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Financing solar for a zero carbon world


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Presentation backing contributions to 2 panel discussions on solar at two international conferences this week.

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Financing solar for a zero carbon world

  1. 1. Financing solar for a zero carbon world Contributions to panel discussions on solar at two international conferences: Solar finance and investment London, 5th February 2020 Making solar bankable Amsterdam 7th February 2020
  2. 2. What follows are the points I would most like to make Time will not allow me to make them all, or in much detail ….hence this presentation.
  3. 3. 1. Global heating and its terrible impacts are running ahead of climate scientists’ expectations and modelling. Accordingly, going solar is increasingly about creating hope in hell.* * Hope In Hell: The title of Jonathon Porritt’s forthcoming book
  4. 4. 7th Jan 2016 1st Jan 2020 “I have no close friends or family in NSW or Victoria who aren’t currently within 60km of a fire” E-mail from an Australian friend. Thousands are forced to seek safety on beaches, many needing rescue by the military.
  5. 5. 7th Jan 2016 3rd Feb 2020 “Climate Models Are Running Red Hot, and Scientists Don’t Know Why” “The simulators used to forecast warming have suddenly started giving us less time.”
  6. 6. 2. Solar is set to dominate the global acceleration of electrification that will be needed if society is to build the zero-carbon economy required to stay below the 1.5˚C global-heating ceiling in the Paris Agreement.
  7. 7. 7th Jan 2016 12th Apr 2019 First global energy system model using 100% renewables …based on real weather data A 4.5 year study by a team of 18, funded by the German Federal Environment Foundation + Global energy demand and supply for 145 regions modelled on an hourly basis at 5 year intervals, 2015 – 2050 Model computes the cost-optimal mix of technologies, based on existing locally available renewables (i.e. no further innovation assumed).
  8. 8. Source: LUT University / Energy Watch 7th Jan 2016 12th Apr 2019 1.5˚C zero-GHG energy from power, heat, transport and desalination sectors is possible before 2050 This 100% RE system - modelled hourly, globally, for the first time – is lower cost than current global supply. It allots solar 69% of the mix. €54 MWh (excl. externalities) €53 MWh 7.2 billion people 9.7 bn people 63,400 GW PV 19% 78,000 GW total renewables capacity
  9. 9. Source: LUT University / Energy Watch 7th Jan 2016 12th Apr 2019 Global electricity installed capacity grows from 6,300 GW in 2015 to 78,000 GW in 2050 By 2030 32% is solar, and by 2050 72%. In 2017 27% of global electricity capacity was renewable (2,195 GW). Average 700 GW p.a. solar PV
  10. 10. Electricity, increasingly used for transport and heat, becomes >90% of primary energy demand by 2050 This transition eliminates international energy dependencies, helps to solve energy-related conflicts, fuelling peace and prosperity. Source: LUT University / Energy Watch 89% 4% 7% 90% 6% 4%
  11. 11. By 2050 solar PV and wind generate 95% of global electricity and are 88% of total energy supply Even by 2030, solar PV supplies 32% of global energy. This transition eliminates energy dependencies, helping solve energy-related conflicts. Source: LUT University / Energy Watch Solar Wind Coal Oil Fossil gas 2050 RE 100% 2015 RE 10% Shares of global primary energy supply Includes all industry except non-energy- related industrial feedstock demand
  12. 12. The levelised cost of energy becomes increasingly dominated by capital costs, as fuel costs lose significance The LCOE for a fully sustainable global energy system remains stable in the range of 50-57 €/MWh throughout the 2015-2050 transition. Source: LUT University / Energy Watch
  13. 13. 7th Jan 2016 31st May 2019 Up to 70 TW of solar PV feasibly envisioned by 2050 (10 by 2030), providing most global energy So an international team of 45 solar experts argues in a peer-reviewed paper in Science. Up from 0.5 TW today and 1 TW by 2022-2023. Total final consumption and world electricity, according to the 2018 World Energy Outlook (WEO) New Policies Scenario 3 scenarios for for growth of PV cumulative capacity assuming global average energy yield of 1,370 kWh/kWp
  14. 14. Investment requirements, spread across multiple energy sectors, reach > €14 trillion in 2045-2050, i.e. €2.8 tn p.a. Investment in PV grows to > €5 tn 2045 - 2050, i.e. €1 tn p.a. Total in PV is c. €3 tn 2025-2030, i.e. c. €600 bn p.a. >€30tn cumulative 2015-2050. Source: LUT University / Energy Watch Cumulative investment across the transition: €67 trillion …average €1.9 tn p.a.
