Bridging the $18 Trillion Gap in Net Zero Capital

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A $18 Trillion Capital Gap Is Threatening the Energy Transition because Bridging this $18 Trillion Gap in Net Zero Capital would require as eleborated on below.

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Key Messages

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.

Bridging the $18 Trillion Gap in Net Zero Capital

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.

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‘No end in sight’ to rising greenhouse gases

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‘No end in sight’ to rising greenhouse gases – UN weather agency declared based on the WMO latest report.

A World Meteorological Organization (WMO) headquarters is pictured before a news conference to launch state of global climate report at the United Nations in Geneva, Switzerland, May 18, 2022. REUTERS/Denis Balibouse/File Photo Acquire Licensing Rights

 

GENEVA, Nov 15 (Reuters) – The concentration of greenhouse gases in the atmosphere reached a record high last year, the World Meteorological Organization (WMO) said on Wednesday, warning there was “no end in sight” to the trend.

The warning comes weeks before world leaders are due to gather in Dubai for the annual U.N. climate conference COP28, which will see governments push for greater climate action, including a possible phase-out of fossil fuels before 2050.

In 2022, global average concentrations of carbon dioxide were a full 50% above the pre-industrial era for the first time, the U.N. weather agency said.

“Despite decades of warnings from the scientific community, thousands of pages of reports and dozens of climate conferences, we are still heading in the wrong direction,” said WMO Secretary-General Petteri Taalas.

Taalas said higher concentrations of greenhouse gases would be accompanied by more extreme weather events, including intense heat and rainfall, ice melt, higher sea levels, as well as ocean heat and acidification.

“About half of the planet has been facing an increase of flooding events, and one third of the planet has been facing an increase of drought events,” Taalas said. “And this negative trend will continue until 2060s.”

“We must reduce the consumption of fossil fuels as a matter of urgency,” he said.

Methane concentrations in the atmosphere also increased, and levels of nitrous oxide, another greenhouse gas, saw the highest year-on-year increase on record between 2021 and 2022, WMO said.

Greenhouse gases are responsible for warming the planet and triggering extreme weather events. Unlike emissions which can be cut, much of the carbon dioxide emitted decades ago remains in the atmosphere and activates slow processes like the increase of the sea level.

“It takes thousands of years to remove carbon from the system once it’s emitted into the atmosphere,” Taalas said.

A separate UN report published on Tuesday said that governments were making insufficient progress in slashing greenhouse gas emissions to avert the worst impacts of global warming.

Reporting by Gabrielle Tétrault-Farber; Editing by Christina Fincher and Bernadette Baum

Our Standards: The Thomson Reuters Trust Principles.

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First MENA Solar Conference starts tomorrow

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The First MENA Solar Conference starts tomorrow with researchers from 120 universities and 38 countries informs the Government of Dubai.

14 Nov, 2023

 

With the participation of prominent researchers and experts from 120 universities and research centres from 38 countries, the first Middle East and North Africa Solar Conference (MENA SC) 2023, organised by Dubai Electricity and Water Authority (DEWA) launches tomorrow, (Wednesday 15 November 2023). The conference lasts until 18 November at the Dubai World Trade Centre. MENA SC coincides with the 25th Water, Energy, Technology and Environment Exhibition (WETEX) and Dubai Solar Show (DSS) organised by DEWA from 15 to 17 November.

MENA SC focuses on six research areas in solar power. These include unconventional and new concepts for future technologies; silicon photovoltaic materials and devices; Perovskite and organic materials; PV module and system reliability in the MENA region; solar resources for PV and forecasting; and power electronics and grid integration.

The conference aims to highlight various fields of solar energy to accelerate the transition towards clean and renewable energy in the region with specialised discussion panels and seminars. It provides an important opportunity for experts, researchers, and specialists worldwide to exchange ideas, discuss projects and growth opportunities in the sector, share knowledge and experiences, and explore the latest technologies and scientific innovations in solar energy.

Participants at the conference include Lawrence L. Kazmerski, Professor and National Renewable Energy Laboratory (NREL) Emeritus Fellow, University of Colorado Boulder, USA; Mohammad K. Nazeeruddin, Professor and Molecular Engineering Laboratory Director, Ecole Polytechnique Federale de Lausanne (EPFL), Switzerland; Shanhui Fan, Professor and Senior Fellow, Stanford University, USA; Mowafak Al Jassim, Principal Scientist and PV Group Manager, National Renewable Energy Laboratory (NREL), USA; Steven Ringel, Professor and Associate Vice President, Ohio State University, USA; Xiaojing Hao, Professor and ARC Future Fellow, University of New South Wales, Australia; and many experts from around the world.

‘Renewables to supply half of global power by 2030’

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The IEA’s latest World Energy Outlook forecasts renewables will supply almost half of the global power mix by 2030, but urges much stronger policies are needed to achieve the 1.5°C target.

