Energy sector
€547 million
Invested towards decent work and sustainable economic growth
€67 million
Invested towards reducing inequalities by providing access to energy
€432 million
Invested towards climate change mitigation and adaptation
Driving and supporting sustainable energy access and transition
We believe FMO can make a difference by investing in the energy sector by driving and supporting sustainable energy access and transition.
As the global population and economic activity continues to grow, demand for energy will increase. Access to reliable, clean and affordable energy is crucial for local economic prosperity and is a prerequisite for achieving the SDGs. However, many people currently still lack access to any form of energy. The United Nations Development Programme estimates that around 733 million people, roughly 10 percent of the global population, lack access to energy, especially in LDCs and rural areas. In LDCs, where the electrification rate is 52 percent, more than 500 million people lack access to energy. In rural areas, only 39 percent of the population has access to energy.
Given the recent energy crisis, investing in and building markets for low or zero-emission energy sources is important as it can reduce dependence on foreign energy and protect the local population from excessive fuel price hikes. According to the IPCC, this will be key to meeting the 1.5°C temperature goal outlined in the Paris Agreement.
Towards 2030
We are committed to supporting a sustainable energy transition by investing in renewable energy generation and areas within the energy supply network that are currently underdeveloped and hampering progress. Our focus will be on transmission and distribution, especially in Africa and Asia, along with grids and end-use energy storage solutions, e-mobility, and rooftop solar for commerce and industry, including MSMEs.
In addition, we aim to support greater energy access for LDCs and fragile states, rural areas and the bottom 40 percent of the population.
We are committed to phasing out fossil fuels in our direct investments and implementing additional restrictions for our indirect investments. By 2030, we aim to reduce the financed absolute GHG emissions in our power generation portfolio by 50 percent.
Achievements in 2023
Sustainable economic growth
In 2023, we invested €547 million in energy projects, of which €366 million consisted of debt and €181 million of equity investments. Results were affected by lower demand from project developers amidst difficult market conditions and greater availability of commercial and concessional funding. Geopolitical tensions have reduced the investable space and the confidence of project developers. Markets are still recovering from the pandemic and the energy crisis resulting from the war in Ukraine. In addition, the high sovereign debt levels in many developing countries limit the ability of governments to support large energy projects such as solar or wind farms, hydroelectric dams, or thermal plants.
Furthermore, the energy market is in transition. Concessional financing for renewable energy projects has increased over the past few years. New technologies such as green hydrogen are entering the market but are not yet fully investible. Energy storage solutions are being developed and the expansion and modernization of power grids is gaining traction. These developments are prompting FMO to move from larger-scale renewable energy generation investments to financing energy sub-sectors such as transmission and distribution, commercial and industry greening projects, and energy storage solutions. This shift will take time and explains in part the lower-than-expected performance this year.
Jobs supported, including for women
Through our investments in energy projects, we support jobs, mainly as a result of the availability of reliable energy. An increase in the energy supply leads to greater productivity of, for instance, manufacturing companies, which are able to produce more output. This stimulates the economy and creates greater employment opportunities and demand for intermediary inputs. This, in turn, leads to expansion among existing and new suppliers, thereby supporting and/or creating jobs in the value chain.
In 2023, FMO’s energy customers supported an estimated 122 thousand jobs (2022: 125 thousand jobs). Some 115 thousand consisted of indirect jobs supported, mostly through power-enabling and induced effects as explained above. Only a small portion of jobs are temporary as a result of the construction of a project. Around 7 thousand were direct jobs, with people employed directly by our customers. A total of 40 percent of direct jobs supported were held by women. Compared to 2022, the number of jobs supported remained relatively stable. An exit of one of our energy customers resulted in a slight decrease but this effect was offset by an estimated increase of the number of jobs supported by other customers in the portfolio.
Reducing inequalities through access to energy
Ensuring access to affordable, reliable, sustainable and modern energy for all is key to reducing inequalities. In 2023, €67 million of our new investments are expected to contribute towards reducing inequalities. Of this, €47 million was invested in hydro and solar energy projects in LDCs such as Senegal, Sierra Leonie and Uganda. Demand in LDCs has been subdued due to the challenging market conditions that are often most prominent in these countries. €30 million was invested in energy solutions for low income or marginalized populations who lack adequate coverage, reliability, or affordability of these services.
Customers in our energy portfolio produced 47 thousand GWh (2022: 48,500 GWh), which served an equivalent of 87 million people (2022: 87 million). Some 54 percent was generated from renewable energy sources (a total of 103 customers). Approximately 12 percent came from solar, 13 percent from wind, 18 percent from hydro and 11 percent from other renewable energy sources. The remaining 46 percent came from 15 customers generating power from non-renewable sources, mainly natural gas.
Climate action
Investments in the energy sector are needed to ramp up clean and efficient use of energy. In 2023, we invested €432 million in green energy projects. Results were lower than expected due to greater availability of concessional finance for renewable energy projects and challenging market conditions.
Most of our Green-labelled total new investments were geared towards climate change mitigation.
We estimate that our overall investment portfolio resulted in financed avoided GHG emissions of 1,729 ktCO2e (2022: 1,597 ktCO2e). This represents an increase compared to last year, which can be explained by higher avoided emissions recorded for off-grid energy investments. Around three quarters of the avoided emissions can be attributed to on-grid renewable power projects and around one quarter to off-grid energy investments.
At the same time, our energy investment portfolio also resulted in absolute GHG emissions. In 2023, financed absolute GHG emissions in the energy portfolio decreased to 1,042 ktCO2e (2022: 1,084 ktCO2e). Approximately 90 percent of scope 1 emissions come from the remaining investments we have in fossil fuel fired power plants. Scope 3 emissions, which are estimated based on economic models, are likely overestimated for renewable energy investments.31
We are committed to phasing out fossil fuels in our direct investments and implementing additional restrictions for our indirect investments. We have set an absolute emission reduction target for our power generation portfolio of 50 percent by 2030. For 2023, we report absolute GHG emissions for the power generation portfolio of 441 ktCO2e, based on 2022 emissions data and our 2023 outstanding exposures. This is a decrease compared to the 544 ktCO2e we report for 2022 and a 24 percent reduction compared to the 2021 baseline of 582 ktCO2e.32 The reduction is due to an overall decrease of our outstanding exposure in operational fossil fuel plants. We will publish the final 2023 figure in the 2024 FMO Annual Report.