  15. 15. 3. Despite recent indications that investment may be stalling, wider context in the financial markets suggest that the floodgates to the trillions needed are poised to unblock.
  16. 16. 7th Jan 2016 6th May 2019 Renewable capacity growth worldwide stalled in 2018 after two decades of strong expansion: IEA “The world cannot afford to press ‘pause’ on the expansion of renewables and governments need to act quickly”: ED Fatih Birol
  17. 17. 7th Jan 2016 18th Jun 2019 Global investment in renewable power and fuels continues to be essentially flat since 2011: REN21 Source: BNEF in REN 21 $US billion …excluding hydropower >50MW
  18. 18. Worldwide investments in renewable energy hits a six-year low in H1 2019 7th Jan 2016 10th Jul 2019 Source: Bloomberg NEF Essentially flat since H2 2011
  19. 19. 7th Jan 2016 14th May 2019 “Falling renewables investment stalls Paris climate goals” IEA warns that renewables investment was down for the second year running in 2018, to $304bn, and fossil fuel investment up, to $1.22 trillion. Fatih Birol: “the appetite to push low carbon investments and policies is slowly fading.”
  20. 20. A “trillion dollar energy windfall” is available today because solar & wind are cheaper than gas & coal 7th Jan 2016 9th Sep 2019 Carbon Tracker describes what it calls a “gigafall” in its latest report. “The challenge for policymakers is to reap this harvest.” “as costs fall, so new tipping points will be reached” including in dispatchable renewables
  21. 21. Infrastructure the world needs by 2030 will require c. $90 trillion of investment, built clean or fossil 7th Jan 2016 5th Sep 2018 Building it clean – low & zero carbon, as per governments’ 2015 Paris agreement commitments – yields $26 trillion in direct economic gain. The main conclusion of a Global Commission on the Economy and Climate report
  22. 22. 7th Jan 2016 4th Jun 2019 Worlds biggest companies see a trillion dollars of climate risk, but around double that in benefits $2.1 trillion in benefits estimated from annual disclosures to CDP. $970 billion at risk - more than half of it anticipated within 5 years.
  23. 23. “Sharp rise in number of investors dumping fossil fuel stocks” 7th Jan 2016 6th Sep 2019 1,100 institutions managing $11 trillion in assets have now committed at some level. In 2014 it was 180 institutions managing $52 billion. S&P 500 sector returns last 10 years % “Paris climate accord has been a massive boon to the global divestment campaign” ….but performance has been a factor too
  24. 24. An equity research house removes all “buy” ratings from the biggest integrated oil companies 7th Jan 2016 6th Sep 2019 “Sector underestimates regulations aimed at curbing climate change.” Oil demand peak within 5 years means sector faces “an existential risk.” Redburn hits ExxonMobil hit with a rare “double downgrade”, bumping the world’s biggest oil company from “buy” to “sell” in one move
  25. 25. Top Wall Street analyst says oil and gas are “in the death knell phase” 7th Jan 2016 31st Jan 2020 “The world has changed ….new kinds of managers who want to appease young people …..its going to be a parade” ….They are tobacco” “Exxon could produce an upside surprise and I don’t think it would matter … Chevron just bought back $5bn of stock, and no-one cares” ”This is the reverse side of Tesla”
