The weekend read: The stakes are high for solar and green finance

From pv magazine 06/2022

In 2020, the UP Initiative focused on green finance. At the time, Covid-19 was just beginning to hit the headlines with fears of unknown consequences on the political, social, and industrial level abounding. Two and a half years later, resiliency has been proven in many areas, not least in the renewables (and solar) industry, with record installation numbers continuing to be recorded. Indeed, according to the latest SolarPower Europe market outlook, 167.8 GW of solar was added in 2021, pushing cumulative global installations past the 1 TW mark.

While the pandemic continues to affect us, particularly when it comes to global supply chains, the world is now facing a new crisis. The Ukrainian-Russian conflict has brought with it a new trifecta of fear: a humanitarian disaster; soaring inflation which is impacting not only commodities like food, but also energy prices (EU households are expected to see energy bills increase 30% in 2022); and the question of energy security against a backdrop of heavy global dependence on Russian oil and gas.

A fool’s game

Let us not forget that amid these distractions, the climate crisis is also deepening, with record high temperatures recorded in Spain and Bangladesh this May, Chile’s “megadrought” which prompted Pablo García-Chevesich, a Chilean hydrologist working at the University of Arizona, to describe a “national security issue” according to The Guardian this June, and the “apocalyptic” dust storms plaguing the Gulf States, to name but a few of the current climate headlines.

And as Svenja Schulze, the federal minister of economic cooperation and development for Germany, stated at this April’s Berlin Energy Transition Dialogue (BETD), “crises reinforce each other.” Steps are being taken to address some of these issues – primarily in Europe as a response to the war – but as the analysts repeatedly warn, they are not enough to combat the threats we are collectively facing.

Moreover, while on the surface positive progress appears to be taking shape, behind the green curtain, devastating counter attacks are occurring on all levels. Take the facts that in the first two months of the Ukrainian-Russian conflict, EU countries are estimated to have paid €39 billion ($41.8 billion) for Russian energy – more than double what they have sent to Ukraine to defend itself, while an investigation by The Guardian revealed in May that “the world’s biggest fossil fuel firms are quietly planning scores of “carbon bomb” oil and gas projects that would drive the climate past internationally agreed temperature limits with catastrophic global impacts.”

The report reads: “The exclusive data shows these firms are in effect placing multibillion-dollar bets against humanity halting global heating. Their huge investments in new fossil fuel production could pay off only if countries fail to rapidly slash carbon emissions.” These plans include the dozen biggest oil companies spending $103 million a day for the rest of the decade exploiting new fields of oil and gas, writes the media outlet.

Global threats

How can we address these global threats? Arguably, the renewable energy industry is one of the most effective keys – not only in terms of shoring up domestic energy independence and achieving our ambitious net-zero goals, but also in terms of redirecting investment away from the fossil fuel industries and towards a more stable and positive future. To achieve this though, we need to step up our sustainable finance game.

As pv magazine editor Beatriz Santos reported in April, panelists at the BETD argued that the energy transition can only be achieved by worldwide collaboration and that massive financial investment is required to move from “ambition to action.” The private sector must play a major role, they said.

The final session of the BETD sought to answer a specific question: How will we finance the energy transition? Santos quoted moderator Melinda Crane who cited the International Renewable Energy Agency’s (IRENA) most recent outlook, which says that “success in bringing down CO2 emissions by 2030 depends on scaling up investment by at least 30% compared to where we are now.”

According to BloombergNEF this February, despite substantial sustainable investments in 2021 and 2022, the world still has a long way to go to achieve its green ambitions. It calculates that global green bond sales reached a record $513 billion last year, while the Climate Bond Initiative (CBI) estimates that this year could see up to $1 trillion.

These are impressive figures; however, McKinsey and Company writes, we will need to see investments of $9.2 trillion a year to 2050 if we are to achieve our net zero targets.

Going further, in its “Sustainable Debt Investment Summary” released this May, the CBI reported that there has been an almost 30% decline in year-on-year volumes from the first quarter of 2021 to the first quarter of 2022, with cumulative green, social, sustainability, sustainability-linked, and transition (GSS+) labelled debt reaching $3 trillion this year, sustainability-linked bonds recording a cumulative $155.5 billion, and transition bonds hit $10.2 billion.

“The green, social, sustainable, and other labeled (GSS+) bond charge was threatened by market volatility as the Ukraine war and rising interest rates sprung upon the opening months of the year,” wrote the authors. Despite this, they added that the market “demonstrated resilience and amassed a strong volume which is expected to rise over the coming months.”

Game changing