areas needed to transition. This, in turn, lead to an overall negative impact on observed outcomes, such as the inappropriate allocation of resources. However, the exact nature of this issue and how to best tackle it can vary between developing country cases.

For Barbados, an especially heavy reliance on external funders for its transition led to a lack of power or ability to determine how external resources pledged by international donors could be allocated and to project objectives which at times did not align with country needs. A need for increased multi-stakeholder collaborations was also an issue. Donor funds for energy transition were often restricted to implementation through government agencies, which in vulnerable economies are often not the best implementers due to capacity constraints.

Consequently, some projects have had significant time delays by years, with minimal opportunities available for public-private partnerships or joint collaborations with business organizations. Other times, pledged funds went unused or were under-utilised due to overly complex donor frameworks and mechanisms. This flags an important lesson that even where funds have been committed and disbursed, if the process is not an inclusive one with the recipient country at all stages, it will lack effectiveness towards enabling large scale renewable energy uptake.

In Mauritius, despite being ahead of Barbados in terms of their renewable energy uptake, Mauritius also faced resource allocation issues, mainly concerning how renewable energy technologies were introduced. Concerns raised related to indigenous resource coordination and renewable energy selection by the government.

For example, insufficient adaptation to the local environment that lacked consideration of effective land use, climate change and natural disasters. The renewable energy framework designed by key players excluded local stakeholders, favouring foreign researchers and companies. While the Mauritian clean energy transition was only supplemented by external resources, they too were hampered by limited control over external interests and hence its allocation.

Like Barbados, this entailed problems related with donor pledged funding. Interview subjects highlighted that social and economic factors were not sufficiently considered in funding allocation done by donors and that little to no real transfer of technology had occurred, where most funds went to large contractors and non-governmental organizations, or social enterprises were excluded from receiving funds.

This showcases the key lesson that from an early stage both parties should consider how additional parameters can be built into financial commitments that help ensure a more inclusive and equitable transition. In this regard, valuable learning can already be gained from gender representation criteria that tend to now be common in donor grant agreements.

As we freshly emerge from the global climate talks at COP28 and head into the upcoming World Economic Forum’s Annual Meeting in January 2024, how developing countries leverage these platforms to build meaningful partnerships remains ever relevant. Securing access to finances alone will not be sufficient to significantly drive large-scale energy transition in developing countries.

Rather, existing research indicates that this will more likely occur where countries build partnerships characterised by the combined presence of diversified access to financial resources, the presence of knowledge and information on how to effectively utilise resources available, and the appropriate allocation of available resources. Consequently, where limited internal capacity to transition exists, it is important for countries to seek out resource options and adopt strategies that build equitable partnerships that allow them sufficient influence over how resources (both human and financial) are allocated.

Amidst the highs and lows of climate talks such as the COP28 deal made on the loss and damage fund, as developing countries continue to navigate discussions seeking to build partnerships with developed country parties, a crucial question should be considered: are the commitments made ones that will lead to desirable transitions where people are happy with the approach taken towards social transformation? Namely, in terms of quantity (results in large scale renewable energy uptake), as well as quality (inclusive and equitable in stakeholder participation)?

Also, not to be forgotten are the opportunities for South-South cooperation. Demonstrated here with the explored case of SIDS, both the desire and scope also exist for greater strategic and formalised South-South cooperation that complement respective countries’ strengths and capacity gaps. For example, the leveraging of existing diplomatic channels and the support of civil society (e.g. academic and not-for-profit agencies). This could include complementary exchanges where knowledge and expertise are shared on areas such as policy frameworks, public green procurement, independent power producer policy, and effective stakeholder consultation approaches towards more inclusive policy frameworks.