This is according to the new report "Financing the Energy Transition: How Governments Can Maximize Corporate Investment" by the international non-profit organization Climate Group.
As part of its RE100 initiative, the Climate Group is working with over 400 companies with a combined electricity demand greater than that of France. These companies have committed to using electricity from 100% renewable energy sources for their global business activities. They are investing billions of dollars to achieve this goal - but political and regulatory hurdles are preventing companies in many markets from investing in electricity from renewable sources. This is having a negative impact on the phase-out of fossil fuels, according to the Climate Group.
The report, which was presented at COP28 on December 4, 2023, highlights legislative gaps that are similarly holding back the economies of eight G20 member states. They exemplify the challenges faced by many countries around the world. The report focuses on Argentina, China, Japan, Indonesia, India, Mexico, South Korea and South Africa and includes recommendations on how barriers can be removed to enable countries to seize the economic opportunities of the energy transition and accelerate the process towards net zero emissions.
Strict distance rules for PV in South Korea
In South Korea, for example, 129 of the country's 226 local governments (that's 57%) have issued regulations that require solar installations to be at least 100 to 1,000 meters away from residential areas and roads - making large parts of the country ineligible for solar installations.
"Renewable energies today have a potential comparable to that of the gold rush in the 19th century. But many companies, states, regions and countries have not yet acted accordingly. The era of cheap fossil fuels is over and governments now need to open up their markets to billions of dollars of business investment in cheap, clean electricity from renewable sources by simple means. It's great that there is a lively discussion in many countries about tripling renewable power generation capacity. But first, hurdles need to be overcome in these countries to actually deliver on this promise," says Sam Kimmins, Director of Energy at the Climate Group.
Market for renewable energy will reach USD 2.15 trillion by 2025
The hurdles identified in the report can be divided into three areas: First and foremost is the extent to which electricity from renewable energy sources is available in a country or region. Secondly, it is crucial whether this electricity is accessible to companies. Thirdly, there is the cost of electricity from renewable energies in some markets. This is because these prices often do not match the much lower cost of renewable electricity in other parts of the world. The challenges posed by a restrictive regulatory environment and market barriers are also examined.
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In the run-up to COP28, calls grew louder for more action to phase out the use of fossil fuels and for the world's largest economies to take a stronger leadership role. There were positive signs earlier this year when the G20 countries committed to tripling global renewable energy capacity by 2030 through existing targets and measures. To achieve this, governments need to remove the most common policy barriers that are driving fossil fuel lock-in and slowing the global transition to net zero emissions.
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"The market for renewable energy will reach USD 2.15 trillion by 2025, and sustainable investments have exceeded USD 35 trillion by 2020. Given these figures, countries have great opportunities in the market if they work with companies to prioritize sustainability and achieve net zero emissions. Continued support for fossil fuels at the expense of renewables or insufficient support for renewables through policy and market structures is a dead end," Kimmins continued.
Policy recommendations
The report contains a number of policy recommendations that countries can implement to realize the enormous economic potential of renewable energy:
· Create a favorable regulatory environment for companies to procure and access renewable energy
· Increase transparency and additionality of renewable energy certificates
· Facilitate complicated PPA (Power Purchase Agreements) procedures, including the elimination of lack of transparency and incentives
· Understanding and adapting to geographical and regional differences in PPA availability and harmonizing PPA rules and contract procedures
· Creating a level playing field to ensure the financial viability of renewable energy
· Creating a level playing field that enables fair competition between renewable and fossil fuel electricity and reflects the economics of renewable electricity generation
· Eliminate fossil fuel subsidies to stop this unfair competitive advantage over renewables and reduce the subsidy burden on taxpayers
· Creating incentives and increasing supply to ensure sufficient availability of renewable energy
· Collaborate with energy suppliers or electricity providers to offer companies multiple options to purchase electricity from renewable energy sources and improve supply
· Clarify permitting and siting issues that unduly restrict the installation of new renewable energy infrastructure
· Promote direct investment in on-site and off-site renewable power generation projects
Negative example Mexico – positive example South Africa
In addition to South Korea, the report provides further examples of how policy decisions directly impact private investment in a country's energy infrastructure. In 2018 - the year President Andrés Manuel López Obrador came to power - Mexico recorded USD 5 billion in foreign direct investment in the energy sector. In 2021, the figure was only 600 million US dollars. This decline is attributed to the fact that investors were deterred by political statements suggesting a preference for fossil fuels.
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On the other hand, South Africa's Renewable Independent Power Producer Program (REIPPP) has triggered more investment in the development of renewable energy: 256 billion South African rand (17.32 billion US dollars) has been committed under the program. However, this development is causing problems for the South African electricity grid - which shows that investment in infrastructure is also needed.
If countries follow the report's recommendations, they could unlock billions of dollars in investment to tackle climate change and meet their net-zero targets, the report says. (hcn)
