What is the role of private capital in the energy transition?

PR: The energy transition is a massive undertaking and challenge to get to net zero by 2050. According to McKinsey, there is a financing gap of $3.5 trillion per annum over the next three decades. There is no way that governments can deliver that volume of funding and thus we need collaboration to bring together public and private sector, especially listed capital markets, to drive energy transition investment.

Our panel

John Anderson
Global head of corporate finance and infrastructure, Manulife

Michael Ebner
Managing director for sustainable infrastructure, KGAL

Patricia Rodrigues
An ESG investor who sits on the boards of LGAS, AERIF, GLIL and AIIF4

Louisa Yeoman
Founding partner, Astrid Advisors

LY: Private capital brings two things to the energy transition. First, scale and long-term investment to the asset class. Secondly, private capital can create the right incentives to bring operational expertise and asset management to complex projects from the development phase through to their stable operations.

JA: If a policymaker has a policy goal, private capital can get you there by doing the building. We accelerate your time to target on policy goals and energy transition. If you have got a proven technology and people want it, this group and the industrial partners we work with can get it deployed in a lot of different places at the same time.

What are the main challenges on the road to a zero-carbon future?

ME: The main challenge for a net-zero carbon future is security of supply. As of now, renewable energy is supported by carbon-based or nuclear generation. In a net-zero future, we need the interlocking of new intermittent technologies offering flexible demand.

LY: The biggest challenge for net-zero goals is around supporting emerging markets and their net-zero transition. It is about bridging the gap where finance is needed the most.

JA: There are actually two main challenges. One is that our point of departure and our point of arrival are so far apart from each other. Today, more than 75 percent of our energy consumption comes from hydrocarbons. We have got a lot to do and we really need to get on with it.

The second piece is that this solution has to work for everybody. We are innovating in high income countries and creating a lot of great technology, but these need to work for everybody, including low-income countries. We also need to figure out a way to bring down costs and deploy them very broadly.

How have the last few years – from covid to the war in Ukraine – affected your thinking on energy transition?

PR: We have come to reflect and reprioritise investment in infrastructure and the energy transition. What I have personally realised is the sense of increased urgency, with only about a decade to address the climate change challenge.

It is our duty as responsible investors to prioritise climate change and energy security. The Ukraine tragedy has also shone a light on Europe’s dependency on fossil fuels, particularly from Russia. Energy transition is a key part of addressing the energy security challenge.

JA: The change over the last two and a half years has been dramatic, including the very tragic events of the war in Ukraine. I am struck by the sense of urgency on energy transition. There is just more and more consensus that we need to move promptly to give our children and our grandchildren a clean, healthy place to live and full alignment at the local level, subnational and federal government.

ME: Actually, covid and Ukraine have not had so much of an effect, because the main driver for the energy transition was and will continue to be climate change. If it comes along now at a lower cost and with less dependence on an unfriendly country, then that is even better.

Which is more important: climate change or the bottom line?

ME: Investment in the renewable energy space, the energy transition and the fight against climate change will in the long run outperform other investments. This is true for the real estate sector, for the transport sector and even truer for the power and energy sector.

PR: There is no trade-off between profit and climate change. To have sustainability of profits and balance sheets, we must invest to address the global climate change challenge.

About half of the global population, according to the IPCC [the UN’s Intergovernmental Panel on Climate Change], lives in threatened territories. That is a population of three and a half billion that will be affected by climate change. Imagine cities like Jakarta and highly populated countries like Bangladesh or Vietnam, completely flooded, and how that will affect the world and the challenges that we have at hand, such as forced migration and food shortages.

LY: It is all about climate change. We are at a critical point, or probably better described as our best last chance to act. That said, the community gathered here in Berlin [for Infrastructure Investor’s Global Summit] are not philanthropic investors, they are pension funds and insurance companies with a fiduciary duty.

JA: It is a false choice. Ultimately, a liveable planet is the most important. We operate in capitalism and profits are how we get our licence to operate. Only if we are profitable do we get to keep playing this game and make it to the other side. We do need to be profitable along the way in order for our businesses to be sustainable, but the prize that matters is a clean, sustainable planet that our grandchildren can live in.

What is the next big trend in energy transition?

ME: The next big trend is green hydrogen. It seems to me that green hydrogen has already won the race. The technology is already there. We can use existing infrastructure such as grids, and green hydrogen, which is one of the few energy vectors that does not carry negative impact.

LY: We are talking to investors about many things, a lot about storage beyond lithium-ion batteries. That involves thinking about large civil projects: in developing pumped hydro, it is thinking about hydrogen. It is also about electrification, electric vehicle charging, public transport and electric fleets.

PR: The first phase will be massive deployment globally of proven commercial and affordable technologies like wind and solar. The second phase will be investing in new technologies. We won’t be able to get to net zero by 2050 without them deployed at scale either.

We are talking about green hydrogen, green methanol, various battery storage technologies and carbon capture and storage. Some of them are proven and some of them are in the process of being proven and need investment for sufficient progress to be made.

JA: All 2,000 of us at the Global Summit are trying to spot that next trend. We have great solar, wind and battery technologies that work well today, and those are going to get dispersed across more and more of the economy in more and more locations at smaller and smaller scale.

We developed a covid vaccine in a year and that has radically improved the health outcome for our planet. That same kind of energy is going into hydrogen and other types of transformational technologies to get us to the clean other side of net zero.