The estimated $18 trillion needed to fund the green energy transition through to 2030 is being slowed by ‘negative investment conditions’, a new study by the Boston Consulting Group (BCG) Center for Energy Impact has found.
Obstacles holding back the green energy transition include inflation, supply chain constraints and pressures, and higher costs of capital, the group said, however the energy sector is responding.
Total energy sector transactions exceeding $320 billion so far in 2023 indicate that the industry is fine-tuning capital frameworks for the energy transition.
BCG’s Center for Energy Impact analysed 260 of the world’s largest energy companies for the report, Bridging the $18 Trillion Gap in Net Zero Capital.
‘A true partnership’
“The green energy transition requires a true partnership between the private sector, policymakers and regulators, and end users,” commented Rebecca Fitz, a BCG Center for Energy Impact partner and associate director, and coauthor of the report.
“This critically important process will happen only if all stakeholders commit to overcoming the growing headwinds and finding strong incentives for green investments.”
A recent report by BCG, The Energy Transition Blueprint, suggested that an investment of $37 trillion will be required by 2030 to finance the transition to green energy.
Out of this total, $19 trillion has already been pledged for the next seven years. Projections indicate that 20% of this funding will originate from government expenditures, while the remaining 80% is anticipated to be sourced from private capital.
Approximately 70% of the capital flows expected through 2030 are forecast to originate in the US (30%), China (19%), and Europe (18%), BCG said.
Areas of shortfall
Nearly 90% of the $18 trillion deficit is attributable to two primary sectors: electricity, which encompasses investments in renewable power, and end-use, covering consumer and industrial spending aimed at reducing energy demand and emissions.
“The energy sector accounts for almost a third of the world’s annual capex, and its capital intensity rate is more than double that of others,” said Maurice Berns, a BCG managing director and senior partner who chairs the Center for Energy Impact and coauthored the report.
“‘The massive challenge we are seeing in green energy investment today is that upfront capex investment is much higher as a share of total energy production cost than in traditional hydrocarbons. The high cost of financing we are seeing now matters more than ever.”
