Although the outcome of Cop28 was disappointing to some observers, the fact that all parties were committed to transitioning away from fossil fuels for the first time was significant. Dubai’s final document marks another step towards a major transformation of the world’s energy system.
It is almost impossible to overstate the scale of that transformation and the investment required to make it happen.
Currently, global spending on clean energy generation (offshore wind, onshore wind and solar) is around €410 billion per year. Achieving the 2050 net zero target would require a jump of around €1 trillion per year, which would increase renewable energy from 20 per cent of the total energy mix to nearly 85 per cent.
Importantly, this projection excludes the fact that as the world’s transportation systems switch from internal combustion engines to electric vehicles, the share of electricity in final energy consumption will jump from 20 percent to 45 percent. Adding this factor, plus the necessary expansion of batteries and other related technologies, the total figure for the period 2020-2050 can easily reach 100 trillion euros.
Pension funds are also reallocating. For example, the Ontario Teachers’ Pension Plan in Canada.or the UK’s BBC Pensions are just two of many large schemes that have made high-profile investments in renewable energy
In Ireland’s climate plan, the country has a goal of moving to 80% renewable electricity by 2030, using a combination of onshore wind, offshore wind, solar and energy storage. Achieving this will require an investment of over 20 billion euros to start with. Huge additional investments will be required to electrify transport and improve the efficiency of homes and other buildings. The agricultural sector needs to decarbonise. Carbon capture processes need to be developed. There are many others.
No amount of public money can address this challenge. The countries most likely to benefit from the emerging new energy economy are those that can quickly mobilize finance from the widest possible range of sources.
Elsewhere, we are already seeing large amounts of existing private capital (money tied up in insurance funds, pensions and savings overseen by asset managers) being channeled into renewable energy. Large European insurance companies such as Germany’s Allianz and Munich Re and France’s Credit Agricole are some of the biggest supporters of renewable energy infrastructure.
Pension funds are also reallocating. For example, the Ontario Teachers’ Pension Plan in Canada. His BBC Pension is just two of a number of large schemes that have made high-profile investments in renewable energy over the past decade. Where institutions are small, they often innovate. In the UK, six local authority pension schemes announced in October that they had pooled £330m (€383m) into renewable energy infrastructure across south-west England.
Ireland currently lacks the ecosystem needed to channel this type of private capital into transition assets. Of course, achieving that is complicated. Encouraging existing capital to flow into transition-oriented opportunities will require a careful mix of policy instruments, incentives and regulations. But what Ireland has in its favor is a supportive population. We also have the natural resource of wind, which can immediately benefit from increased energy independence.
Ireland has some experience to work with. For example, in 2017, the Irish Strategic Investment Fund, backed by AIB, provided seed capital to Greencoat Renewables plc, bringing together public and private capital to support renewable infrastructure in Ireland and internationally. The company is currently Ireland’s largest operator of onshore renewable energy assets.
It’s not just an abstract asset traded on exchanges thousands of miles away, it’s also a tangible local asset that impacts the economy in meaningful ways, such as creating jobs and reducing pollution.
“Democratization” is a buzzword in infrastructure investment. In layman’s terms, it’s about connecting savers with what they own. Find out that part of your pension is invested in a wind farm that you can see with your own eyes.
Automatic pension enrollment (a long-delayed national scheme) is expected to arrive in Ireland in 2024, which could be of great help in driving long-term capital into renewable energy. , it could even be game-changing. Auto-enrolment offers an opportunity to change the broader investment culture. It’s not just about abstract assets traded on exchanges thousands of miles away, it’s also about tangible local assets that impact the economy in meaningful ways, like creating jobs or reducing pollution.
Experience has shown that local tangible assets are attractive to investors. New institutions such as the EU’s European Long-Term Investment Fund (ELTIF) will drive this trend.
Pension managers will have the difficult task of selecting assets that are relevant not only to today’s world but also to the future, which is experiencing the disruption of an energy revolution. Even if an employee in his early 20s starts an auto-enrolment plan in the next year or so, he may not realize the capital benefits until his 2060s or later. Asset allocation decisions being made today must take into account not only social and environmental issues, but also long-term investment imperatives.
The environmental consequences of failing to meet emissions targets are well understood. The weather events of 2023 showed how climate change will affect Ireland.
But the opportunity for this country must not be overlooked. Ireland has the opportunity not only to develop national energy independence, but also to actively participate in a new economy that will deliver jobs, knowledge transfer and wider wealth creation.
Take a look at Ireland’s aviation investment industry. From humble beginnings in the 1980s, we are now a world leader. Ireland has similar opportunities in investing in renewable energy, where it could once again become a global force. We should see today as a moment in time when Ireland faces an extraordinary opportunity.
Paul O’Donnell is a partner at Schroders Greencoat and co-manager of Greencoat Renewables plc.