Financial hurdles could be the biggest obstacle to achieving net zero goals
In 2020, global investments in renewable energy capacities increased by 2% to reach US $ 303.5 billion, the second highest annual figure recorded to date despite the impact of the global COVID pandemic- 19. However, the 57e Attractiveness index by country of EY Renewable Energy (RECAI) estimates that future development to achieve net zero will require an additional investment of 5.2 t USD and underlines the role that institutional investors will have to play in financing the energy transition.
RECAI 57 notes that environment, sustainability and governance (ESG) objectives are increasingly a priority on the investor agenda while the interest of institutional investors in renewable energies continues to grow.
The upcoming United Nations Climate Change Conference of the Parties (COP26) in 2021 provides an opportunity to bridge the gap between what governments have pledged to do and the level of action they have taken to date. RECAI 57 finds that the current policy and engagement trajectories of key countries indicate an increased commitment to greater accountability and transparency, with representatives expected to present clear roadmaps and details of policy measures for stimulate investment in renewable energies.
RECAI 57 also examines case studies of green hydrogen in Europe and China which illustrate the great potential of this new technology, but also show the obstacles to be overcome to reach commercialization and widespread use.
The United States retains the first place with China and India in the top 3 of the ranking
The United States maintains its top position on the index and is expected to maintain its position under President Biden. The re-acceptance of the Paris Agreement, coupled with the recent announcement to reduce GHG levels from 50 to 52% by 2030 and achieve 100% carbon-free energy by 2035, will likely spark increased interest in investments in the United States. Likewise, China has remained a buoyant market and retains its second position, adding 72.4 GW of new wind power in 2020, as developers rushed to beat a cut in onshore wind subsidies. In April, China and the United States also announced that they would work together and with other markets to tackle climate change.
India also rose one place in the rankings to 3rd position, with the solar sector of the market expected to experience significant growth and production from solar photovoltaic energy to overtake coal by 2040. East Asian markets Japan and South Korea (in 8th placee and 17e respective positions) have also made net zero commitments over the past year. The report highlights that East Asia has a strong portfolio of clean energy projects, with more than 800 ready-made projects and with a total investment potential of US $ 316 billion.
Other markets have climbed in the index, as many governments take interim measures to launch new offshore wind projects. Poland, now 22nd, has passed a new law to promote 5.9 GW of offshore wind by 2030 through competitive auctions. And Brazil’s Federal Environment Authority has issued licensing guidelines for offshore wind projects, seeing Brazil climb to 11e position.
Germany drops one place in the rankings to 7th position as last-minute changes in the design of future onshore wind tenders have been criticized. These changes would allow regulators to reduce the size of underwriting auctions and developers believe this uncertainty will lead to lower bid volumes.
Italy climbs two places in the rankings to 15e position after receiving a € 209 billion grant from the EU Stimulus Fund. The Italian government has also told developers it is ready to extend its 4.7 GW onshore wind and solar photovoltaic support auction program to next year, after the cycle is underwritten. initial.
“Discussions on investments in new renewable energy capacities have resumed in Romania. However, the discussions are not enough to reintegrate Romania into the Top EY RECAI. Investments in new units, possible support schemes and the predictability of the legislative framework could contribute to Romania’s return to the 40 most attractive countries for investments in renewable energies ”, said Mihai Drăghici, Senior Manager, Consulting, EY Romania.
There is a clear shift from investing in fossil fuels to environmentally sustainable projects by institutional investors who are generally more risk averse in their investment principles. Risk mitigation tools, structured financing mechanisms specifically adapted to the renewable energy sector and regulatory commitment would therefore help to increase investment flows. The committed action of the COP26 delegates is essential to ensure that the legacy of the Paris Agreement is realized. Major developed countries must honor existing pledges to provide US $ 100 billion per year in climate finance for developing countries, and all countries urgently need to set achievable, short-term goals, rather than giving up. on the road. There is not much road left.
For the full ranking of the top 40 and analysis of the latest renewable energy developments around the world, visit https://www.ey.com/en_gl/recai.