As grants become scarcer, shifting toward guarantees and blended finance offers new opportunities. Subnational governments can use Public-Private Partnerships (PPPs) to scale renewable energy and meet climate goals. By leveraging private sector capital, municipalities can overcome funding gaps and drive sustainable, inclusive infrastructure. With the adequate frameworks, PPPs can accelerate the energy transition and foster climate resilience at the local level.

Local and regional governments are increasingly rising to the climate challenge by developing adaptation and mitigation strategies. With cities consuming over two-thirds of the world’s energy, accounting for more than 70% of CO₂ emissions, subnational actors are indispensable for achieving a just and inclusive energy transition. While national and subnational governments must set enabling frameworks, the transition starts locally – with active contribution from all stakeholders contributing to or affected by the energy transition.

Amid shifts in Official Development Assistance (ODA) and constrained public budgets, diverse and innovative models of financing are becoming essential. Grants are increasingly scarce, while development finance is shifting toward greater use of guarantees and blended finance instruments. This shift marks a “Post-ODA” world in which subnational governments must find innovative ways to finance critical energy infrastructure. Public-Private Partnerships (PPPs) are one of the tools offering such a robust pathway: forward-looking, scalable, and well-suited to municipalities that historically struggled to access traditional forms of capital. 

PPPs as a tool for local impact

The private sector is essential to delivering global targets – like the COP28 commitment to triple global renewable energy capacity and double the global average annual rate of energy efficiency improvements by 2030. The question is no longer if, but how to mobilize the financing, capacity, and technology needed to scale up renewables generation capacity by 1,044 GW annually until 2030.

PPPs are emerging as a strategic tool to deliver this global transformation. These contractual arrangements between the public and private entities to supply public services, which often entails the development or renovation of public infrastructure. When designed well, PPPs enable municipalities to tap into private capital and technical expertise, helping them deliver ambitious sustainability targets while improving local service delivery. Investor interest in subnational PPPs is growing, particularly for bankable projects supported by public policy and with replicable business models. Local renewable energy auctions, solar leases for public rooftops, and bundled solar-plus-storage models are attractive to investors and developers due to their scalability and clear returns. 

Overcoming local barriers

Structuring and deploying PPPs, particularly at the local level, is not without challenges. Many municipalities face legal and regulatory bottlenecks, limited fiscal autonomy, and credit worthiness. Without clear procurement processes, enforceable contracts, and political support, investor confidence wavers. Moreover, subnational governments often lack the technical, legal, and financial expertise to prepare and manage PPPs effectively. 

Political instability, opaque procurement processes, and insufficient stakeholder engagement can increase uncertainty, project risks, and transaction costs. These challenges must be addressed through targeted technical assistance, transparent oversight, and institutional capacity-building. Organizations like ICLEI play a key role in supporting through these steps.

Beyond institutional gaps, PPP infrastructure projects carry multiple risks: Construction delays, operational setbacks, financial volatility, and political or regulatory uncertainty. De-risking instruments such as power purchase agreements, special purpose vehicles, and guarantees and other blended finance instruments help stabilize returns and attract investment. The UNCDF’s Guarantee Facility for Cities is an example of a mechanism that supports subnational governments by covering early-stage project risks, helping crowd in private capital. 

Local innovation in Asia and Africa

Despite these challenges, there are many examples of successful PPPs – particularly in Asia and Africa – delivering sustainable infrastructure, especially in the renewable energy, water, and sanitation sectors. In India, states like Tamil Nadu and Gujarat enable municipal-level solar tenders via their respective energy agencies. In Pune, a PPP project installed rooftop solar on public buildings with no upfront investment, delivering discounted energy costs over 15 years. Vietnam’s updated PPP Law has granted cities like Ho Chi Minh and Da Nang greater autonomy to initiate decentralized solar projects, while Indonesia’s Regional Infrastructure Development Fund supports mini-grids in peri-urban areas – such as in Semarang City. In the Maldives, a 20 MW solar project across 20 outer islands is being implemented via a PPP supported by the Asian Development Bank. ICLEI-supported efforts like those in Narayanganj, Bangladesh, show that small-scale PPPs – when backed by local NGOs and micro-entrepreneurs – can bring energy and water services to underserved communities. Similarly, the Philippines PPP Center has enabled projects in cities like Makati through centralized technical support.

Africa is witnessing a growing uptake of tailored PPPs. Benin is piloting municipal water PPPs using tools like the ICLEI PPP Toolkit. Morocco’s Souss-Massa region is advancing solar-powered irrigation in rural communes, while Jordan’s Bus Rapid Transit system now links Amman and Zarqa, enhancing urban mobility through smart transport systems. Egypt’s New Cairo Wastewater Treatment Plant and Qatar’s municipal sewage treatment project PPP also showcase growing subnational engagement. In Lagos, Nigeria, waste governance models are pioneered through policy reforms and PPPs. 

How to attract private sector investment?

Attracting private investment and forming PPPs is not automatic – especially at the local level. Subnational governments need strategic partnerships, technical support, and tailored financial instruments. City-to-city exchanges are key to foster collaboration and leverage knowledge regionally – see how the Covenant of Mayors in Sub-Saharan Africa connects global peers such as Embu County and Nakuru County to facilitate knowledge exchanges. However, according to a global survey on municipal PPPs, success depends on:

• Developing robust, sustainable, and investment-ready project pipelines
• Strengthening legal frameworks and institutional capacities to manage PPPs
• De-risking investment by offering co-financing, guarantees, or revenue assurance mechanisms
• Fostering multi-stakeholder engagement early in project design
• Ensuring leadership, transparency, and a strong commitment to long-term partnerships.

With the right enabling environment, subnational PPPs can deliver scalable, inclusive, and climate-resilient energy solutions. ICLEI supports local governments in identifying, structuring, and delivering climate-smart PPPs. Through the Transformative Actions Program, ICLEI helps cities prepare investment-ready projects, connecting them with investors and project preparation facilities. 

As the financing landscape evolves, PPPs are becoming more than an option – they are a necessity. With the right frameworks, partnerships, and tools, subnational PPPs can scale clean energy solutions, build local resilience, and deliver inclusive, climate-smart infrastructure. ICLEI remains committed to empowering cities and regions to lead this transformation. For tailored support, contact our Innovative Finance experts at innovative.finance@iclei.org.

This piece was written by Jaume Marquès Colom, Senior Officer of Innovative Finance, with contributions from Natalia Salazar, Head of Innovative Finance, and Maryke van Staden, Director of ICLEI’s carbonn Climate Center, and edited by Matteo Bizzotto, Senior Officer of Global Communications.

Photo: Covenant of Mayors in Sub-Saharan Africa (CoM SSA) / ICLEI Africa.