Investing in the future: Mobilising capital and partnerships for a sustainable energy transition
At a glance
Unleashing trillions of dollars for a resilient energy future is within our grasp — if we can successfully navigate investment risk and project uncertainties.
Unleashing trillions of dollars for a resilient energy future is within our grasp — if we can successfully navigate investment risk and project uncertainties.
The money is there — so where are the projects?
A cleaner and more secure energy future will depend on tapping trillions of dollars of capital. The need to mobilise money and markets to enable the energy transition was one of the key findings of SHOCKED by GHD, one of the largest studies ever conducted among the global energy sector C-suite. This will mean finding ways to reduce the barriers and uncertainties that prevent money from flowing into the projects and technologies that will transform the energy system. It will also mean fostering greater collaboration and alignment among key players in the energy space.
Interestingly, SHOCKED found that insufficient access to finance was not considered the primary cause of the current global energy crisis. In fact, capital was seen to be available – but not being unlocked. Why is that? The answer lies in the differing risk profiles of energy transition investments around the world. These risks manifest in multiple ways, including uncertainties relating to project planning, public education, stakeholder engagement, permitting, approvals, policy at national and local levels, funding and incentives, technology availability and supply chains.
These risks need to be addressed to create more appealing investment opportunities for both public and private sector funders. This will require smart policy and regulatory frameworks that drive returns from long-term investment into energy infrastructure. It will also require investors to recognise that resilient energy infrastructure is more than an ESG play – it is a smart investment in the context of doing business in the 21st century.
Interestingly, SHOCKED found that insufficient access to finance was not considered the primary cause of the current global energy crisis. In fact, capital was seen to be available – but not being unlocked. Why is that? The answer lies in the differing risk profiles of energy transition investments around the world. These risks manifest in multiple ways, including uncertainties relating to project planning, public education, stakeholder engagement, permitting, approvals, policy at national and local levels, funding and incentives, technology availability and supply chains.
These risks need to be addressed to create more appealing investment opportunities for both public and private sector funders. This will require smart policy and regulatory frameworks that drive returns from long-term investment into energy infrastructure. It will also require investors to recognise that resilient energy infrastructure is more than an ESG play – it is a smart investment in the context of doing business in the 21st century.
Make de-risking investment profiles a number one priority
According to SHOCKED, 80 percent of respondents believe the lack of capital being deployed to accelerate the transition is the primary barrier to building the infrastructure required to improve energy security. At the same time, investors are looking for opportunities to invest in infrastructure that meets ESG and sustainability criteria. This suggests an imbalance between the supply and demand of capital for energy transition projects. How can we close the gap?
One way is to link investors directly to energy companies to enable true collaboration and non-traditional partnerships. This change in the way project financing is conceived and structured would aid in potentially satisfying the risk appetite of latent but hugely influential investors, such as pension funds. The current mismatch of investor appetite and investable projects reveals a need for not only improved risk profiles, but a mindset shift as to how we bring investment and developer stakeholders together for mutual benefit. The circular question remains; where one sector is looking for capital to undertake projects within their skill to deploy, while another sector wonders where the investable projects are.
This gap between investment and development is being played out around the world. Often, promising project announcements are made, only to be followed by slow progress or no action at all. This inertia results when risks are compounded and poorly understood. To encourage collaboration between project developers and investors with an ESG focus, more attractive investment opportunities can be created by pulling several levers: public and private investment strategies, green bonds and other sustainable finance instruments, and innovative financing models such as impact investing.
One way is to link investors directly to energy companies to enable true collaboration and non-traditional partnerships. This change in the way project financing is conceived and structured would aid in potentially satisfying the risk appetite of latent but hugely influential investors, such as pension funds. The current mismatch of investor appetite and investable projects reveals a need for not only improved risk profiles, but a mindset shift as to how we bring investment and developer stakeholders together for mutual benefit. The circular question remains; where one sector is looking for capital to undertake projects within their skill to deploy, while another sector wonders where the investable projects are.
This gap between investment and development is being played out around the world. Often, promising project announcements are made, only to be followed by slow progress or no action at all. This inertia results when risks are compounded and poorly understood. To encourage collaboration between project developers and investors with an ESG focus, more attractive investment opportunities can be created by pulling several levers: public and private investment strategies, green bonds and other sustainable finance instruments, and innovative financing models such as impact investing.
Expedite permitting to speed the adoption of new technologies
Another effective strategy to de-risk investment profiles is found in leveraging new technologies and approaches that reduce costs, increase efficiency and enhance the reliability of energy supply. SHOCKED research shows that 62 percent of respondents indicated a moderate or significant increase in investment in new and transitional technologies respectively, highlighting the growing interest in innovative solutions to drive the energy transition forward.
Hydrogen, carbon capture and storage, large-scale energy storage and smart grids are some of the emerging technologies identified by SHOCKED respondents as having the greatest potential to transform the energy system and create new investment opportunities. However, these technologies face challenges such as long lag times between conception and implementation.
If the regulatory environment makes sense, then policy uncertainty is reduced and the all-important permitting pathways are well understood and can be navigated. Currently, the lack of clear, timely and fit-for-purpose permitting is a major roadblock to the energy transition. To truly unleash the potential of transitional technologies, regulatory systems that better respond to the nuance and complexity of such technologies (rather than the current one-size-fits all approach) must be accelerated. In addition, permitting processes must also be expedited to dramatically decrease the period between innovation, commercialisation and implementation. One of the key elements of faster permitting, however, is effective consultation with stakeholders and engagement with communities where these projects will be housed for decades. This is a highly complex area that requires both technical and communication skills and aptitude.
