The analysis by BCG’s Center for Energy Impact of global energy sector investment needed through 2030 to reach emissions reduction goals yielded the following key findings:
Capital Challenge. An $18 trillion capital gap exists between current commitments and the investments needed for alignment with net zero goals in 2030. Electricity and end-use sectors account for 90% of that shortfall.
Transition Barriers. Higher inflation and supply chain disruptions over the past 24 months have significantly hindered energy transition progress, stifling momentum and increasing costs.
Investor Behavior. Rising risks drive investors to seek higher returns, favoring businesses that prioritize capital discipline and cost efficiency even in high-growth renewables markets.
Sector Restructuring. Energy sector deals surpassed $320 billion in 2023, as companies optimize capital structures for energy transition investment. Oil and gas companies are leading with acquisitions, while utilities offload more assets to access capital and focus portfolios.
Strategic Adaptation. Companies should emphasize refining capital strategies, boosting efficiency, seeking innovative transactions and collaborations, bolstering financial foundations, and fortifying supply chains. These measures are essential to amplify investments, satisfy shareholders, and move toward net zero outcomes.
Government Role. Policy reforms, subsidies for low-carbon solutions, and expedited project approvals are essential for accelerating investment.
Navigating the path to a 2030 net-zero-aligned scenario reveals a staggering $18 trillion capital gap between current energy transition commitments and the required investment levels. Electricity and end-use sectors account for 90% of that shortfall. (See Exhibit 1.) With companies in the industry poised to drive 80% of planned energy transition investments through 2030, their strategies and execution plans are paramount.
However, their journey is riddled with hurdles. In the present climate, higher inflation, persistent supply chain pressures, and rising capital costs cause significant bottlenecks, slowing the pace of the energy transition. The setting is also reshaping investor behavior; companies face more demanding calls for higher returns, more disciplined capital management, and more efficient resource allocation, even within the high-growth renewables space.
The energy sector’s response has been proactive. A flurry of transaction activities signals a strategic push to fine-tune capital frameworks for the energy transition; so far in 2023, total energy sector deals exceed $320 billion. Oil and gas companies have emerged as dominant buyers, while utilities are using carve-outs to raise funds and recalibrate. As capital markets evolve, only projects that strike the right balance between risk and returns will receive sufficient funding. Regions where stakeholders effectively align policy directives and market mechanisms will be the prime recipients of future investments.
To flourish in the face of growing capital demands, energy companies must reassess portfolios, create innovative capital strategies and new partnerships, optimize their financial structures, and emphasize stringent cost and supply chain efficiencies. This report highlights the sector’s crucial capital allocation dynamics and the implications for competitive success in the energy transition.
Follow the Capital: Tracking the Investment Landscape of the Energy Transition
BCG’s Center for Energy Impact recently analyzed the investment plans of the world’s leading energy companies, governments, and private equity players, to compare real-world energy transition investments with net-zero scenario benchmarks.
The study reveals two major trends. One is that energy companies and governments aim to inject an impressive $19 trillion into the energy transition over the next seven years. This includes nearly $2 trillion in new government spending, spurred by US and European legislative initiatives. Company targets suggest a 15% increase in energy expenditures between 2023 and 2027, with an increasing share allocated to low-carbon investments. (See Exhibit 2.)
Yet the shadows of the war in Ukraine loom large. The repercussions of the conflict, marked by skyrocketing commodity prices in 2022 and 2023, have tightened capital availability, particularly for European utilities—the linchpins of European decarbonization efforts. These financial headwinds, coupled with higher inflation and capital costs, have curbed enthusiasm for new investments.
The Pivotal Role of Policymakers in Accelerating Transition Investment
There is an urgent need for global policymakers to address existing challenges and ensure a fair and efficient shift to low-carbon energy. Energy transition investments are most effective in regions where market structures and policy guidelines align to produce favorable risk-to-reward profiles for capital.
BCG’s Blueprint for the Energy Transition outlines six essential steps for public sector leaders to bridge the investment gap and support the flow of capital into transition projects. These steps include electricity market modifications to produce adequate pricing signals for new investments; faster approval processes for projects, particularly grid expansions; enlarged green investment subsidies through incentives and research grants; and revised liability guidelines to enhance investor confidence.
Strategic Imperatives: Shaping the Energy Transition Through Corporate Action
The energy sector stands out for its intense capital demands, marked by a capital intensity rate that is more than double that of other industries. Accounting for approximately one-third of the world’s yearly capex, it encompasses diverse peer groups, segments, and stakeholder interests. Yet organizations throughout the sector share a mission to amplify investments, satisfy shareholders, and navigate toward net zero outcomes.
