Executive summary

Renewable energy investment in Southeast Asia needs to accelerate to meet energy security, development, and climate goals. While coal has historically underpinned the region’s rapid expansion of electricity demand, interest in renewable energy is quickly growing to meet this demand, improve energy access, and reduce dependency on volatile fuel prices and imports, especially considering the continued interruptions in fuel supply from the Middle East. In all International Energy Agency (IEA) scenarios, investment in the power sector in Southeast Asia needs to grow rapidly, with low-emissions sources of generation playing a central role. The economic and policy underpinnings for some renewable power projects are sufficiently robust that they can successfully attract commercial capital. However, some types of renewable energy projects struggle to progress from early-stage development to financial close and implementation, reflecting constraints affecting project bankability. Where these constraints can be addressed through financial structuring, blended finance can play a role in moving projects forward.

This report, prepared jointly by the IEA and Convergence, focuses on private capital mobilisation in Indonesia, the Philippines, and Viet Nam for rooftop solar, decentralised solutions such as mini-grids or standalone systems, offshore wind, and battery energy storage systems (BESS). The investment required in these three countries and four sectors is significant. We estimate that, in order to get on track for the development and emissions reduction goals targeted by these countries for 2035, around USD 3.7 billion in international public finance will be required, some of which will be deployed within blended finance structures. Blended finance is a part of the capital mobilisation toolkit. Its value is greatest where financing constraints are project-specific and commercially addressable. Since 2016, Southeast Asia has mobilised USD 17.9 billion in concessional and commercial financing for renewable energy through blended finance, mainly through project finance and fund structures.

Blended finance is a structuring approach that can improve the risk-return profile of investments by using concessional capital to absorb, share, or mitigate risks that commercial investors are unwilling or unable to bear alone. It can also be used to help structure investment opportunities that are at a suitable scale to attract private capital. However, it is not equally suited to all investment barriers: it is most effective where it addresses clearly defined risks that can be mitigated at the project level and more limited where investment barriers are primarily structural or regulatory. The principle of minimum concessionality should guide blended finance, with concessional capital targeted to where it delivers clear financial additionality and strong development impacts by mobilising otherwise unavailable commercial investment.

In more mature technologies such as solar photovoltaic, blended finance should focus on market segments where commercial models are established but financing constraints persist. In rooftop solar, aggregation can create scale and lower transaction costs, while guarantees and risk-sharing facilities can address offtaker credit risk. The case for such support is strongest in Indonesia, while being more limited in the Philippines and Viet Nam, where financing ecosystems are more mature. Decentralised solutions in Indonesia and the Philippines face different challenges: aggregation and risk-sharing can improve access to finance, but many last-mile electrification projects cannot generate commercial returns. Where underlying economics remain unviable, highly concessional capital such as grants are more appropriate than structures designed primarily to mobilise private capital.

For early-market technologies, blended finance should be targeted to projects with credible revenue pathways and sufficiently developed commercial frameworks. BESS is beginning to scale in the Philippines and Viet Nam. Blended finance can play an important role by helping to establish operational, contractual, and financing precedents for further investment. Meanwhile, in Indonesia, blended finance is more relevant for hybrid projects with identifiable revenue streams, but its role is limited where regulatory frameworks remain underdeveloped. Offshore wind is at a more formative stage of market development in both the Philippines and Viet Nam. Concessional support for project preparation is the immediate priority, with blended finance at the investment stage becoming more relevant once credible procurement and revenue frameworks are in place.

Where structural barriers are binding, blended finance cannot substitute for policy, regulatory, and system-level reforms. Bankability rests on clear contractual arrangements, predictable remuneration frameworks, and transparent procurement procedures, which remain incomplete in the three markets, particularly for BESS and offshore wind. It also depends on physical readiness, including transmission and distribution networks and port infrastructure for offshore wind. Even where these foundations are in place, domestic financing constraints such as counterparty exposure limits and limited long-term currency hedging can restrict the availability of finance. Blended finance can cushion the effects of these constraints where they translate into identifiable project-level risks, but it cannot resolve them. Sustained mobilisation of private capital depends on durable policy reforms, credible market frameworks, improved power system readiness, and deeper domestic financing capacities.

1. Deploy concessional capital within blended finance structures where it is additional and at the minimum level required. Concessional capital providers should target support to segments with bankability gaps and strong development impact, rather than sectors as a whole. Support should be reduced or phased out using pre-defined exit indicators as commercial viability improves.

2. Tailor instruments to the nature of the financing constraint. Project preparation and technical assistance grants can address early-stage development risks; guarantees and risk sharing mechanisms can address defined credit and execution risks; co-financing and hedging mechanisms can help address tenor and currency constraints. Risks should be allocated to the actors best placed to absorb, manage, or mitigate them.

3. Scale aggregation and pooled financing platforms, particularly where small transaction sizes, fragmented pipelines, and high transaction costs are investment barriers. Aggregation can create investable scale, diversify project-level risks, and reduce transaction costs, helping smaller projects access commercial capital.

4. Improve data transparency and standardisation to support the measurement of additionality and the replication of proven financing approaches. More consistent data on financing terms, concessionality, mobilisation, and performance can help capital providers assess additionality and identify structures that can be replicated or scaled.

5. Enhance capacity building efforts for structuring and executing blended transactions for governments, concessional capital providers, and commercial capital providers. This includes strengthening capabilities to identify financing constraints, allocate risks, and structure transactions effectively. Over the longer term, capacity building should also support stronger procurement, regulatory, and institutional frameworks for sustained private capital mobilisation.