Money and energy policy don’t always walk hand in hand unless, of course, it is in the form of campaign contributions. The year 2015, however, may turn out to be the year energy policy for renewables finally commits to the financial sector. And like all great commitments or marriages, it will have its ups and downs, its laughs and its tears. But one thing is certain. It’s gonna be interesting.
Ernst and Young, a preeminent, big accounting firm issued a report in March 2015 which proclaims:
“The public and private sectors are both committing significant sums to fund ambitious capacity programs and large-scale projects, while policy signals are becoming increasingly positive in many markets.”
This is one of the most interesting aspects emerging in the new energy economy: the nexus between money and policy with momentum building. A recent report issued by the National Bank of Abu Dhabi titled “Financing the Future of Energy” states:
“Governments all over the world…are setting ambitions and shaping strategies to respond to climate change and decarbonise their economies. Because of the sheer level of investment needed to deliver on those strategies, there is a major role for the private sector, especially the finance sector, to play in enabling Governments to make those policy ambitions a reality.”
This same nexus was seen in the joint announcement between the U.S. and China in November 2014 with regard to the new energy economy. Not only was it unprecedented for the two largest emitters of carbon to pledge lower emissions, it was also ambitious. While some naysayers criticized China’s pledge as not doing enough, it is worth putting their pledge in perspective. According to the White House press release:
“China’s target to expand total energy consumption coming from zero-emission sources to around 20 percent by 2030 is notable. It will require China to deploy an additional 800-1,000 gigawatts of nuclear, wind, solar and other zero emission generation capacity by 2030 – more than all the coal-fired power plants that exist in China today and close to total current electricity generation capacity in the United States.”
China’s commitment is to bring online close to the total capacity of the current US grid using primarily renewable sources in a mere 15 years!
India, too, has announced that they wish to be a global renewable leader. In fact, they have pledged to be diesel generator free 24/7 by 2019. That’s right…2019. Prime Minister Modi has set an ambitious target of $100B for renewable projects and solar in particular. In an interview with Ernst and Young, Piyash Goyal, Indian Minister of Power, Coal and New and Renewable Energy stated:
“We’re also bringing in some very bankable purchasers of the solar power. So we’ll have companies with a AAA rating becoming solar power offtakers through a transparent bidding process, which will give comfort both to bankers putting money into the business and to investors, in terms of transparency and reduced risk of future cancellations.”
The day before the budget was set for 2015, India released its Economic Survey which projected as much as $160B of potential business for India’s renewables sector over the next five years. Further, it is interesting to note that India intends to leapfrog hydrocarbons to a large extent. The Survey stated:
“…we have an opportunity to avoid excessive dependence on fossil-fuel-based energy systems and carbon lock-ins that many industrialised countries face today”.
This sort of realization is occurring throughout non-OECD countries. Why spend billions on building infrastructure for hydrocarbons and lock yourself in to future fuel costs when renewable technology can be employed and avoid fuel costs altogether?
Egypt, too, has pledged ambitious targets. A recent solar energy tender was oversubscribed twice over. The fact that all that excess sunshine Egypt receives can be exported in the form of energy proved alluring. Investors committed.
This unprecedented level of projected growth has to be financed. And to do that investors need clear signals that policy will support their investment. And perhaps for the first time, they are receiving just such signals from governments globally. John Podesta, former advisor to President Obama on climate and energy, stated in March 2015:
“The combination of those two big economies [China and America] making big investments in renewable energy is going to drive cost down and drive clean energy production up. So I think that is a very positive market signal that clean energy is the future.”
Things are changing. And changing fast. You know you are operating in another realm or perhaps a parallel universe when the National Bank of one of the Gulf States, Abu Dhabi, states:
“While the economies of this region have been built on oil and gas production, and that will continue for the foreseeable future, the energy system of the past will not be the same as the energy system for the future. It is clear that renewables will be an established and significant part of the future energy mix, in the region and globally.”
Given the inherent need to address climate change, a marriage of money and policy supporting a global renewable energy build out is welcome and much needed.
