BAKU, Azerbaijan, Oct.26
By Leman Zeynalova – Trend:
The slump in energy investment is likely to have major repercussions for energy markets in the coming years, even though the economic downturn is also putting downward pressure on demand, Trend reports referring to the International Energy Agency (IEA).
“Based on the announcements made thus far, recovery policies designed to boost investment do not generally have a strong energy or sustainability component, with the notable exception of those in Europe, Canada and a few other countries. As governments consider ways to mobilise private capital, they will need to consider three major investment issues.
“First, the future energy system will require significantly more capital to ensure that supply is both reliable and adequate to meet demand. Under the IEA’s Stated Policies Scenario, energy supply investment would rise to nearly $1.9 trillion within ten years, from $1.3 trillion in 2020, with higher levels required to meet the accelerated emissions reductions goals of the Sustainable Development Scenario (SDS).
“Second, meeting sustainability goals would require a dramatic shift in capital allocation across sectors. The share of clean energy in total investment would need to rise to around two-thirds by 2030, accompanied by a dramatic scale up in clean power, electricity grids and demand-side sectors.
“Third, much greater investment is needed in emerging market and developing economies, especially beyond China. There are developing economies with strong records of attracting investment in renewables, as illustrated by the surge of solar PV in India. Yet, global financial capital is concentrated in advanced economies. Progress hinges on better linking sources of sustainable finance with the areas of greatest need, and aligning these sources with the requirements of companies and assets. Our first detailed analysis of the capital structure of energy investments points to growing needs for both equity and debt, but with a higher level of reliance on debt-based financing in the SDS as a result of the increased emphasis placed on power projects and spending on demand-side technologies and efficiency improvements.
“While public finance has an important role to play, via development and green banks, more than 70 percent of clean energy-related investment in the SDS is likely to come from private sources of capital, incentivised by appropriate market design, regulatory frameworks and policy incentives. In developing economies, in particular, improving the bankability of projects and the ability of companies to raise funds will have an important part to play in managing the affordability of clean energy transitions,” reads the report.
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