Only alliances can help ease green transition
Current climate targets are insufficient and don’t fully account for the higher electricity consumption the electrification of economies from renewable energy sources will result in. While electrification provides an opportunity for economic growth, the huge transition of industries on the demand, generation and transmission and storage sides will need government guidance and support.
The global economy is facing a deep recession with the impact of Covid-19. People have seen profound changes in their lives with recession, unemployment and climate change. The World Bank stated that Covid-19 has triggered the deepest recession in decades.
The response is stunning and unparalleled: around 20 per cent of global GDP is being made available in various forms of economic and financial stimulus programmes, helping economies and industries to cope. We — countries, companies, and people — need to design and effectively utilise the worldwide stimulus programmes to accelerate the energy transition. We must realise a world where circular economies, decarbonised energy systems and industries alike are the norm.
Financing is an indispensable element of the energy transition and the main challenge for many projects. And in politically unstable, economically fragile geographies, even more so if they have accumulated disproportional sovereign debt.
Institutional investors are increasingly re-evaluating their investment strategies and reallocating funds from carbon-intensive investments to carbonneutral and decarbonising ventures.
Strong partnerships will be the decisive success factor in creating ecosystems with a significant pipeline of projects in new technology fields and in building basic infrastructure for developing countries.
Green signals
September proved to be a landmark moment, not only with the spin-off and listing of Siemens Energy on the Frankfurt stock exchange, as a standalone company focused on the energy transition. Germany issued its inaugural sovereign green bond in September, valued at $7.7 billion.
Egypt also entered the green bond market, with a debut $750 million bond. State-controlled Saudi Electricity Company raised $1.3 billion with a green sukuk, the first of its kind in the Kingdom.
These issuances highlight the growing commitment from sovereign nations and their entities to pursue and fund renewable and green projects, they highlight capital market growing appetite to support such projects and highlight the business potential for the corporate sector.
To facilitate investment, environmental, social, and corporate governance (ESG) must clearly reflect in the core values of projects and corporates. There is a growing focus by equity investors and lenders on ESG-related topics. Consequently, companies and projects with strong sustainability elements potentially have access to a much broader funding basis, given an acceptable risk profile on the commercial side.
However, the energy transition and the achievement of global decarbonisation targets can only be successful if sustainable financing is available to developing economies.
Strong partnerships will be the decisive success factor in creating ecosystems with a significant pipeline of projects in new technology fields and in building basic infrastructure for developing countries.
We have found that collaboration with strong partners and governments helps solve the financing challenges for the energy transition. That is one of our Top 10 priorities for a successful energy transformation.