Enabling foreign direct investment in the renewable energy sector: reducing regulatory risks and preventing investor-state conflicts

Increasing private investment is critical to meeting the growing energy needs in developing countries. Foreign direct investment (FDI) can contribute significantly—by bridging the financing gap but also by facilitating knowledge and technology transfer. A key factor impeding the ability of countries to attract and retain FDI is political risk - more specifically, a subset of political risks—risks caused by government’s own regulatory actions. Such risks can also lead to costly legal disputes between investors and states. This report explores these risks in the renewable energy (power generation) sector, the prevalence of investor-state disputes associated with such risks, the fiscal and reputational implications of disputes, and policy options for governments to prevent them.