  26. 26. New Mercer analysis shows where investor returns are to be found in a 2˚C world 7th Jan 2016 22nd Apr 2019 “Investors need to consider both climate-related mitigation and adaptation in an active way to develop climate resilience in portfolios.” Percentage point changes in annual returns in a 2C scenario by 2030 Source: FT Absolute loss of value by 2041 Cumulative 95% loss of value by 2050 Coal Oil and gas Electric utilities Infrastructure Sustainable equities Renewables 6.3%
  27. 27. 7th Jan 2016 5th Apr 2019 “Even a fund built on oil is seeing that the future is green”: Jan Erik Saugestad, CEO of Storebrand Asset Management. Norway unlocks investments by state pension fund in unlisted renewables Siv Jensen Finance Minister
  28. 28. Having invested €2.4bn in oil, gas and coal 2018, the European Investment Bank now says it will align its strategy with climate targets. EIB vows to cut all funding for fossil fuel projects by end 2020 7th Jan 2016 26th Jul 2019
  29. 29. Laurence Fink, CEO managing c. $7 trillion funds: we are “on the edge of a fundamental reshaping of finance” because of a warming planet. “World's Largest Asset Manager BlackRock Shifts Focus to Climate Change” 7th Jan 2016 14th Jan 2020
  30. 30. 4. The flip side of the investability coin is the increasingly parlous financial state of the fossil-fuel incumbency. The oil and gas industry needs to be very careful how it positions going forward. It faces dire financial risk, but also legal risk, including potentially via retrospective liability.
  31. 31. Firms ignoring climate crisis will go bankrupt, says BoE Governor 7th Jan 2016 13th Oct 2019 Also: he believes it possible that the global transition could result in an abrupt financial collapse, and the longer action to reverse emissions is delayed, the more the risk of collapse will grow.
  32. 32. First mention of oil-and-gas shorting opportunities that that I have seen in the FT 7th Jan 2016 3rd Jul 2019
  33. 33. 7th Jan 2016 20th Jan 2020 The IEA exposes the full extent of oil industry foot- dragging on the energy transition at Davos “For the moment, there are few signs of a major change in company investment spending … …doing nothing is not an option” 2.5% 2.0% 1.0% 1.5% 0.5% 0% 0.7% The year of the Paris Agreement 2.5 2.0 $ billion capital expenditure 1.5 1.0 0.5 0 % of total capital expenditure Solar PV Onshore wind CCUS Biofuels Offshore wind 2015
  34. 34. Oil and gas majors have bet $50bn since 2017 assuming governments fail on Paris climate goals 7th Jan 2016 6th Sep 2019 Carbon Tracker analyses recently approved projects and finds them “deep out of the money in a low-carbon world”. Plus many to come.
  35. 35. Governments and firms in 28 countries sued over climate crisis in 1,300 legal actions since 1990 7th Jan 2016 4th Jul 2019 In the USA, no action by Trump to undo environmental regulations in his 2.5 years has yet survived a legal challenge, in 154 cases. Source: Grantham Institute, LSE
  36. 36. 5. On evidence since 2016, we may not be able to rely on governments to deliver much hope in hell. Given the importance of COP26 in November, let us take the UK as an example. But civil society and the business world have not given up, and can yet turn the tide.
  37. 37. 7th Jan 2016 Xth Feb 2020 Johnson “doesn’t get it” on climate, says sacked COP26 chair Clare Perry O’Neill “We are miles off track globally where we are meant to be” in preparing for COP 26 ….a “huge lack of leadership and engagement.”
