Prioritise “Proven” Renewable Energy Investments – FTI 

Technologies such as wind and solar expected to account for majority of global emissions reductions, subject to delays and regulatory risks.  

“Market-ready” technologies should be prioritised for investment to ensure short-term emission reductions solutions can be deployed, a global wealth manager has suggested. 

The report by the Fiduciary Trust International (FTI) cited estimates from the International Energy Agency (IEA) that, between now and 2030, as much as 80% of global emissions reductions will come from scaling proven technologies that are already in the market.  

The energy supply sector is the largest contributor to global greenhouse gas emissions, responsible for approximately 35% of total emissions. 

“Buildout of proven renewable infrastructure is one of the key levers to clean up energy supply,” Frances Aderhold, Sustainable Investing Research Analyst at FTI, told ESG Investor. 

She said that while long-term forecasts “bring a large amount of uncertainty”, the renewable energy transition is already well under way, with “many of the technologies we need already exist[ing] in the market”. 

“By investing in proven technologies to reduce emissions today, we are able to reduce the severity of action that is required in the future,” Aderhold added. “For that reason, we need to focus our efforts on deploying these proven technologies as quickly as possible over the next decade.”   

FTI’s report highlighted wind and solar assets as being “proven technologies” that are ready for short-term deployment, underlining the advantages they offer through “lower costs, supportive policy and corporate demand”. 

FTI is a subsiduary of US$1.3 trillion AuM asset manager Franklin Templeton. 

Reliable renewables 

According to data from the IEA, the energy transition will need at least US$4 trillion in annual investments by 2030. 

It forecasts that as much as US$2.8 trillion will be invested in energy in 2023, with clean energy accounting for US$1.7 trillion of this. These investments include finance for renewable power, nuclear, grids, storage, low-emission fuels, efficiency improvements and end-use renewables and electrification. 

Solar and wind’s continued growth has further established them as the most proven sources of renewable energy. However, projects often still face issues including delays in approval and connection to the grid, and a lack of investment in developing markets that hold significant potential. 

Since 2017, the cost of solar panels, wind turbines, and EV and solar batteries have all fallen. The IEA also projected that the global investment in solar will outstrip oil production investment for the first time. 

BP recently announced plans to build two subsidy-free offshore wind farms in the Irish Sea. However, despite oil and gas companies benefiting from significant profits, only 1% of the industry’s cash flow is being invested into clean technologies. 

The generation arm of Octopus Energy, which already has US$3.37 billion invested in wind assets, has unveiled plans to invest US$20 billion in offshore wind by 2030. This investment will contribute to the generation of 12 gigawatts (GW) of renewable electricity a year, with Octopus Energy projects estimated to create enough power for 10 million homes. 

However, the Canadian province of Alberta confirmed it had paused approvals of new renewable electricity generation projects, including solar and wind, over one megawatt until February 2024, to reviews its policies and procedures for the development of renewable electricity generation.  

With the country suffering from more than 4,000 wildfires since the start of this year, Canadian environmental organisation Environmental Defence hit out at the move, saying that stopping renewables now “makes no sense”.  

According to the IEA, Africa has 60% of the best solar resources globally, but only 1% of installed solar photovoltaic (PV) capacity, requiring a “rapid redirection of resources, including investment”. 

Despite issues surrounding policy and regulation, experts suggest that investment in African solar energy presents investors with potentially high returns in a rapidly growing, high-impact sector.   

Aderhold said renewables and energy alternatives, including solar, can help developing markets to “leapfrog fossil fuels and provide energy security and independence” that some leading developed markets enjoy. 

Battery storage will also be key in containing and utilising the energy created by renewables such as wind and solar. In the UK, 800 megawatt hours of utility-scale energy storage capacity was added last year and battery storage is forecast to receive as much as US$20 billion in investments by 2030.  

FTI’s report said new battery technology solutions are needed to address long-duration storage needs as most are not yet commercially viable. Aderhold noted that currently lithium-ion batteries can only store energy for up to four hours. 

“Long and medium duration energy storage is one of the most important pieces to unlocking renewable power,” she added. 

