Global renewable energy investment increased between 2013 and 2018, reaching its peak at US$351 billion in 2017, according to a new report by the International Renewable Energy Agency (IRENA) and Climate Policy Initiative (CPI). The 2020 edition of Global Landscape of Renewable Energy Finance highlights however, that while a cumulative US$1.8 trillion were invested during the five-year period, the amount falls short to achieve the global climate commitments.
Renewable energy investment slightly declined in 2018, with modest growth through 2019. Although this was largely due to the decreasing costs of renewables, the total installed capacity continued to grow.
Global landscape of renewable energy finance in 2017-2018. From Global Landscape of Renewable Energy Finance
The current level of investment is still insufficient, however, to keep the rise in global temperatures within the 1.5 °C objective by mid-century. To achieve this climate goal, investment in diverse renewables technologies must almost triple annually to US$800 billion by 2050.
Ambitious commitments from governments are needed, backed by supporting measures such as moving subsidies away from fossil fuels. Further investments are also needed in system integration and enabling technologies that increase system flexibility such as batteries and energy storage. To that end, policies that enable the integration of new renewables capacity additions into the energy systems are needed, leading to their decarbonization and bringing wide socio-economic benefits.
IRENA’s post-COVID agenda showed that average annual investments of US$2 trillion in renewables and other energy transition-related technologies in the 2021-2023-recovery phase could create 5.5 million additional jobs in the sector. An additional 19 million energy transition-related jobs would be created by 2030, following average annual investments of US$4.5 trillion up to 2030.
The majority of these investments could come from private sources, if government funds are used strategically to nudge investment decisions and financing in the right direction, the report says. Public funds are able to leverage private investments by a factor of 3 to 4 if used strategically to steer investments toward clean energy solutions and away from fossil fuels.
Greater participation of institutional investors—which hold about US$87 trillion in assets—will help to reach the scale of global investment needed. To this end, it is key to promote the use of capital market solutions, such as green bonds, that address the needs of these investors. The potential role of institutional investors for the global energy transition is further explored in IRENA’s report, Mobilising Institutional Capital for Renewable Energy, published this month.
This year’s joint report analyses for the first time financial commitments to off-grid renewables technologies in developing markets, as they can bring the world closer to achieving Sustainable Development Goal 7 on universal access to affordable, reliable, sustainable and modern energy by 2030. Providing cost-effective energy solutions, off-grid renewables are essential in a time when energy access is crucial to power healthcare facilities, save lives and create jobs.
While investments in off-grid renewables solutions kept growing, reaching an all-time-high US$460 million in 2019, additional capital must be unlocked especially for income-generating activities and productive uses to improve the livelihoods and resilience of billions of women and men globally and to promote socio-economic benefits.
Looking ahead, policy makers need to signal long-term political commitment and enhance partnerships with the private sector to boost investors confidence and attract additional private capital in the sector. To that effect, the report laid out five specific recommendations that policy makers should implement to engage private sector actors, including institutional investors, capital market players and non-energy producing companies, in the collective path to green recovery and climate objectives.