The G20 nations are at risk of falling short
of the climate goals they set in Paris in December 2015. The reason: a growing
gap between current investments in renewable energy sources (2015: USD 286
billion worldwide) and future needs. The International Energy Agency (IEA)
projects the need at USD 790 billion a year as early as 2020, and USD 2300
billion per year by 2035.
Analyses by the Allianz Climate & Energy
Monitor place the blame on inadequate or nonexistent climate strategies,
together with their deficient implementation in the energy sector. “If the G20
countries don’t have a sufficiently comprehensive strategy for the energy
transition, they won’t just fall short of their climate goals,” explains
Karsten Löffler, Managing Director at Allianz Climate Solutions. “In the longer
term, they’ll also put their competitiveness at risk because they’ll be so late
in changing direction in the necessary technologies and infrastructures.
Waiting will result in stranded investments and extra costs.”
South Africa’s investment needs
South Africa together with India and
Indonesia, China and Brazil will need to bridge 50% of this investment gap –
having the highest investment needs – owing to their market size and
development needs. This percentage increases when the overall vulnerability of
their power infrastructures to the impact of climate change is taken into
account.
“South Africa along with the mentioned
countries nevertheless has an insufficient investment framework. To attract
substantial private investment, stringent and long-term policy action will be
required. Absolute investment needs are approximately USD 14 billion per year,
up to 2035. The country still has a significant share of its population without
electricity access (15%), creating additional investment needs. Though
stakeholders generally apprehend the importance of decarbonizing the country’s
electricity sector, progress has been slow in the past and fossil fuel lobby groups
dominate the public debate,” says Löffler.
Germany and UK in the lead
So far, Germany and the UK are the only G20
states that have a concrete strategy for an emission-free energy sector,
including converting their power grids. They offer the most attractive
conditions for investors, followed by France and China. But even here, there’s
a threat of a massive shortfall in investment. “It’s surprising that none of
the G20 countries offers sufficient conditions for investors. All of them will
have to up the ante,” says Niklas Höhne, founding
partner of the NewClimate Institute and co-author of the Monitor.
As a leading investor in renewable energy,
Allianz is prepared to support the energy transition with even more investment.
At present, Allianz’s total investment in renewable energy comes to EUR 3
billion. “Demand from private investors is substantially greater than supply,”
says Axel Zehren, CFO at Allianz Investment Management. “To adjust supply to
the actual need for investments, it will be essential to rethink conventional
assumptions. Almost every G20 state still places unnecessary restrictions on
commitments by private investors, or fails to offer adequate legal safeguards,
for example when they change terms retroactively.” According to the OECD,
another impediment for institutional investors is the European Union’s unbundling
regulations, which prohibit investing in energy generators and energy grids
simultaneously. Yet the potential advantages
to countries are not just financial. “As experts in risk management, we are in
a better position to help manage investment plans and project risks,” Zehren
points out.
85 percent from private investors
Energy production and energy consumption are
the biggest sources of emissions. If global warming is to be limited to 1.5
degrees Celsius, these need to become emission-free by 2055; to limit the
increase to 2 degrees, emission-free energy must be achieved by 2080. For that,
it will be essential to change the system in the power sector. In spite of the
high initial investments involved, the transformation can be achieved at
neutral cost, as analyses by the IEA in 2015 and by Allianz in 2014 have shown.
That’s because the cost of coal, oil and natural gas will gradually be
eliminated.
Private investors will have to supply 85
percent of this investment, according to the UN’s Intergovernmental Panel on
Climate Change (IPCC). Insurers are especially desirable here, as
well-capitalized investors with a long-term investment horizon and suitable
expertise in risk management. Viewed from the opposite direction, these
investments are well suited for the insurers’ long-term liabilities to their
life insurance clients.
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