Public and private capital, not COP promises, is driving climate solutions.
Editor’s note: We delayed publication until the end of COP27.
Ignore the overpromising and under-delivering of the United Nations climate talks last week in Egypt. Ignore the staggering last days of the now-hated buzzword, ESG — financial moves that consider the Environmental, Social, and Governance impacts.
Focus instead on perhaps the biggest two months ever in the history of climate and energy finance. In Australia, two massive transactions will transition 25 percent of the country’s generated power away from coal in the next decade. In the United States, New York’s Con Edison completed a $6.6 billion landmark restructuring of its renewable energy business. In India, hundreds of millions in new renewable energy deals were signed. But the big one occurred in Bali when a coalition of countries led by the United States and Japan agreed to mobilize $20 billion of public and private finance — the largest ever — to accelerate Indonesia’s transition away from coal. By our admittedly informal calculations, we estimate that the total deals announced (ex-China) for the past 30 days was approximately $47 billion if you also calculate the change of ownership of the value of one of Australia’s power plants. It caps a spectacular year for renewable energy projects. More than $226 billion in new investments were made in renewable energy in the first half of 2022, an all-time high, according to Bloomberg NEF.
A mega shift in investor appetite for green energy
The deal flow is staggering compared to the pessimism of recent climate news.
The surge was driven by increased investment in renewable energy projects, new public/private partnership agreements, capital market restructuring, mergers & acquisitions, and private equity funding. Renewable energy growth means the world now has 295 gigawatts of green generating capacity, says the International Energy Agency. The World Economic Forum’s Fostering Effective Energy Transition 2021 report described this as an “unprecedented acceleration.”
More than $226 billion in new investments were made in renewable energy in the first half of 2022, an all-time high, according to Bloomberg NEF.
Our Blair Palese checked in with former Citi energy equity analyst Tim Buckley and one of the world’s foremost energy transition experts to get you up to date on all the news you may have missed. “All the transactions over the past month signal a mega-shift in investor appetite for a dramatically different approach to transitioning away from fossil fuel and are opening a floodgate of investment,” says Buckley.
Here is a quick recap of these transformative deals:
Indonesia: At the G20 Summit of the world’s largest economies, A coalition of countries led by the United States and Japan agreed to mobilize $20 billion of public and private finance to help Indonesia shut coal power plants and bring forward the sector’s peak emissions date by seven years to 2030. The Indonesian deal is based on last year’s $8.5 billion initiative to help South Africa decarbonize its coal power sector more quickly.
Australia: A week earlier in Australia, its number two power producer, and energy retailer, Origin Energy Ltd, agreed to an $11.8 billion buyout from a consortium led by Canada’s Brookfield Asset Management’s Global Transition Fund, which is co-run by former Bank of England governor Mark Carney. Part of the deal is selling off Origin’s natural gas assets to an American private equity firm, “freeing the company up to focus 100% on decarbonization,” says Buckley. “Origin can now wave the green flag and deploy capital at scale.”
A few days later, Mike Cannon-Brookes, Australia’s shaggy-haired software billionaire, won a historic hostile takeover of AGL Power, the nation’s largest greenhouse gas emitter. The shareholder activist bolstered his efforts to accelerate the power giant’s transition to coal-free, clean energy by winning four board seats. Cannon-Brookes’ privately owned Grok Ventures had been fighting a fierce battle with AGL’s entrenched leadership, arguing it was ill-equipped to steer the 185-year-old utility giant away from coal towards lucrative decarbonization opportunities.
The United States: In October German energy giant RWE AG. agreed to pay $6.8 billion for the 3 GW renewable energy portfolio of Consolidated Edison Inc. — 90% of it solar. It is expected to grow to about 7.2 GW in the next decade. Con Edison plans to use the proceeds to invest in electrification, energy efficiency, electric vehicle infrastructure, and battery storage. The company aims to have its grid delivering nothing but clean energy by 2040. It joins other American utilities, including American Electric Power Co., Duke Energy Corp., and Eversource Energy that have announced similar plans in recent months as all seek fresh capital to fund their energy transition plans.
India: This month, the Canada Pension Plan Investment Board increased its stake in India’s largest solar power company, ReNew (see Climate & Capital’s 2020 feature on ReNew) when it bought an additional $400 million in shares from Goldman Sachs. Also, the German bank KFW bankrolled the Bank of India to offer retail customers $150 million in rooftop solar credit. A week before that, KKR announced it had invested $400 million in India’s Serentica Renewables to install 5,000 megawatts of solar and wind power projects across the country. This week Singapore’s Sembcorp Industries spent $345 million on India’s Green Energy Private, which is developing 583 megawatts of renewable assets across India.
Welcome to the new era of private and government partnership
All the deals foretell a global trend as private capital and government policy converge, says Buckley.”There are unlimited amounts of capital looking for renewable investments,” he says. Take India. It has the world’s fourth-largest power market and a friendly pro-renewable (and coal) energy policy. It is a market where hundreds of billions in capital can be deployed because of lucrative incentives like its 25-year power purchase agreements, which de-risk solar and wind investments.
In Australia, the nation’s new pro-climate Labor government set the conditions for the historic breakthrough to green energy, says Buckley. Neither the AGL or the Origin deals would have happened under the previous conservative government of Scotty Morrison. Brookfield and Mark Carney did the Origin deal, he says, because energy policy under Australia’s new pro-climate government gave the “clarity and policy framework global investors need to invest.”
All the political atmospherics that have overshadowed ESG this year can stand in the way of the real, quantifiable elimination of carbon from the atmosphere that this deal-making will lead to.
In New York, the state’s largest energy producer, Con Edison is under intense pressure to achieve mandated goals of a zero-emission electricity sector by 2040 as enshrined into law through the Climate Leadership and Community Protection Act, New York is seeking to achieve 70 percent renewable energy generation by 2030, and to reach economy-wide carbon neutrality.
With all these deals, the devil, of course, is in the details. Anyone who has spent an hour in Indonesia knows how befuddling it can be to do business, much less organize a $20 billion coal drawdown. And, of course, no one will be happy with all the details. Some deals may require natural gas or — gasp — nuclear power, though the vast majority now are expected to focus on solar, wind, and other forms of clean energy.
“It’s renewable financing, stupid.”
All the political atmospherics that have overshadowed ESG this year can stand in the way of the real, quantifiable elimination of carbon from the atmosphere that this deal-making will lead to. The ESG nonsense? The endless Chevron greenwash advertisements? All of Bill Gates’s annoyingly distracting ideas? It’s all noise. To slightly modify American political consultant James Carville’s political mantra, “It’s renewable financing, stupid.”
With the help of increasingly enlightened pro-climate policy, the free hand of the marketplace has caught the bug of carbon-busting, renewable energy projects. And so too have governments. The UN Climate Conference of Parties (COP) can finally be what it was meant to be — a place to convene — a place to talk, not act. The real action — the action that will actually impact future levels of CO2 in the atmosphere will be a new era of unprecedented public and private partnerships. The climate crisis is too big for any other way.
We are off the week of Thanksgiving in America, my favorite holiday to reflect on all our blessings.