Hydrogen, carbon capture and storage, large-scale energy storage and smart grids are some of the emerging technologies identified by SHOCKED respondents as having the greatest potential to transform the energy system and create new investment opportunities. However, these technologies face challenges such as long lag times between conception and implementation.
If the regulatory environment makes sense, then policy uncertainty is reduced and the all-important permitting pathways are well understood and can be navigated. Currently, the lack of clear, timely and fit-for-purpose permitting is a major roadblock to the energy transition. To truly unleash the potential of transitional technologies, regulatory systems that better respond to the nuance and complexity of such technologies (rather than the current one-size-fits all approach) must be accelerated. In addition, permitting processes must also be expedited to dramatically decrease the period between innovation, commercialisation and implementation. One of the key elements of faster permitting, however, is effective consultation with stakeholders and engagement with communities where these projects will be housed for decades. This is a highly complex area that requires both technical and communication skills and aptitude.
By harmonising international standards and providing clear and consistent signals, governments and policymakers can generate investor confidence and foster a robust energy ecosystem that propels the sector forward.
The power of collaboration, consistency and systems thinking
The SHOCKED report also reveals the need for greater collaboration among companies in the energy space to build a more resilient system. The report shows there is a near-equal split between those increasing (47 percent of respondents) and those decreasing (39 percent of respondents) investment in achieving net zero, which speaks to the complexity and diversity of the system around the world. A more resilient system will require all its components – goals and actions – to be aligned towards a common outcome.
Another way to de-risk the energy transition is to establish consistent, transparent and supportive policy frameworks that encourage investment and drive technological innovation. The energy transition depends on policy to guide its direction and speed by affecting how investors feel and markets behave. However, policy can also be a source of uncertainty and instability if it is inconsistent or inadequate. For example, shifting political priorities, conflicting international standards, and the lack of market-based mechanisms can hinder the deployment of sustainable technologies, resulting in a reluctance to commit resources to long-term projects.
Country-to-country deployment also varies, creating disparities in energy transition progress. For instance, the Inflation Reduction Act of 2022 in the US has posed challenges for the rest of the world by potentially channelling energy transition investment away from other markets and into the US. This highlights the need for a globally unified approach to energy policy that balances various national interests while addressing a global problem.
To facilitate the energy transition, it is imperative to establish stable, cohesive and forward-looking policies that align with global goals and standards. By harmonising international standards and providing clear and consistent signals, governments and policymakers can generate investor confidence and foster a robust energy ecosystem that propels the sector forward.
Furthermore, substantive and far-reaching discussions at international events like the United Nations Conference of the Parties (COP) are essential to facilitate this global alignment. These events provide an opportunity to de-risk the energy transition through consistent policy that enables countries to work together, ensuring that the global community can tackle the challenges and opportunities of the energy transition as a united front.
Another way to de-risk the energy transition is to establish consistent, transparent and supportive policy frameworks that encourage investment and drive technological innovation. The energy transition depends on policy to guide its direction and speed by affecting how investors feel and markets behave. However, policy can also be a source of uncertainty and instability if it is inconsistent or inadequate. For example, shifting political priorities, conflicting international standards, and the lack of market-based mechanisms can hinder the deployment of sustainable technologies, resulting in a reluctance to commit resources to long-term projects.
Country-to-country deployment also varies, creating disparities in energy transition progress. For instance, the Inflation Reduction Act of 2022 in the US has posed challenges for the rest of the world by potentially channelling energy transition investment away from other markets and into the US. This highlights the need for a globally unified approach to energy policy that balances various national interests while addressing a global problem.
To facilitate the energy transition, it is imperative to establish stable, cohesive and forward-looking policies that align with global goals and standards. By harmonising international standards and providing clear and consistent signals, governments and policymakers can generate investor confidence and foster a robust energy ecosystem that propels the sector forward.
Furthermore, substantive and far-reaching discussions at international events like the United Nations Conference of the Parties (COP) are essential to facilitate this global alignment. These events provide an opportunity to de-risk the energy transition through consistent policy that enables countries to work together, ensuring that the global community can tackle the challenges and opportunities of the energy transition as a united front.
Keeping net-zero ambitions on track
Despite the challenges faced by the energy sector, SHOCKED reveals a key positive: 91 percent of energy leaders surveyed are working towards achieving net zero. This demonstrates a strong commitment to the transition and clear recognition of its importance. However, SHOCKED also emphasises the need to accelerate our efforts, streamline processes and reduce barriers to realising net-zero ambitions, underscoring the need to de-risk energy transition investment by removing uncertainties.
We can achieve this by collaborating and harmonising our goals with the main players in the energy sector across the private and public sectors while establishing consistent, transparent and supportive policy frameworks that encourage investment and drive technological innovation.
These tasks, while daunting, are achievable. They require vision, leadership and action from all stakeholders involved. By adopting a new mindset about how we participate in the energy system and what our obligations are, we can stimulate the rapid progress needed on the road to net zero.
We can achieve this by collaborating and harmonising our goals with the main players in the energy sector across the private and public sectors while establishing consistent, transparent and supportive policy frameworks that encourage investment and drive technological innovation.
These tasks, while daunting, are achievable. They require vision, leadership and action from all stakeholders involved. By adopting a new mindset about how we participate in the energy system and what our obligations are, we can stimulate the rapid progress needed on the road to net zero.