To accelerate the energy transition, every company in this sector should treat six actions as mandatory:
Refine capital allocation. Evaluate and enhance current allocation processes to weigh trade-offs between traditional investments and low-carbon alternatives, ensuring a comprehensive approach to decision making. Look for processes that need revamping. In particular, low-carbon investments are much more sensitive to cost-of-capital increases than traditional energy sector investments. Improved cost-of-capital assessments across global portfolios would paint a more detailed picture of favorable assets.
Focus on efficiency. Emphasize cost and capital efficiency in energy transition investments. Such an approach may entail completely transforming the way a company runs major capital projects and operations. For example, companies are evaluating the factory model that has successfully reduced costs in the US shale sector for use in large-scale renewables and other low-carbon settings.
Explore strategic M&A and divestitures. Mergers and acquisitions may work for some companies, while others may benefit from divestments that enable them to concentrate their resources more effectively.
Forge new partnerships. Explore alternative deal structures such as minority shareholdings, joint ventures, strategic partnerships, and corporate venturing. These structures can be complex, but they offer strategic flexibility that is essential for navigating capital constraints in certain areas of the energy sector. They also promote specific collaborations to advance decarbonization efforts.
Strengthen the balance sheet. A volatile market forces companies to adopt robust financial strategies. The disparity in valuations between US oil and gas majors and their European counterparts highlights the importance of financial resilience, as does the surge in total shareholder returns by more debt-averse utilities in 2023.
Stress-test the supply chain. It is crucial to rigorously evaluate supply chains for cost efficiency, carbon intensity, and resilience. Reevaluating supplier relationships and identifying dependencies can cut costs and minimize risks.
The energy transition’s immense capital demands underscore the need for companies and policymakers to adopt robust and innovative approaches. As the world advances toward its net zero goal, harmonizing investment strategies with collaborative solutions is paramount. Although the energy sector is already making strides, consistent policy support and forward-thinking financial maneuvers are crucial to bridging the existing gaps and ensuring an ordered, equitable, and sustainable shift to a greener future.
The above-featured image of Smart City Laguna in Fortaleza, one of Planet Smart City’s projects in Brazil
The acquisition will strengthen Planet Smart City’s ability to integrate proptech expertise and environmental, social and governance principles into real estate development around the world.
Smart affordable housing company Planet Smart City has signed an exclusive agreement to acquire Politecna Europa which specialises in architectural and engineering design.
The acquisition will strengthen Planet Smart City’s Competence Centre, offering expertise that integrates proptech and environmental, social and governance (ESG) principles into real estate development.
Politecna Europa, founded by Luca Massimo Giacosa and Pietro Putetto, specialises in project management activities and is at the forefront of architectural, structural, and industrial design in the civil and infrastructure sectors.
The company is involved in activities across Italy, France, Switzerland, and Oman, leveraging a team of more than 100 engineers and architects. The specialist knowledge of both companies will be applied to create intelligent neighbourhoods and homes by increasing their efficiency and maximising the user experience of residents.
Planet Idea, Planet Smart City’s Competence Centre, and Politecna Europa are already working on joint projects around the world. Planet Idea designs innovative solutions in fields including technological systems, planning and architecture, social innovation, and the environment.
These solutions are integrated into real estate development projects that Planet Smart City carries out in Italy, India, Brazil, and the US, as well as supporting consultancy services to third party real estate developers.
“Planet Smart City and Politecna Europa have the same vision of real estate development aimed at the joint application of proptech together with the principles of ESG”
Planet Idea’s interdisciplinary team already includes architects, engineers, and urban planners, as well as digital transformation and social innovation specialists, who all work together at the Competence Centre in Turin.
After the two companies are fully integrated, an entity will be established including 350 professionals. A 4,000 square metre building has been chosen as the headquarters in Turin and, from October, will become an international centre of technological innovation and ESG in real estate.
“Planet Smart City and Politecna Europa have the same vision of real estate development aimed at the joint application of proptech together with the principles of ESG,” said Giovanni Savio, CEO of Planet Smart City.
He added: “The integration of our respective skills and professionalism will lead to the establishment of an interdisciplinary group that will increase our ability to generate and implement ground-breaking ideas.”
Planet Smart City’s mission is to create communities that respect local cultures and support inclusivity and sustainability. It does this through integrating innovative infrastructural, technological and social innovation solutions into its projects.
The research, development and integration of these innovative solutions is undertaken by subsidiary Planet Idea, which operates through multidisciplinary Competence Centres in Turin (Italy) and Pune (India). Planet Idea has, among other projects, created and launched the Planet App, a digital platform of high value-added services that also facilitates communication between residents in Planet Smart City’s neighbourhoods.
