Powering tomorrow: Financing the energy transition Governments, private investors, and lenders all have important roles to play in commercialising emerging energy transition technologies
Rishabh Agarwal, Joe Selby and Conrad Woodring Bechtel
T he pressing need to address climate change is forcing us to rethink how we produce and consume energy. Renewable electricity sources such as solar and wind technologies are leading the way in decarbonising our economy. From 2010 to 2022, global installed solar capacity increased 25-fold (ourworldindata, 2023) while wind capacity grew five-fold (ourworldindata, 2023b), (Lazard, 2021) . This rapid scale-up and commercialisation was made possible largely due to supportive regulatory policies, which allowed this market sector to develop. In turn, this rapid development has led to an enormous improvement in levelised costs, making wind and solar economically viable. Unfortunately, renewable energy has limits and cannot alone fulfil the Paris Agreement’s ambitious net zero by 2050 target. Of the nearly 35 billion tons of CO₂e (total CO₂ and CO₂ equivalents for other greenhouse gases [GHGs]) emitted in 2020 (ourworldindata, 2024a) , only ~45% originated from burning fossil fuels for heat and electricity production (ourworldindata, 2024b) . The remaining emissions arise from activities such as transportation, manufacturing, and agriculture. Eliminating these emissions will require a comprehensive set of emerging technologies, including renewable and low- carbon hydrogen, biogenic fuels, energy storage and carbon capture, collectively called energy transition technologies. However, energy transition projects are largely based on unproven technologies and/ or relatively nascent markets. For example, hydrogen electrolysis has never been deployed on a large scale or run exclusively on renewable
energy. As a result, securing the financial backing to commercialise these technologies and construct commercial-scale facilities is a significant hurdle. Estimates suggest that a massive $75 trillion (ourworldindata, 2024b) of investment, or 50x the UK government’s spend in 2022-23 (IFS Taxlab, 2024) , is required for the global economy to reach net zero emissions by 2050. With such formidable capital requirements, effective policy frameworks and risk mitigation strategies that support and enable large-scale energy transition projects are crucial to de-risk and attract capital to projects. In this article, we delve into the complexities of financing energy transition projects and the roles of different entities, from governments to commercial banks to EPC companies. Financing avenues Commercialising emerging energy transition technologies requires a range of capital sources, each playing a unique role in supporting the energy transition. Early-stage technology development is typically funded through high- risk venture capital investments, internal R&D budgets of private sector companies ranging from Alphabet to Shell, and government grants such as the US SBIR/STTR programme ( SBA, 2024) . Such capital sources are vital for driving innovation and maturing energy transition technologies from the lab to the field. Once these technologies are successfully field-tested, they become ready for scaling up, establishing manufacturing capabilities, and market adoption. Building out the infrastructure requires capital several orders of magnitude greater than for early-stage funding. To
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