Accelerating energy transition promises big returns – report
“Although the annual borrowing requirement of an average of $ 4.4 trillion is significant, it accounts for 20% of gross fixed capital formation in 2019, or about 5% of global gross domestic product,” the report said.
Despite large initial investments, the agency’s calculations show that when the externalities of air pollution, human health and climate change are factored in, the return on investment is even higher with every dollar spent. for the energy transition adding benefits estimated between 2 and 5,500 billion dollars between 61,000 and 164,000 billion dollars by the middle of the century.
“IRENA’s outlook sees the energy transition as a great business opportunity for multiple stakeholders, including the private sector, by shifting financing from equity to private debt,” the report said. âThe latter will increase from 44% in 2019 to 57% in 2050, an increase of almost 20% compared to the planned policies. Energy transition technologies will find it easier to obtain affordable long-term debt financing in the years to come, while fossil fuel-related assets will increasingly be shunned by private financiers and therefore forced to rely on on equity financing from retained earnings and new equity issues. Capital-intensive and more decentralized projects will influence investors’ perceptions of risk, which in turn may require targeted policies and interventions in the capital market. “
In addition to the role of private investment, the report indicates that public finance will remain crucial for a rapid, fair and inclusive energy transition and to catalyze private finance.
Agency figures show that in 2019, the public sector provided some $ 450 billion through public capital and loans from development finance institutions, but in the 1.5 Â° C scenario of IRENA, these investments will almost double to some $ 780 billion. Public debt financing is also seen as an important enabler for other lenders, especially in developing markets.
The group’s data also shows that current government strategies already envision significant energy investments amounting to $ 98 trillion by 2050. These investments imply a near doubling of annual energy investments, which is expected to be significant. in 2019 amounted to $ 2.1 trillion.
âSubstantial funds will be devoted to modernizing ailing infrastructure and meeting growing energy demand. But the distribution of technology funding in the 1.5 Â° C scenario differs greatly from current plans: $ 24 trillion in planned investments will have to be redirected from fossil fuels to energy transition technologies by 2050, âsays review.
The role of government is also seen as essential in pushing markets towards the new green world, meaning that policymakers are encouraged to encourage but also take action to remove market distortions that favor fossil fuels and facilitate change. needed in funding structures.
“This will involve phasing out fossil fuel subsidies and changing tax systems to reflect the negative environmental, health and social costs of fossil fuels,” the report said. âMonetary and fiscal policies, including carbon pricing policies, will improve competitiveness and level the playing field. Such interventions should be accompanied by a careful assessment of the social and equity dimensions to ensure that the The situation of low-income populations is not worsening but improving.
Policies that work to improve international cooperation are also seen as essential for driving broader structural change towards resilient economies and societies.
In IRENA’s view, if not well managed, the energy transition risks inequitable outcomes, two-track development and an overall slowdown in progress.