The Planet Smart City model has been rolled out in Brazil where four projects are underway: Smart City Laguna; Smart City Natal; Smart City Aquiraz; and Viva!Smart. In 2020, the business expanded into India and the US. In Italy, the company collaborates with leading real estate developers as an advisor in numerous smart social housing districts.
The Middle East and North Africa (MENA) is among the most vulnerable places in the world to climate change. The U.N. has highlighted the devastating toll that climate change will have on the region’s water supplies and food production systems, and its potential to create breeding grounds for terrorism and violent extremism. No country will be spared: The affluent Gulf nations face depleted freshwater resources within the next 50 years, while in conflict-ridden Iraq, average temperatures are soaring at a rate that is two-to-seven times faster than the global average. Food and water production systems across the Levant face imminent collapse.
Climate change has already started to exacerbate fragility in countries that are mired in conflict or undergoing post-conflict transitions, and countries that are struggling to cope with the impact of a growing youth population, bloated public sectors, volatile oil prices, weak governance, and the fallout from the pandemic. The crisis will contribute to the proliferation of armed groups, intensify conflicts over natural resources, and make it easier for extremist organizations to attract recruits. To address the problem, governments must approach climate change as a public policy issue, a threat that is interconnected with a host of other challenges that combine to create a multiplier effect.
This requires a renewed effort to deliver services, balance short-term economic grievances with the long-term imperative of austerity measures and good governance reforms, and ultimately build resilience so that violence and terrorism cannot easily flourish. The social fabric of the most vulnerable countries may continue to erode, but this does not mean governments cannot establish response mechanisms to slow the downward spiral.
ALREADY A PROBLEM, WATER SCARCITY WILL GET WORSE
Globally, average rainfall has reached new record lows over the last three decades, according to the Intergovernmental Panel on Climate Change (IPCC), which said in 2014 that human security will be progressively threatened as temperatures increase, and has re-asserted the threat of climate-induced conflicts in its 2022 report. In the Middle East, water scarcity is already a huge problem — a region that is home to 12 of the world’s 17 most “water stressed countries” according to the World Resources Institute. The outlook is worrying: The World Bank estimates that climate-related water scarcity will cost Middle Eastern nations between 6 percent and 14 percent of their GDP by 2050, due to water-related impacts on agriculture, health, and incomes.
These red flags already indicate severe near-term implications for national and regional stability, including geopolitical flare-ups. Turkey controls more than 90 percent of the water that flows into the Euphrates, and 44 percent of that in the Tigris. Yet Ankara has been accused of weaponizing water supplies as it grapples with the conflict in Syria and geopolitical turmoil. Since December 2020, Turkish dams have cut the flow of the Euphrates to neighboring countries such as Iraq by 60 percent, which has also resulted in food and power shortages in Syria. This has compounded the water crisis in Iraq, which could see at least seven million people lose access to water.
Similarly, upstream dams in Iran have shrunk the Tigris tributaries, cutting off flow at the Diyala river in Iraq’s northeast. Lake Hamrin, the main water source for Iraq’s Diyala province, which borders Iran, has lost nearly 70 percent of its water, embroiling the province in a humanitarian and environmental calamity.
Yet climate change threatens every country in the region. Aid groups have warned more than 12 million people in Iraq and Syria are losing access to water, food, and electricity because of rising temperatures and record low rainfall. Desertification is sweeping across the region in Iraq, Syria, Jordan, and Iran. The cost of water in Jordan has increased by 30 percent over the past decade because of the lack of groundwater. The Middle East’s wealthier nations are also at risk. Outside of the fragile countries in the region, the UAE has the highest per capita consumption of water in the world but risks depleting its freshwater resources in the next 50 years due to population growth and higher domestic water use.
THE DOMINO EFFECT OF CLIMATE CRISES
Climate change can have a dilapidating impact on security and the fabric of societies by inflaming socioeconomic fractures and eroding the trust in public institutions. The problem is best summed up as interconnected crises that combine to create a domino effect of problems at the local, national, and geopolitical level. This begins with weakened state institutions and ends with ungoverned spaces in which extremist armed groups and criminal enterprises thrive, prompting the internal displacement of populations and an exodus of refugees that ensures no country in the region and beyond is spared.
Water scarcity and poverty force people to migrate to densely populated towns and cities in search of jobs, which imposes further costs and pressures on over-burdened infrastructure. The link between climate crises and social unrest as a result of climate migration has long been established. Syria’s civil war has been attributed to the five-year drought that struck the country in 2007, among other factors. The drought produced unprecedented poverty, paving the way for migration to the peripheries of Syria’s main cities, which were already burdened by population growth. The influx of refugees and resulting pressure on poor infrastructure established the deep-rooted grievances that were central to the 2011 uprising.