 

The latest edition of the World Energy Outlook (WEO) describes an energy system in 2030 in which clean technologies play a significantly greater role than today.

 

This includes almost 10 times as many electric cars on the road worldwide, solar PV generating more electricity than the entire US power system does today, renewables’ share of the global electricity mix nearing 50%, up from around 30% today, heat pumps and other electric heating systems outselling fossil fuel boilers globally and three times as much investment going into new offshore wind projects than into new coal- and gas-fired power plants.

All of those increases are based only on the current policy settings of governments around the world.

 

If countries deliver on their national energy and climate pledges on time and in full, clean energy progress would move even faster.

 

However, even stronger measures would still be needed to keep alive the goal of limiting global warming to 1.5 °C.

 

“The transition to clean energy is happening worldwide and it’s unstoppable. It’s not a question of ‘if’, it’s just a matter of ‘how soon’ – and the sooner the better for all of us,” said IEA Executive Director Fatih Birol.

 

“Governments, companies and investors need to get behind clean energy transitions rather than hindering them.

 

The WEO-2023 proposes a global strategy for getting the world on track by 2030 that consists of five key pillars, which can also provide the basis for a successful COP28 climate change conference.

 

These comprise tripling global renewable capacity, doubling the rate of energy efficiency improvements, slashing methane emissions from fossil fuel operations by 75%, innovative, large-scale financing mechanisms to triple clean energy investments in emerging and developing economies; and measures to ensure an orderly decline in the use of fossil fuels, including an end to new approvals of unabated coal-fired power plants.

 

Birol added: “Every country needs to find its own pathway, but international cooperation is crucial for accelerating clean energy transitions.

 

“In particular, the speed at which emissions decline will hinge in large part on our ability to finance sustainable solutions to meet rising energy demand from the world’s fast-growing economies.

 

“This all points to the vital importance of redoubling collaboration and cooperation, not retreating from them.”

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Equip youth in developing countries with green skills

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Equip youth in developing countries with green skills to solve unprecedented climate challenges

ReliefWeb on 23 October 2023

— Equipping young people in developing countries with green skills is a vital component of tackling the unprecedented climate crisis we are facing.

This was the message from Education Above All (EAA) Foundation, one of the largest global foundations in development and education, participating in the 2023 MENA Climate Week.

Hosted by the government of the Kingdom of Saudi Arabia in Riyadh the event gathered policymakers, practitioners, businesses, and civil society to discuss and examine barriers to overcome climate change, solutions, and global initiatives to address the situation.

Addressing delegates in the ‘Integrating Climate Change Education into the Education Systems in the MENA region” panel discussion, Mr Abdulla Al-Abdulla , the Executive Director of Reach Out To Asia (ROTA), an EAA Foundation programme said: “The impacts of climate change, from shifting weather patterns to rising sea levels, are felt globally, and the challenges posed are unprecedented in scale. Moreover, the largest generation of youth in history, nearly 90% of 1.8 billion individuals aged 10-24, reside in developing countries.”

He continued: “These young people hold the key to our collective future, but they are disproportionately affected by the climate crisis, despite bearing the least responsibility for it. Education is a powerful tool in bridging the knowledge and gap in skills that young people face in addressing climate change.”

To address this issue, EAA’s Reach Out To Asia (ROTA), has embarked on a new mandate this year focused on Education for Climate Action with three main focus areas; Greening Learning, Greening Communities, and Greening Refugee Camps.

These focus areas intend to integrate climate education into secondary school curricula and build the capacity of teachers and facilitators; equip young people with the knowledge and green skills they need to take climate actions in their communities; and develop relevant knowledge and skills for refugee youth to lead climate actions within these camps to foster sustainability.

Concluding his address Al Abdulla said:

“Our belief is that when young individuals understand the issues, acquire green skills, and develop the values and attitudes necessary for climate action, they can become the driving force behind tangible change in their communities.”

ROTA’s approach to climate education focuses on cognitive, socio-emotional, and behavioural domains, prioritising the behavioural domain to encourage and empower youth to make sound climate actions using their acquired knowledge and green skills.

These initiatives align with national and regional climate plans, including Nationally Determined Contributions (NDCs), supporting climate mitigation, adaptation, and resilience as defined by the OECD.

ROTA–EAA Foundation runs various global projects aimed at equipping youth with green skills, knowledge, values, and attitudes for sustainable living. In Vietnam, ROTA collaborates with ActionAid to empower young community leaders in driving climate action and connect youth in a national network to influence decision-makers.

Recently, ROTA–EAA Foundation also launched the Green Youth 360 project with the Girl Child Network in Kenya, empowering youth in refugee camps with skills like tree planting, beekeeping, agriculture, environmental cleanup, and renewable energy, to address environmental challenges.

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