Investing in a Green Future
Green energy is the future of the global economy. As the world faces the twin challenges of climate change and energy security, investing in renewable sources of power, such as solar, wind, hydro, and biofuels, is not only a moral imperative, but also a smart business decision. According to the International Energy Agency (IEA), global clean energy investment is expected to increase by 24% between 2021 and 2023, significantly outpacing fossil fuel spending. A study by IEA indicated that renewable energy accounted for 90% of the total power capacity expansion in 2021 and 2022. Just today, an agreement was finally struck at the COP28 summit that finally acknowledged the transition away from fossil fuels.
However, not all regions and sectors are equally prepared to seize the opportunities of the green energy transition. While advanced economies such as the EU and the US are leading the way in deploying and financing renewable energy projects, many emerging and developing markets are lagging behind, due to lack of natural resources, policy support, infrastructure, and access to capital. Moreover, some clean energy technologies, such as energy storage, electric vehicles, hydrogen, and carbon capture, still face technical and economic barriers that limit their adoption and scalability.
In this article, we will explore the current trends and challenges of green energy investment, and provide insights and recommendations for businesses, investors, and policymakers who want to be part of the solution. For any investors seeking to enrich their portfolios while securing a foothold in one of the 21st century’s preeminent megatrends, the following review of the renewable power investment landscape is essential reading.
China is the world’s largest investor in clean energy, spending a record of $111 billion in 2015 alone. China has also been expanding its footprint in Latin America’s renewable energy sector, financing and building large-scale projects such as the Cauchari Solar Park in Argentina and the Cóndor Cliff and Barrancosa dams in Chile. India, another major player in the global energy market, has set ambitious targets to increase its renewable energy capacity, aiming to reach 450 gigawatts by 2030. India has also been promoting innovation and entrepreneurship in the clean energy space, launching initiatives such as the International Solar Alliance and the Clean Energy International Incubation Center.
Source: International Energy Agency 2022
Latin America, meanwhile, has been harnessing its abundant natural resources and favorable climate conditions to develop a diverse portfolio of renewable energy sources, such as wind, solar, hydro, and biofuels. The region has also been implementing supportive policies and regulations, such as auctions, feed-in tariffs, and net metering, to attract private investment and foster competition.
Floating offshore wind turbines, which can tap into the vast and consistent wind resources in deep waters, and has the potential to lower costs by 70% by 2035. Another promising technology is enhanced geothermal, which can unlock Earth’s nearly inexhaustible heat resources to provide reliable, clean power for Americans and expand opportunities for a robust domestic geothermal industry. Enhanced geothermal systems could reduce their cost by 90% to $45 per megawatt hour by 2035.
Furthermore, advanced biofuels, such as those derived from algae, lignocellulosic biomass, or waste, could offer a sustainable and low-carbon alternative to fossil fuels for transportation and industrial sectors. Advanced biofuels could reduce greenhouse gas emissions by up to 80% compared to conventional fuels.
The outlook for renewable energy investment is bright. According to the International Energy Agency (IEA), clean energy investment topped $1.4 trillion in 2022, a significant acceleration after many years of slow progress. It now accounts for almost three-quarters of the growth in overall energy investment, and has been growing at an average annual rate of 12% since 2020. The IEA projects that renewable energy will climb to 45% of the total U.S. generation mix by 2032, up from 16% in 2022. These trends indicate that renewable energy is becoming a mainstream and attractive option for investors and policymakers alike.
Lithium is a key component of batteries for electric vehicles and energy storage, which are essential for the transition to a low-carbon economy. According to the International Energy Agency (IEA), the demand for lithium is expected to grow by more than 40 times by 2040 in the Sustainable Development Scenario. This scenario assumes that the world will achieve net-zero emissions by 2050 and limit global warming to 1.5°C. The global market value of lithium was estimated at USD 3.3 billion in 2022, and is projected to reach USD 8.5 billion by 2030. The majority of lithium is mined in South America, followed by China and Australia.
Source: Statista April 2023
The top lithium-producing countries in 2022 were Australia, Chile, China, Argentina, and Zimbabwe. The largest lithium mines in 2022 were Greenbushes in Australia, Salar de Atacama in Chile, and Wodgina in Australia. The price of lithium carbonate, the most common form of lithium used in batteries, has increased significantly in recent years, reaching USD 13,000 per metric ton in 2022. This reflects the growing demand and supply constraints of lithium, as well as the environmental and social impacts of lithium extraction. Some of the challenges faced by the lithium industry include water scarcity, land degradation, community conflicts, and regulatory uncertainty.
Investing in renewable energy projects can be challenging due to the high initial costs, long payback periods, and exposure to various financial, technical, and regulatory risks. To overcome these barriers, investors can employ different strategies to protect and enhance their returns. These include using instruments such as hedging, guarantees, insurance, securitization, and syndication, which can lower the cost of capital, improve the credit quality, and broaden the sources of funding for renewable energy projects.
Renewable energy is not only a vital solution for mitigating climate change and ensuring energy security, but also a lucrative and competitive market for businesses and investors who want to be at the forefront of the global energy transition. However, to succeed in this fast-changing and complex environment, it is crucial to have a clear vision, a robust strategy, and a reliable partner. If you are interested in learning more about how your company can thrive in the green sector, Theia Consulting Group would be able to help you. We would love to hear from you and discuss how we can work together to make your green energy dreams a reality.
References:
BloombergNEF. (n.d.). Energy transition investment trends 2023. https://about.bnef.com/energy-transition-investment/
Hall, S. (2022, July 7). These charts show record renewable energy investment in 2022. World Economic Forum. https://www.weforum.org/agenda/2022/07/global-renewable-energy-investment-iea/
Holder, M. (2023, May 26). IEA: Global clean energy investment 'significantly' outpacing fossil fuel spending. GreenBiz. https://www.greenbiz.com/article/iea-global-clean-energy-investment-significantly-outpacing-fossil-fuel-spending
International Energy Agency. (n.d.). World Energy Investment 2023. https://iea.blob.core.windows.net/assets/54a781e5-05ab-4d43-bb7f-752c27495680/WorldEnergyInvestment2023.pdf
Luckman, P. (2023, September 30). 54% of Portugal’s electricity is now generated by renewable energy. The Portugal News of Portugal’s National Newspaper in English. https://www.theportugalnews.com/news/2023-09-30/54-of-portugals-electricity-is-now-generated-by-renewable-energy/81840
Tufts Organization. (2014). Boston University. https://www.bu.edu/eci/files/2019/06/RenewableEnergyEcon.pdf
Wolman, J., & Nieves, A. (2023, October 6). What’s up with Salton sea lithium? POLITICO. https://www.politico.com/newsletters/california-climate/2023/10/06/whats-up-with-salton-sea-lithium-00120466
