Better financial solutions to better our world.
When we talk about the transformation to address climate change, the intent is clear, the targets are set and the technology is available. The missing piece in the green energy transition is finance.
Key decarbonisation solutions—including large-scale renewable development, electrification of end-uses, circular in nature, green hydrogen uses in hard-to-abate sectors and energy efficiency improvements—are highly capital intensive and require significant investment. Yet funding levels remain below what’s needed to meet 2050 net-zero goals.
Finance can fuel and power a just energy transition, but the race to achieve net-zero Greenhouse gas emissions by 2050 will require an annual global investment in the energy sector ranging from US$5 trillion to more than US$7 trillion —yet less than US$2 trillion is currently being invested on a yearly basis.
Deloitte’s economic analysis goes beyond finance to provide a holistic overview, employing analysis and modelling to consider the technology landscape, policy environment and a matrixed vision of financing issues, identifying and detailing what is urgently needed to allow capital to flow, how finance can fuel innovation and power a just energy transition.
Failure to close the financing gap could be costly—especially for the Global South
Financing structures can add significant extra cost to green investments based on risks from political, market and transformation barriers for a specific geography and project.
- As capital providers expect more return to compensate for risk, the riskier the project, the higher the cost of capital.
- Financing costs, stemming from the cost of capital, can account for as much as half of all investments required to fuel the transition.
- Developing economies that need to receive a significant portion of investments (70%), often face greater investment risks and projects in these areas tend to be less bankable, i.e., their risk-return profiles do not meet the investors’ criteria to mobilise sufficient capital, driving up the costs.
Unlocking financial flows and lower cost of capital goes beyond investors and financiers
An ecosystem is required to forge the path of a just, cost-efficient and successful transition - local and national governments and regulators can reduce the risks that threaten the bankability of green and sustainable investments, concessional investors can maximise the potential of blended finance to mobilise private capital and societies and investors can deal with huge upfront investments today, reaping the benefits later.
Dr. Johannes Truby
Dr. Pradeep Philip
Prof. Dr. Bernhard Lorentz
