The outcomes of Cop28 were disappointing to some observers but the fact that all parties committed to transitioning away from fossil fuels for the first time was significant. The final Dubai text marked another step toward the wholesale transformation of the world’s energy systems.
It’s near impossible to exaggerate the scale of that transformation and the investment required to bring it about.
Current global spending on clean energy generation (that’s offshore wind, onshore wind and solar) is roughly €410 billion per year. That must leap to almost €1 trillion per year to meet the 2050 net zero targets, which would take renewables from 20 per cent of the overall energy mix to closer to 85 per cent.
This projection, importantly, excludes the fact that electricity’s share in final energy consumption is going to rocket from 20 to 45 per cent as global transport switches from combustion engines to electric vehicles. When that factor, plus the required expansions in batteries and other related tech are included, a total figure of €100 trillion over the 2020 to 2050 period is comfortably reached.
Pension funds, too, are reallocating: the Ontario Teachers’ Pension Plan in Canada, for example; or the UK’s BBC pension, are just two among many large schemes to have made high-profile renewables investments
In Ireland’s case, the climate action plan sets out the ambition to move to 80 per cent of renewable electricity by 2030 with a combination of onshore wind, offshore wind, solar and storage. Achieving this will require an investment of more than €20 billion – just for starters. Huge extra investment will be needed to electrify transport and improve the efficiency of homes and other buildings; the agriculture sector will need to decarbonise; carbon capture processes will have to be developed; and much else.
Public funding won’t get anywhere close to meeting the challenge. The countries most likely to benefit from the emergent new energy economy are those quick off the mark to mobilise capital from the widest possible range of sources.
Elsewhere, we’re already seeing large pools of existing private capital – money tied up in insurance funds, pensions and savings overseen by wealth managers – redirected toward renewables. Giant European insurers such as Allianz and Munich Re in Germany, and France’s Credit Agricole are some of the biggest backers of renewables infrastructure.
Pension funds, too, are reallocating: the Ontario Teachers’ Pension Plan in Canada, for example; or the UK’s BBC pension, are just two among many large schemes to have made high-profile renewables investments in the past decade. Where schemes are smaller, many are innovating: In the UK, six local government pension schemes announced in October that they had pooled £330 million (€383 million) earmarked for renewables infrastructure across southwest England.
Ireland currently lacks the ecosystem required to direct private capital of this sort into transition assets. Achieving it, of course, is complex. It will take a careful blend of policy levers, incentives and regulation to encourage existing capital to flow into transition-oriented opportunities. What Ireland has in its favour, however, is a supportive population. It also has the natural resources – in the form of wind – to benefit in an immediate way through improved energy self-sufficiency.
Ireland has some experience to work on. In 2017, for instance, the Irish Strategic Investment Fund, supported by AIB, provided the seed capital for Greencoat Renewables plc, bringing together public and private capital to back Irish and international renewable infrastructure. Today, it’s the largest operator of onshore renewable energy assets in Ireland.
it’s not only about abstract assets traded in exchanges thousands of miles away – it’s also about tangible, local assets that impact economies in meaningful ways such as job creation or pollution reduction
“Democratisation” is a buzzword in infrastructure investment. In plain language it’s about connecting savers with the things they own. Knowing that some of your pension has been invested in a wind farm that you can see with your own eyes.
In 2024, Ireland is supposed to see the arrival of pensions auto-enrolment (a State scheme that has been long delayed), which could be a major help – even game-changing – in driving long-term capital toward renewables. Auto-enrolment presents an opportunity to change a wider culture of investing: it’s not only about abstract assets traded in exchanges thousands of miles away – it’s also about tangible, local assets that impact economies in meaningful ways such as job creation or pollution reduction.
Experience suggests tangible, local assets are appealing to investors. New schemes such as the EU’s European Long-Term Investment Fund (ELTIF) will drive the trend.
Pension trustees will have the difficult job of selecting assets that are relevant not merely in today’s world but for a future that’s experiencing the tumult of an energy revolution. An employee in their early 20s who begins an auto-enrolment plan in the next year or so may not see the benefits of their capital until the 2060s or beyond. There are long-term investment imperatives, as well as social and environmental ones, to factor into the asset allocation decisions that are taken today.
The environmental consequences of failing to meet emissions targets are well understood. Weather events of 2023 showed what some of the consequences of climate change might be for Ireland.
But the opportunities for the country should not be overlooked. Ireland not only has the chance to develop national energy independence, it can actively participate in a new economy bringing jobs, knowledge transfer and broader wealth creation.
Look at Ireland’s aviation investment industry: it started modestly in the 1980s, and yet is now a world leader. Ireland has a similar opportunity in renewables investment, where again we could become a global force. We should see today as a moment where Ireland faces extraordinary opportunity.
Paul O’Donnell is a partner of Schroders Greencoat and co-manager of Greencoat Renewables plc
