Here's Why The World Needs Investments To Pour Into Renewables Now
For the world to achieve net-zero targets by 2050, there needs to be an increase in clean energy-related investment from current levels to US$4 trillion annually- about three times the current annual level.
I have always been a proponent of renewable energy and its long-term benefits to our planet and humankind. Renewables were supposed to be the solution to the world's environmental woes. Cheery visions of people across the world powering their homes via solar panels and wind power have been around since the 1970s. So, why haven't renewables become mainstream?
When renewables first came on the scene, they were seen as costly. Not only was the infrastructure to build renewables expensive, but the technology and research needed to create the most efficient solar panels and wind towers were also exorbitant, and investors shied away from it. Now that the world has had a few decades to work on the technology side, the costs of renewables have dropped considerably, mostly thanks to research and technology inputs from countries like Japan, China, and Germany, to name a few.
We recently witnessed the spike in solar stock prices, and all of sudden, all eyes were on this industry. Initially, in the last few years particularly, the small rise in energy stock was understandably due to the COVID-19 pandemic and lack of supply, but, of course, in 2022, the Russia-Ukraine crisis has propelled it to another level. On the other hand, reduced costs and better access to renewables have meant that the use of renewable energy increased by 3% in 2020, driven by a 7% growth in the generation of electricity from renewable sources. In 2021, the renewables share in global electricity was at 29%. Driving this growth is the decreased cost of solar and wind power, 85% and 49%, respectively, from 10 years ago.
The increase in the use of renewables is great, but it's not enough to counter the effects of global warming, and prevent the increase in temperature by 2%, as set out by the 2015 Paris Climate Agreement. Although we initially thought that coronavirus pandemic would be a chance to reset and shift policy, the reality has been different. Countries instead bulked up the pockets of fossil fuel companies by investing six times as heavily in fossil fuels, as opposed to renewables, in their economic recovery plans.
The move to invest in fossil fuels is counterintuitive given the state of the climate, but, unfortunately, it is often more expensive to invest in new renewables, given the regulatory hurdles and new infrastructure needed, compared to the cost of keeping a fossil fuel plant running. In emerging markets, progress looks even bleaker: housing two-thirds of the world's populations, emerging economies are responsible for 90% of emissions but only 20% of investments into clean energy make their way to these countries. And timing doesn't help either. As the world bounces back from the pandemic, energy demand is soaring, and the amount of power generated by renewables can't keep up with demand.
So, what is the solution? Investment- and fast.
For the world to achieve net-zero targets by 2050, there needs to be an increase in clean energy-related investment from current levels to US$4 trillion annually- about three times the current annual level. In countries where renewables have forged ahead such as Germany, governments have consistently funded renewables. Germany passed legislation in the 1990s that stated that utility companies had to buy renewable energy, increasing demand. Germany also invested billions into research, something that countries like the US have failed to do consistently.
To increase renewables means a change in policies, and it means long-term buy-in from a range of actors, which is hard for politicians, hoping to be re-elected, to grasp. Business leaders and civil society also need to buy into the process, and we collectively need to wean off this behemoth industry that has sat at the center of our lives for decades. Nevertheless, there is too much at stake to not push forward. Governments do need to lead the way, and clean investors can certainly help by putting their money where their mouth, is but the ultimate push needs to come from the public sector, through sustained investment and rapid policy changes.
The takeaway is that we need to keep a close eye on companies who have the potential to be market leaders in the next 50 years, when it comes to investing in any renewable energy stock. As investors in this industry, we also need to give careful considerations of critical factors such as international policies and the impact of US energy industry, while keeping in mind the crucial role it will play in the future.