Is there enough investment in the energy transition?
PLC: Investment in the energy transition is clearly scaling up, but there is still not nearly enough capital being deployed to achieve net-zero targets. While $755 billion was invested globally in the energy transition in 2021, BloombergNEF estimates that $4.5 trillion of annual investment will be required to achieve global net zero by 2050. This means annual investment must triple between 2022-25 and then double again between 2026-30.
Peter L Corsell
Global infratech fund partner, I Squared Capital
Principal, AMP Capital
Managing director, Northleaf Capital
Principal, Warwick Capital Partners
OL: We have seen strong double-digit growth in the level of investment going into energy transition over the last decade. We need to continue fostering an environment that will promote innovation, advancement and development of the technologies, supply chains and opportunities underpinning the energy transition to accelerate adoption and drive down levelised costs. The capital inflow will follow.
JE: While the energy transition investment landscape has arguably never been stronger, a combination of regulatory-driven delays and acute supply chain challenges are presenting significant barriers to continued momentum. Interconnection queues and over-taxed siting approval processes are taking their toll on the pace of new infrastructure development, while supply chain issues and the industry’s reliance on a global supplier base are creating major cost and schedule challenges for solar, battery storage and electric vehicle deployment.
Has Joe Biden’s presidency of the US accelerated the energy transition?
AH: The policy tone has obviously shifted to a much more supportive environment for energy transition investment under Biden compared to the previous administration. That said, I don’t think we have seen a significant acceleration in the energy transition directly attributable to the Biden Administration just yet. If you look at market segments such as renewable power generation, for example, favourable tax incentives, declining technology costs and improving project economics generally were already driving a fundamental shift away from fossil fuels well before Joe Biden took office.
AW: A positive trend has been in place for many years. It is also important to recognise that the effects of government programmes in areas like climate change are not immediate, particularly when they also involve market-based investment opportunities. It will be several years before you can fairly assess the effect of any recent changes on the market.
OL: While more can always be done, the Biden presidency is clearly leaning in and over-indexing on accelerating energy transition relative to prior administrations. There is also an increasing political acknowledgement that the path to net zero will need to extend beyond power generation to other sectors.
Are net-zero goals realistic?
OL: Reaching a net-zero position by 2050 will require the deployment of technologies to decarbonise conventional fossil fuels that are still in early-stage development. Technologies such as carbon capture, utilisation and storage (CCUS) will allow us to compress the time required to reach net zero, while also balancing other important factors like grid stability and energy security.
AH: With the right policy frameworks, planning and leadership both in government and the private sector, achieving net zero should become a question of “when”, not “if”. It is important we understand that the technologies needed in order to reach net zero already exist today. What is crucial is that the right policy mechanisms are in place to mobilise the vast pools of capital seeking to invest in the energy transition.
JE: Net-zero goals – particularly those targeting 2040 or earlier – are not realistic because the cost of 100 percent net-zero electricity would rise to unacceptable levels with current operating technologies. Because the production profile of wind and solar resources can cause significant imbalances between the supply and demand of electricity, we need significantly more reserve capacity and battery storage as we build out more renewable generation.
Where does the energy transition create the greatest investment opportunities?
PLC: While the largest sectors, as measured by new investment, are renewable energy and the electrification of transport, we see compelling opportunities to invest in distributed battery storage, green hydrogen and energy management technology.
OL: We are equally excited about the opportunity to invest capital into mature, fully contracted wind and solar projects generating clean energy for our communities as we are about investing into emerging technologies and ecosystems across energy storage, electrified transportation, low carbon fuels and energy/resource efficiency.
JE: Given today’s challenges in securing real property, interconnections and permits, we believe that operating assets with existing entitlements represent some of the best investment opportunities in the entire energy transition landscape.
AW: There are many great investment opportunities across the space, but our focus is on dispatchable zero emission power and CCUS in “hard to abate” sectors. Sectors like steel, cement and paper all produce a large amount of CO2 emissions, and CCUS is widely thought to be the future solution in these sectors where no easy, inexpensive solutions currently exist.
What will be the next big trend in energy transition?
JE: I suspect the concept of reliability will emerge as a theme on par with net zero. This will manifest itself in myriad ways, from tech-enabled demand response, to behind-the-meter resources, to carbon abatement using existing hydrocarbon pathways, to a reconsideration of the critical role of natural gas in the transition.
AH: Clean mobility is the next frontier of the energy transition. Nearly 30 percent of the US’s greenhouse gas emissions are produced by the transport sector (double the global average of around 15 percent).
We are already witnessing the start of this trend, with analysts anticipating that spending on clean mobility will for the first time surpass that of renewable power generation in 2022.
PLC: The scaling of energy storage is critical to decarbonisation and mitigating climate change. Over 120GW of battery storage capacity could be added in 2030, up from 5GW in 2020.
AW: We hope the next big trend is a broader understanding of how we achieve emission reduction goals through multiple solutions. Under-investment in fossil fuels will lead to higher oil and gas prices and slower economic growth, and thus be detrimental to broader goals.