Future development to achieve net zero requires over $5tn of investment and institutional investors to play a role in financing the energy transition, according to management consultancy EY.
In 2020, global renewable energy capacity investments grew 2% to $303.5bn, the second-highest annual figure recorded to date despite the impact of the pandemic.
The fifty-seventh EY Renewable Energy Country Attractiveness Index (RECAI) estimates that environment, sustainability and governance (ESG) goals are increasingly being prioritised on the investor agenda while institutional investors’ interest in renewables continues to grow.
The forthcoming 2021 United Nations Climate Change Conference of the Parties (COP26) presents an opportunity to close the gap between what governments have promised to do and the level of action they have undertaken to date.
The US retains top position on the index and is expected to hold its position under President Biden.
The reacceptance of the Paris Accord, coupled with the recent announcement to cut GHG levels by 50-52% as early as 2030 and achieve 100% carbon free power by 2035, will likely see increased investment interest in the US, stated EY.
Similarly, China has remained a buoyant market and maintains second position, adding 72.4GW of new wind power in 2020, as developers rushed to beat an onshore wind subsidy cut. In April, China and the US also announced that they would work together and with other markets to tackle climate change.
India also rose one place in the rankings to third position, with the market’s solar sector expected to grow significantly and with generation from solar PV forecast to exceed coal before 2040.
The report highlighted that east Asia has a robust pipeline of clean-energy projects, with more than 800 shovel-ready schemes and with a total investment potential of $316b.
Other markets have climbed the index, as numerous governments take steps toward launching new offshore wind projects.
Poland, now in 22nd position, has adopted a new act to promote 5.9GW of offshore wind by 2030 through competitive auctions.
Brazil’s federal environmental authority has released licensing guidelines for offshore wind projects, seeing Brazil climb to number 11 position.
Germany drops by one place in the ranking to seventh position, as last-minute changes to the design of future onshore wind tenders came under criticism.
These changes would allow regulators to reduce the size of auctions if undersubscribed and developers believe that this uncertainty will lead to decreasing bid volumes.
Arnaud de Giovanni, EY Global Renewables Leader, said: “There is a clear shift away from fossil fuel investment and toward environmentally sustainable projects by institutional investors who are typically more risk averse in their investing principles.
“Risk-mitigation tools, structured finance mechanisms tailored specifically to the renewables sector and regulatory commitment would therefore help increase investment flows.
“Committed action from COP26 delegates is a must to ensure that the legacy of Paris Agreement is brought to fruition.
“The leading developed nations must honour existing promises to deliver US$100bn per year in climate financing for developing nations, and all nations must urgently set actionable near-term targets, rather than kicking the can down the road. There is not much road left.”