  38. 38. So a new report by Prospect finds. Akin to the devastation caused to coalmining communities in the 1980s, the union says. UK renewables jobs plunge by a third 2014-17 and investment in renewables halves 2015-17 7th Jan 2016 30th Apr 2019
  39. 39. UK must act on emissions if it is not to be embarrassed - legally - before COP26 in 18 months 7th Jan 2016 10th Jul 2019 So concludes the Climate Change Committee. Just 7 of 24 on-the-ground indicators are on track. Almost all progress is in the electricity sector. 4th and 5th budget periods Lord Deben, Chair: “I feel I might be first witness for the prosecution” Government projections show UK currently on course to miss 4th and 5th carbon budgets
  40. 40. UK energy-saving efforts collapse by almost 85% after government cuts to programmes 7th Jan 2016 18th Jul 2019 Monthly energy efficiency upgrades fall to 10,000 on average for the six months to the end of May, vs 65,000 a month in 2014. Data from a National Energy Action report
  41. 41. 7th Jan 2016 24th Jun 2019 2018 was ‘toughest year yet’ for UK community solar as installations plummet 78% to just 7.9 MW Ore Community College: 250 kW, 100 investors, 50 local …including me. Generating 76% of its own electricity demand on 27th July.
  42. 42. 7th Jan 2016 12th Apr 2019 Thousands of school students take to the streets protesting climate inaction in 50 UK cities & towns Protestors in London demand a Green New Deal. This, the third protest wave in as many months, is mirrored from Helsinki to Dehli.
  43. 43. 7th Jan 2016 8th Apr 2019 “I just got fed up with the environmental movement selling so much false hope when we’re still trashing the planet”: Farhana Yamin. Extinction Rebellion has enjoyed viral success since its launch in October last year
  44. 44. 7th Jan 2016 19th Jun 2019 Two thirds of British want faster climate action than zero net emissions by 2050: new poll Increasingly it looks as though Extinction Rebellion and the schoolchildrens’ strikes are achieving a step change in public opinion.
  45. 45. Climate crisis seen as “most important issue” by public, poll shows 7th Jan 2016 19th Sep 2019 Climate breakdown viewed as most important, ahead of migration, terrorism and the global economy, in 7 out of 8 countries surveyed.
  46. 46. “Donations pour in as Extinction Rebellion goes global” 7th Jan 2016 11th Oct 2019
  47. 47. 7th Jan 2016 2nd Dec 2019 RE100 now numbers 200+ companies targeting 100% renewable electricity, by 2028 on average 30 RE100 member companies have already reached 100% renewable electricity and one in three members are now at over 75%.
  48. 48. 6. Zero carbon and 100% renewables are eminently feasible. Nobody should doubt this any more.
  49. 49. 7th Jan 2016 1st Apr 2019 By then the innovative systems, products and services will by in place “to ensure that the network is ready to handle 100% zero carbon”. National Grid set for zero carbon power system operation by 2025
  50. 50. 7th Jan 2016 1st Apr 2019 • Leveraging diverse generation sources across interconnected regional and national grids • improving renewables’ forecasting and predictability • integrating dispatchable renewables • adding distributed storage, and • leveraging demand response Amory Lovins, RMI High percentages of renewables on grids prove easily viable, if operators combine 5 techniques
  51. 51. 7th Jan 2016 29th Nov 2019 Zero Carbon Britain study by the Centre for Alternative Technology updated ZCB in summary • 91% emissions reductions, almost half a billion tonnes of CO2 equivalent. • 62% increase in annual emissions capture in land use: 47.8 MtCO2 per year, up from 29.4 MtCO2 captured in 2017 Note that this capture is in fast declining sinks and still only brings the UK up to 24% of land cover forested, compared to the current EU average of 37%.
  52. 52. 7th Jan 2016 29th Nov 2019 Zero Carbon Britain study by the Centre for Alternative Technology updated
  53. 53. In a historic report, BNP Paribas introduces the new concept of Energy Return on Capital Invested 7th Jan 2016 4th Aug 2019 “We think the economics of renewables are impossible for oil to compete with when looked at over the cycle. We calculate that to get the same amount of mobility from gasoline as from new renewables in tandem with EVs over the next 25 years would cost 6.2 to 7 times more.” “The economics of oil for gasoline and diesel vehicles versus wind- and solar- powered EVs are now in relentless and irreversible decline, with far-reaching implications for both policymakers and the oil majors.”