State failure, uncontrolled migration, and ungoverned spaces directly enable armed groups and terrorists who feed off the vulnerabilities of the poor to swell their ranks. The degradation of infrastructure as a result of poor governance, population density, and rising costs can intersect to create situations that become untenable for local populations, particularly in the summer when scorching temperatures and lack of rain result in crop failures and limited access to water and electricity. This has manifested itself in region-wide protests and upheaval, including protests that have rocked ruling elites from Iran to Lebanon.
CLIMATE CHANGE RAISES THE RISK OF ARMED CONFLICT
Geopolitical tensions — like the quarrel between Iraq, Turkey, and Iran over the building of dams that restrict water flows — and policies that weaponize water supplies, increase the prospects for conflict. Meanwhile armed groups like ISIS have displayed a notable ability to weaponize water infrastructure by wielding control of water infrastructure in Syria and Iraq to acquire legitimacy or to punish enemies and the communities under the organization’s control; in some instances, it taxed access to water. At one point the group controlled the Tabqa dam, which provided 20 percent of Syria’s electricity and supplies water to five million people.
A paper by Stanford University that investigates how much climate change affects the risk of armed conflict concludes that droughts, floods, natural disasters, and other climatic shifts have influenced between 3 percent and 20 percent of conflicts over the last century. The response to climate crises in fragile states is likely to be poor and slow, and the diminished trust in political elites that follows makes it easier for militants to contest the state. Some groups, like Shiite militias in Iraq or militias in Syria, have established geographic advantages and control over water supplies at the expense of other groups, creating zero-sum political and security conditions — in some cases underscored by ethnic and sectarian rivalries — that set intra-state conflicts over increasingly scarce resources into motion. One in four intrastate conflicts will result from changing climate according to the paper.
GOVERNMENTS MUST RETHINK HOW THEY TACKLE CLIMATE CHANGE
Middle Eastern governments must recalibrate how they make decisions about climate-related threats, taking into account the short and long-term implications of the crisis. For example, the push for digitalization in the region is still in its nascent stages — the UAE has become a trailblazer, with others like the Kurdistan region of Iraq looking to follow suit — but it has the potential to reduce emissions and waste. The World Economic Forum estimates digital technologies could cut global emissions by 15 percent. Digitalization will provide institutions in the Middle East with greater bandwidth to combat the socio-economic challenges that climate change can produce or aggravate. Secondly, and as part of this process, regional and international governments, multilateral institutions, and the private sector should increase funding for climate-related research in the MENA region, which currently pales in comparison to the resources awarded to institutions in the West.
Climate change will struggle to find its way to the top of national agendas until it is identified as a conflict and risk multiplier, rather than simply yet another problem that should be added to the growing list of issues facing the region. As a multiplier, it creates the potential for a convulsion that will impose untold suffering on a region already engulfed in socioeconomic crises, social unrest, violent extremism, and terrorism. An investment in research and awareness could trigger a cultural shift within government and society that allows for a re-calibration of public sector reform approaches and that adjusts good governance strategies to encourage and enable innovations that alleviate climate-related challenges.
In today’s world that sadly continues on through not exactly a thin patch of worldwide traumas, the Arab League’s Arab Administrative Development Organisation as reported by Gulf Daily News of March 14, 2022, has awarded its Arab Government Excellence to Bahrain. It was 5 government institutions that were rewarded for their unified work as per the vision of the country’s monarch.
Bahrain wins five excellence awards
Five Bahraini ministries and government institutions have won awards at a ceremony to honour excellence in governance in the Arab world.
The announcement was made yesterday at a virtual celebration held under the patronage of UAE Vice President, Prime Minister and Dubai Ruler Shaikh Mohammed bin Rashid Al Maktoum in Dubai.
The Arab Government Excellence Award is organised by the Arab League’s Arab Administrative Development Organisation (ARADO), in co-operation with the UAE government.
The Health Ministry won the award for Best Arab Government Project for Developing the Health Sector, the Labour and Social Development Ministry (Best Arab Government Project for Community Development for its “Khatwa” programme for home projects) and the Interior Ministry’s Customs Directorate (Best Arab Government Development Initiative award for its Governance of Economic and Customs Information to Facilitate Trade).
The Information and eGovernment Authority picked up the Best Arab Government Smart App award in recognition of its Tawasul App for the National Suggestion and Complaint system. The Youth and Sports Affairs Ministry was selected for its Elite Project which was chosen as the best Arab government project for empowering the youth.
