Pension funds and corporates could save the world

The second edition of the clean energy investment report produced by IRENA says the industry needs to unlock the $87 trillion being sat on by the world's biggest investment houses – 'greening' the $100 trillion global bond market would help too.

Big institutional investors such as pension and sovereign wealth funds, as well as corporate clean energy buyers must come on board to drive the investment levels needed to stave off catastrophic global heating, according to a report by the International Renewable Energy Agency (IRENA).

The Global Landscape of Renewable Energy Finance 2020 study published yesterday states institutional investors sitting on an estimated $87 trillion of global assets supplied only 2% of investment for renewables in 2017 and 2018.

Although corporate entities signing renewable energy offtaker contracts made up 6% of the financial support for clean power during those two years, IRENA said company policies currently commit to buying only 3.8 PWh of clean power in 2050 when 21.3 PWh of corporate electricity demand must be met from renewables to keep global heating below 2 degrees Celsius.

Limitation

The publication, the second edition of IRENA's renewable energy investment study, is hampered by the fact it is largely backward looking as it mainly considers the financial outlays made in 2013-18, and a section devoted to the potential impact of the Covid-19 crisis on investment does little to address the drawback. Nevertheless, the study makes a series of recommendations on the actions required to hoist the annual level of investment in clean power from an average of $300 billion in 2013-18 to the $800 billion per year required by mid century to hit the goals of the Paris climate change agreement.

Chief among them are calls to align the renewables business case more closely with the risk profiles of those elusive institutional investors and to further attract power purchase agreements from the corporates which make up two-thirds of electricity end-use.

One method of doing so would be to expand an already growing green bond market, according to IRENA, which said the $38 billion worth of such instruments marketed last year still made up significantly less than 1% of a $100 trillion bond market.

Governments should devote public backing for renewables to attracting more private-sector investment, according to the report, including by investing in making clean energy technology cheaper and policy makers should also ramp up the ambition of renewable energy targets to give investors more confidence. In the field of off-grid renewables in particular – chiefly solar – obstacles to affordable finance need to be removed in the developing countries trying to secure universal electricity access. The IRENA report estimates current plans will leave 620 million people without access to power in ten years' time, when the UN deadline for achieving the goal expires.

The distribution of renewables investment also needs to become more even, noted IRENA, which said the $10 billion devoted to clean energy in sub-Saharan Africa in 2018 would have to quadruple to $40 billion by mid century. In Latin America and the Caribbean, backing would have to almost double, from $16 billion to more than $30 billion during the same period.

Protectionism

By contrast, China provided 93% of the backing for renewables in East Asia and the Pacific from 2013-18, with the region accounting for the biggest slice – 32% – of the global figure. OECD nations in the Americas supplied 19% – trailing Western Europe, which accounted for 19% – with the U.S. supplying 84% of the funding in the OECD Americas during 2017 and 2018 amid a rush to beat the start of the expiry of the Federal Tax Credit for solar. Interestingly, Abu Dhabi-based IRENA deemed the protectionist measures applied to Far Eastern solar imports to the U.S. a success, stating: “Tariffs imposed on major sources of PV imports in 2018 [plus rising corporate PPA volumes] have made domestic production more attractive.”

The report also stressed the urgent need for fossil fuel investment to be transferred to clean power – some $18.6 trillion by 2050 to stay under the global 2C climate change ceiling. Although the $322 billion invested in renewables in 2018 clearly outstripped the $127 billion committed to fossil fuel power generation, factoring in other fossil fuel expenses – such as coal mines, gas and oil pipelines, petrol for transport – left the renewables figure unchanged but raised fossil fuel spending to $933 billion.

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