  54. 54. Delivered energy at the wheels of an ICE vehicle is a tiny fraction of gross energy in crude oil purchased 7th Jan 2016 5th Aug 2019 So BNP Paribas Head of Sustainability Research Mark Lewis calculates, using conservative assumptions for this & comparison with renewables. TWh Derivation of net EROCI for every $100 bn spent on gasoline at $60 barrel (average oil price in 2018 was $68) (1 mboe = 1.7 TWh) 20% average efficiency of ICE assumed: generous
  55. 55. Much less energy is lost well-to-wheels using electricity from solar and wind, meaning that…. 7th Jan 2016 ….at $60 per barrel oil price, solar delivers 6.2 times more energy than oil, wind 6.2-7 times. They deliver 3 to 4 times more energy than diesel. Derivation of net EROCI for every $100 bn spent on new solar projects This is without factoring in the very positive economics of renewables’ ecological, social, and security advantages over oil
  56. 56. How cheap would oil have to be to achieve the same energy return on capital as solar and wind? 7th Jan 2016 As the report puts it, “the numbers are stark.” And the solar net EROCI assumes a solar new-build cost of $65 MWh: beyond conservative. Net EROCI from new renewables in tandem with EVs versus oil used for gasoline in light delivery vehicles for a $100 bn outlay …The answer is less than $10 a barrel
  57. 57. “Both the majors and the national oil companies are effectively in a race against time” 7th Jan 2016 “The simple truth is that the oil industry has never before faced the kind of threat that renewable electricity and EVs pose to its business model. For the first time there is a competing energy source with a short-run marginal cost of zero, that is much cleaner environmentally and will be able to replace up to 40 per cent of global oil demand once it has the necessary scale.” Mark Lewis
  58. 58. A personal view from within the solar industry ”That our technologies provide such irresistible routes to capital efficiency should now galvanize governments, corporations, and investors to accelerate the solar industry from today’s 100 GW a year to the terawatt a year we will quickly need to get to if we are to play the role we need to in civilisation’s fight for survival. We know we can do this. We are not scared of scale.”
  59. 59. 7. There is still woefully little solar in Africa, and we are falling far behind the pace on SDG7. But the marriage of solar and storage, here as elsewhere, is enormous.
  60. 60. 7th Jan 2016 22nd May 2019 The world is far short of the SDG7 target trajectory, IEA / IRENA / UN / World Bank / WHO report Annual investment 2018 to 2030 will need to double, reaching $55bn for energy access, $700 bn for renewables, $600 bn for energy efficiency.
  61. 61. “Tesla Batteries Are Keeping Zimbabwe’s Economy Running” 7th Jan 2016 1st Sep 2019 Amid power outages of as long as 18 hours a day, Econet Wireless Ltd., Zimbabwe’s biggest mobile-phone operator, is turning to batteries.
  62. 62. Two Solarcentury mini-grid projects bring solar electricity to 40,000 in Eritrea 7th Jan 2016 26th Mar 2019 1.25 MWp system in Areza and 1 MWp in Maidma, EU & UNDP funded, Solarcentury managing construction and training locals for operation.
  63. 63. 8. Solarcentury aspires to use its integrated model to make a major impact in multiple markets, and hence globally …and to go add value beyond the solar.
  64. 64. Solarcentury posts c.£14.4m EBITDA FY 2018-19, expects more than double that this year 7th Jan 2016 9th Jul 2019 CEO Frans: “There’s a culture ....we have a purpose that’s ingrained in the DNA ...It’s a great asset to have. It keeps people together.”
  65. 65. 7th Jan 2016 14th Jan 2020 Work begins on Talayuela, an investment of €225 million creating 400 new jobs
  66. 66. 7th Jan 2016 14th Jun 2019 Nearly 100 members of the public invest €250,000 in Solarcentury’s Budel solar farm A showcase in “how developers, provinces, financial institutions and citizens can work together to make a meaningful difference towards the country’s transition to a low carbon economy.”
  67. 67. Solarcentury in school-strike support role …meeting requests for the painting of ER symbols on faces 7th Jan 2016 20th Sep 2019
  68. 68. Thank you