Recent events have underscored the urgency of investment in renewable energy. WTW’s latest ‘Natural Catastrophe Reviewwarned that the increase in extreme weather events triggered by the 2023 El Niño – including the monsoon flooding and landslides in Malaysia in March and Cyclone Gabrielle in New Zealand in H1 2023 – could have a significant impact on renewable energy across Asia Pacific (APAC) countries.  

Regulatory reinforcement 

Bloomberg’s new energy finance report said that there is currently US$1.1 trillion of global investment in clean energy projects. Aderhold called this level of investment “impressive” and said it “demonstrates the upward trend of adoption” for renewables.  

However, she noted that estimates project a need for three times this amount of investment annually over this decade, and up to six times this amount in the next few decades to be on track to achieve net zero. 

In Europe, the REPowerEU Plan is aiming to double the bloc’s renewable energy production to 45% by 2030 and tighten its emissions reduction goal to at least 55% below 1990 levels by 2030. The plan targets an additional €210 billion (US$230.5 billion) of investments in renewable infrastructure and energy efficiency by 2027. 

A recent report by consulting firm McKinsey underlined the “broad economic benefits” that the energy transition could have for the EU. These include increased energy reliability, economic growth, and a net increase of five million jobs through 2050.  

While policies are increasingly favouring investment in renewables, there is still government support for carbon-intensive projects.  

Last year, the UK government announced a record 11GW of clean energy, secured via the largest ever round of its flagship renewables auction scheme. Offshore wind made up 7GW of that total, with the country having more than 11,000 wind turbines installed with a total capacity of 28GW.  

However, the UK government recently granted hundreds of North Sea oil and gas licences to “boost British energy independence and grow the economy”. British ministers were warned that hopes of meeting climate crisis objectives through offshore wind energy are at risk without an “urgent overhaul” of government support.  

Vattenfall’s sudden halting of one of the country’s biggest offshore windfarm projects last month has been suggested as potentially signalling a “tipping point”. Critics have predicted new offshore wind projects could become “economically unviable” without an overhaul of the current regime.  

McKinsey estimates that 25-30% of the total emissions reductions through 2050 will come from technologies that are not yet commercially viable, underlining the need to invest in technologies currently seen as more speculative. 

Although recommending investment in proven renewable energy options, FTI says capital must also support innovation.  

Aderhold said that the risks posed by these alternatives may be “better suited for patient capital providers and public finance who are willing to take on these long-term bets on unproven technologies”. 

Clearing the air 

FTI’s report also flagged the “massive” potential market for industrial carbon capture and storage (CCS) and direct air capture (DAC), less proven solutions than those offered by solar and wind. There are over 25,000 global industrial CO2 emitters across 11 industrial sectors, which could be candidates for carbon capture utilisation and storage (CCUS).  

The report also noted a “growing interest” in decentralised DAC facilities, which can be constructed in any area with access to renewable energy. Current estimates suggest that scaling CCS and DAC solutions will require up to US$130 billion dollars in annual investment through 2050. 

In March, the UK government pledged £20 billion to the deployment of CCUS, and has confirmed it will create four CCUS industrial clusters by 2030 to build a “new thriving carbon capture usage and storage industry”, which could support as many as 50,000 jobs. The EU’s Net Zero Industry Act (NZIA) has outlined its support for eight strategic net zero technologies, including CCS. 

The US Inflation Reduction Act (IRA), which has created an estimated US$73-US$177 billion of renewable tax credits, has also outlined tax incentives for companies building out CCUS projects, with private sector investment opportunities offered through carbon subsidies of up to US$180 a tonne. 

According to Aderhold, the IRA has helped create “long-term certainty for the renewable energy market”. 

Projections by Inevitable Policy Response in 2050 say carbon removals by direct air carbon capture and storage (DACCS) will cost US$100-US$300 per tonne, but it estimated that the solution has the potential to remove up to 339 gigatonnes of carbon dioxide (GtCO2) and scale between 0 and 1.74 GtCO2 a year by 2050. 

Mark Fulton, Founder of IPR, told ESG Investor that DACCS could have a “significant impact” on carbon removals and that it could be a “game changer” for addressing climate change. 

Aderhold noted that projects are being developed but require “significant upfront capital costs” that make them a more suitable investment for “early adopters or groups willing to provide patient capital”. 

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