"This is an innovative mechanism. It underlines the Commission's commitment to help developing countries invest in renewable energy and energy efficiency," said EU Environment Commissioner Stavros Dimas.

"It will contribute to bringing clean, secure and affordable energy supplies to 1.6 billion people around the world who have no access to electricity".

One of the EU's goals is to prevent the global temperature from rising more than two degrees centigrade above pre-industrial levels.

"While the main responsibility for triggering these changes lies with the industrialised countries, scaling up energy efficiency and renewable energy initiatives will greatly benefit developing countries by providing clean and secure energy supplies to people who currently have no access to reliable energy sources," Dimas said.

The Commission has appointed international fund managers Triodos to set up the Global Energy Efficiency and Renewable Energy Fund in conjunction with the European Investment Bank, the European Bank for Reconstruction and Development and "other interested parties".

The Commission intends to put 80 million euros into the fund from 2007 to 2010. Total initial funding from public and commercial sources of 100 million euros is anticipated.

"This is expected to mobilise additional risk capital of at least 300 million euros and possibly up to one billion in the longer term," the Commission said.

Investment amounts at the top end of this range could bring almost a gigawatt of environmentally sound energy to third world markets, serving 1-3 million people with sustainable energy services and saving 1-2 tonnes of CO2 emissions per year, the Commission said.

The International Energy Agency estimates that nine billion euros in risk capital are needed by 2010 for the production of renewable energy in developing and emerging economies.

But financing is hard to come by due to the risks involved.

The EU-led fund is aimed at stimulating the creation of regional sub-funds rather than investing in projects directly.

Such sub-funds are envisaged for the African, Caribbean and Pacific regions, as well as for North Africa, non-EU eastern Europe, Latin America and Asia.

The focus will be on investments below 10 million euros "as these are mostly ignored by commercial investors and international finance institutions," the Commission statement said.