This achievement comes within the framework of the efforts made by the Bahraini government, led by His Royal Highness Prince Salman bin Hamad Al Khalifa, Crown Prince, Deputy Supreme Commander and Prime Minister, to benefit from the best practices in upgrading the government’s performance to achieve the kingdom’s Economic Vision 2030.
The award aims to promote the culture of institutional excellence among government work teams in Arab countries.
It also seeks to provide positive leadership thinking to adopt the approach of excellence and innovation in a way that enhances the ability of the governments to deal with the tasks assigned to them through continuous development of the work system and its methods.
Solar Appreciation Day 2022: Here’re Some Unique Use of Solar Technologies Worldwide to Combat Energy Crisis
India’s budget for FY2022-23 clearly highlights the country’s priority to double down for ‘green’ and renewable energy, particularly solar, to combat climate change and meet the emission reduction targets set for 2030.
Moreover, as the Ukraine-Russia war continues, coal and natural gas prices are surging sharply across the globe. With the soaring power bills, several European and Asian countries are seeking alternatives to Russian supplies. And using technologies based on solar energy is a comparative quick fix to the energy crisis.
Meanwhile, Solar Appreciation Day 2022 is here, which is celebrated globally on every second Friday of March. The day has become all the more significant amid the ongoing climate and energy crisis. On this day, here are some unique solar technologies that demonstrate the immense potential of solar technologies to address the needs of the modern world.
Solar trolley invented by a farmer from Haryana
Pradeep Kumar, a farmer from Haryana, has built a mobile solar plant with panels mounted on a trolley that can be moved on demand. The trolley is custom made as per the user’s requirements.
In an interview with The Better India, Pradeep said, “the devices come in two sizes and carry solar panels which provide electricity of 2 HP and 10 HP. The trolley can also be mounted to the back of a tractor and has sturdy wheels that allow it to move over uneven surfaces.”
The cost-effective technology has benefitted over 2000 farmers so far.
Bihar’s floating solar power plant
The Mithila region in North Bihar is called the ‘Land of Ponds’ and is taking complete advantage of its gift. A floating solar plant is set to be commissioned in the region, consisting of 4,004 solar modules. Each module lodged in a pond can generate 505-megawatt peak (MWp) electricity and nearly 2 MW of green and clean energy. The plant can supply electricity to 10,000 people in the state.
The main benefit of a floating solar power plant is that the water cools the solar panels, ensuring their efficiency when temperatures rise, resulting in increased power generation. It also minimises evoporation of freshwater and aids fishery.
This innovation has hit two birds with one stone: producing green energy from solar panels and promoting fish farming underwater.
South Korea’s solar shade
In South Korea, a highway runs between Daejon and Sejong and its entire bike lane on the 32 km stretch is covered with solar roof panels. Not only do they generate sufficient electricity, but they also isolate cyclists from traffic and protect them from the sun.
The two-way bike lane is constructed right in the middle of the road, while there are three other lanes for vehicles to travel on either side. This also obstructs the high beam lights of oncoming cars.
Using the technology, the country can intern produce clean, renewable energy.
Solar-powered desalination technique by Chinese and American researchers
Desalination process is considered to be among the most energy-intensive activities. Now researchers have developed a solar desalination process that can treat contaminated water and generate steam for sterilizing medical instruments without requiring any power source other than sunlight itself.
The design includes a dark material that absorbs the sun’s heat and a thin water layer above a perforated material that sits atop a deep reservoir of salty water such as a tank or a pond. The holes allow for a natural convective circulation between the warmer upper layer of water and the colder reservoir below and draw the salt from the water.
Not only is the solar-powered desalination method efficient but also highly cost-effective.
Saudi Arabia’s goal of sustainable development using solar technology
Dry-climate arid regions are prone to droughts and often face water scarcity. While local food production would have been a distant dream for countries that host mostly deserts, scientists in Saudi Arabia have developed a unique solution using solar technology.
In an experiment, they designed a solar-driven system that could successfully cultivate spinach using water drawn from the air while producing electricity. This proof-of-concept design has demonstrated a sustainable, low-cost strategy to improve food and water security for people living in dry-climate regions.
“Our goal is to create an integrated system of clean energy, water, and food production, especially the water-creation part in our design, which sets us apart from current agrophotovoltaics,” says senior researcher Peng Wang.
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Earth has been used as a building material for at least the last 12,000 years. Ethnographic research into earth being used as an element of Aboriginal architecture in Australia suggests its use probably goes back much further.
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