Asset manager on where the trillions needed for energy transfer will go
The growing influence of technologies related to the energy transition can be seen everywhere, from the increasingly common sight of electric vehicles on our roads to the development of projects large renewable energy projects such as the Hornsea 2 offshore wind farm.
The transition to a low carbon and zero carbon future will require innovative technological innovation coupled with significant levels of investment.
The importance of the latter was hammered home during a recent panel discussion moderated by CNBC’s Steve Sedgwick.
“There is reason for great encouragement in what we have seen… [happening] in the past year,” said Mark Dooley, global head of Macquarie Asset Management’s Green Investment Group.
Commenting on the global situation, Dooley said: “We’ve just had our first year, in 2022, where we’ve pounded through a trillion dollars going into the energy transition – a trillion dollars .”
“Now, plenty of authorities are saying that needs to quickly increase to $4 trillion, which is an incredibly large amount of money … as an annual spend.”
According to the International Energy Agency, clean energy investment must hit more than $4 trillion per year by 2030 in the Net Zero Emissions by 2050 Scenario.
To reach this kind of figure will require a huge effort from the public and private sector, and the stakes are high.
That’s because cutting human-made carbon dioxide emissions to zero by 2050 is seen as crucial when it comes to meeting the Paris Agreement’s goal of limiting global warming to “1.5°C above pre- business.”
The challenge is huge, and the UN has noted that 1.5 degrees Celsius is seen as “the maximum” when it comes to avoiding the worst consequences of climate change.
The IEA is not the only organization that highlights the large sums of money needed in the future.
Elsewhere, the International Renewable Energy Agency says cumulative investments must hit $44 trillion by 2030 if we are to stay on track to 1.5 degrees. What he called “transition technologies” would account for 80%, or $35 trillion, of this.
As the CNBC discussion progressed, Dooley broke down where he thought investment would go in the coming years.
“It’s actually a lot of different sectors of activity, drawing on a lot of sources of capital,” he explained.
“A lot of that 4 trillion is grid, transmission grid, a very large part of it.”
“Individuals are overwhelmingly choosing to buy electric vehicles and take other steps,” he said later.
“And yes, a lot of it is about big projects, the kind of thing that is at the heart of the business that I’m looking for.”
“It’s a tall order, but our feeling, our experience, is that the investor’s desire to be part of this transition is huge. “
This desire existed for both established technologies and newer ones, Dooley went on to argue.
“We are delighted with the scale of the work ahead, but there are many encouraging signs that the money will be there as soon as we can… bring the projects to fruition.”
Among those appearing with Dooley was Angela Wilkinson, general secretary and CEO of the World Energy Council, a London-based organization founded in 1923.
“There is no way to separate the market from politics and energy – ever,” she said. “You don’t just have geopolitics, you also have sociopolitics … the local politics as well.”
Wilkinson went on to say that, in reality, “we’re going to have a mixed bag of state and markets working through this – and these are going to take very lumpy forms in different parts of the world . “
Wilkinson also spoke of the “humane energy transition” and the importance of moving away from “narratives of fear of the future to allow more people to see opportunity and benefit for themselves at all levels of society.”
“We have technologized this debate, we have funded this debate, but we have not yet humanized it,” she said.
“And believe me, it’s the hundreds of thousands of smaller steps rather than a huge technological leap or financial leap that’s really going to make progress. “