Ideas & Debate

Why renewable energy is attracting financiers

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Kenya Generating Company, KENGEN's Ol-Karia IV power plant as seen from a vantage point. PHOTO | AFP

Summary

  • Renewable energies have proven, in terms of market demands, that they can be economic-friendly compared to non-renewables.
  • Even in the mid of a pandemic, investment in renewable energy capacity still grew by two percent to $303.5 billion in 2020, according to research by Ernst and Young.
  • Renewable energy, apart from generating electricity can also be used in other areas such as hospitality and agriculture hence yielding more for the investors.

One of the topical areas that dominated discussions in Glasgow, Scotland, during the 2021 United Nations Climate Change Conference, popularised as COP26, was the pace of progress on financing initiatives required to turn the tide of climate change.

In the face of the growing need for countries worldwide to mobilise the resources required to manage the increasing impacts of climate change on their citizens’ lives, the financial aspect is now more important than ever.

So far, developed countries have already pledged to raise at least $100 billion every year in climate finance to support developing countries. The Organisation for Economic Co-operation and Development (OECD) estimates that $78.9 billion of climate finance was mobilised in 2018.

On the same note, the International Renewable Energy Agency (IRENA) Global Landscape of Renewable Energy Finance 2020 Report indicates that the global investment in renewable energy made significant progress between 2013 and 2018, with a cumulative $1.8 trillion invested.

Indeed, the shift to investments in green energy is already taking root and a question that begs answers is why is this becoming attractive especially to financiers and development partners?

Well, first, renewable energies have proven, in terms of market demands, that they can be economic-friendly compared to non-renewables. Take, for instance, the fossil fuel industry during the Covid-19 pandemic.

The fossil fuel industry recorded its sharpest drop in a quarter of a century. The price of crude oil in the US even turned negative for the first time in history as widespread lockdowns dampened oil demand to an unprecedented low.

Elsewhere, even in the mid of a pandemic, investment in renewable energy capacity still grew by two percent to $303.5 billion in 2020, according to research by Ernst and Young, while renewable capacity installs surged 45 percent compared with 2019, to 265 Gigawatts, signaling the fastest growth rate since 1999.

The prospects look even rosier in 2021, with the International Energy Agency (IEA) projecting renewable electricity generation to expand by more than eight percent to reach 8,300 Terawatt Hours, which would be the fastest year-on-year growth since the 1970s.

This clearly sends information home that even in unstable markets, renewables will perform better and provide value for investors’ money compared to non-renewables.

Secondly, there is no doubt that renewables are creating more opportunities in terms of employment compared to non-renewables. Take for instance the case of KenGen geothermal works in Olkaria whereby the nearby horticulture farms get access to geothermal steam for their operations.

Renewable energy, apart from generating electricity can also be used in other areas such as hospitality and agriculture hence yielding more for the investors.

According to the eighth edition of Renewable Energy and Jobs: Annual Review 2021 by IRENA, renewable energy employment worldwide reached 12 million in 2020, up from 11.5 million in 2019.

The report indicates that solar and wind jobs continued leading global employment growth in renewable energy to four million and 1.25 million jobs respectively.

In light of the above, the investment competitive edge of renewables over non-renewables gives development financiers an upper hand in investment and this is why organisations should go for it.

The third aspect is based on the developing technology which has enabled energy companies to increase capacity at a lesser cost especially on solar and wind.

With the Ministry of Energy in Kenya estimating wind potential to be at 15,000MW while solar being abundant considering Kenya’s position along the equator, the private sector appears to have taken the cue to invest in renewable energy. The renewability aspect of these green sources acts as a strong foundation for investments.

Fourth, the health benefits of green energy sources compared to fossil fuels are giving investors, especially in the private sector, value for their organisations’ existence. According to IRENA, the private sector remains the primary capital provider for renewables, accounting for 86 percent of investments in the industry between 2013 and 2018.

Great strides

This is because, according to the Multiple Benefits of Energy Efficiency and Renewable Energy Research, renewables do not pollute air compared to non-renewables.

With data from the United Nations indicating that the global gas output is projected to increase the most between 2020 and 2040, continuing a trend of long-term global expansion inconsistent with the Paris Agreement, financiers are looking for alternative green sources.

Lastly, renewables are becoming attractive given the green climate fund which holds about 10 billion dollars in commitment. Green bonds are a fixed income instrument whose proceeds are used to finance or refinance projects which generate environmental benefits.

According to the Green Bonds Kenya Annual Report for 2018, the global green bond market has grown significantly, with issuances totaling $155.5 billion in 2017 and an estimated $250 to $300 billion in 2018.

Kenya has made great strides on the front of the green bond. It earned the distinction in early 2020 of being the first country in the East and Central Africa region to successfully issue a green bond that raised Sh4.3 billion towards the construction of an eco-friendly student housing project.

We must work to unleash the trillions in private finance needed to catapult us towards net-zero emission by 2050.

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