One hundred years of deals have made borrowing costs “much, much lower” and amount of money “still much much higher” for fossil fuel projects than those for renewable power plants but other “forcing functions” will shape a new financing playbook for lucrative clean energy transactions, according to climate tech venture capitalist Tom Steyer.
Renewable electricity accounted for 86 percent of new generation capacity added globally in 2023 but fossil fuel plants are still winning investors comfortable with the reliable returns they have come to expect from thousands of “plug and play” comparison transactions.
“Let me say that I think that is insane because looking back over the last 100 years of energy and projecting that for the next 100 years … the implication is that the forcing function is economic,” said Steyer, co-executive chair of Galvanize Climate Solutions, during mainstage remarks at the GreenFin 24 conference in New York. GreenFin is produced by the same company that publishes this website.
“I would argue, ‘No, that’s not true,’ because the forcing function is going to be what happens to the rest of the world. The forcing function is human life, human health and also, if I may say so, the dramatic hit to human economic welfare that we’re going to see from destroying the natural world.”
The long-term consequences are financial, too
Steyer referred to how consumers battered by floods, sweltering heat and wildfires, or unable to get a home mortgage because of climate risk will view the continued support of coal or natural gas plants. That could shorten the life of these assets, and investors focused just on economics could find themselves accountable more quickly than they realize, Steyer said, drawing parallels to the subprime mortgage crisis of 2007 to 2010.
On the flip side, renewable energy offers opportunity for growth in a world where energy demand continues to grow exponentially, Steyer argues in his new book, “Cheaper, Faster, Better: How We’ll Win the Climate War.”
The upshot: ‘I’m optimistic and hopeful’
Investors shouldn’t look strictly to the U.S. for the most creative innovations. Instead, populous, fast-growing countries including China, India, Indonesia, the Philippines and Vietnam offer particular cause for optimism.
For example, Vietnam had no renewable energy in 2018 but now uses a higher percentage of it than the U.S., said Steyer. As of July 2023, solar, wind and hydrogen accounted for 13.8 percent, or 22.11 billion kilowatt-hours, of Vietnam’s electricity generation.
On a worldwide basis, more than 30 percent of electricity comes from renewable energy. Three regions reported more than 35 percent renewable electricity: Europe, Latin America and the Caribbean, and Oceana. China led the way in capacity additions.
Still, demand is making it difficult to keep up, according to an annual status report published June 19 by policy group REN21. The intermittency of electricity generated by solar or wind technology also remains a concern.
Meanwhile, fossil fuels are still heavily subsidized, to the tune of $600 billion last year.
“We’re going to win, we are winning … the question is how fast,” Steyer said.