Stronger partnerships between public and private actors are an absolute necessity if we are to achieve zero-carbon energy systems. This was the main message from the 200 public and private sector decision makers who convened in Copenhagen for the Clean Energy Investment Forum last month.

”We need more action and more investments. We need to make the clean energy market interesting for private investors. This is a challenge, but also an opportunity. And we can make it happen, if we work together in partnership”.
This was the main message from the Danish minister of Energy, Utilities and Climate, Lars Christian Lilleholt, in his address to the 200 high-level decision makers from government, finance, business and institutions, who convened at one of this year’s most important clean energy events – The Clean Energy Investment Forum (CEIF) – to discuss how to accelerate private investments into clean energy projects. (See textbox below)

Across speakers from the political scene, leading pension funds and international institutions, partnership was named as absolutely key to creating an attractive investment environment and securing the volume of private energy investments needed to reach the Sustainable Development Goal on Energy – SDG7.

Private investments are absolutely key

Today private investments are by far the biggest contributor when it comes to clean energy. See figure 1. However, meeting SDG7 will demand extraordinary investment to not only develop and implement renewable technologies, but also to scale them rapidly enough to achieve significant impact.

Figure 1. In 2016, the private sector led the way in renewable energy investment. Source: Global Landscape of Renewable Energy Finance, 2016, Irena

According to the UN report “Accelerating SDG7 Achievement” (2018) the overall financing requirement to meet SDG7 is estimated at $1,058 to $1,266 billion per year until 2030. Current annual financing levels are approximately $514 billion, creating an annual financing gap in the range of $500 to $700 billion per year.

Consequently, there is currently an urgent need to accelerate private investment in clean energy, from both domestic and international sources. This was also underlined by several private and public sector speakers at the CEIF. They agreed that the public sector can achieve a lot by investing in innovation and securing subsidies, but also that the most successful technologies such as solar power and wind, clearly show that the markets are very much driven forward by private investment.

Potential is great, but…

Clean energy is an attractive market with a strong business case. The report “Better Business, Better World” (2017) estimates an annual market size of up to $1 billion for just three SDG7 sector hotspots: expansion of renewables; energy access; and energy storage solutions.

This potential was also widely recognized and highlighted at CEIF: “We are now sitting with demoting evidence that clean energy and economic growth go hand in hand,” Riccardo Puliti, senior director for Energy and Extractives at the World Bank said.

Despite this, the market is still waiting for more investments. Institutional investors especially, who are sitting on great financial sources, still need to be unlocked. Institutional and private equity investors have contributed less than 1% each to global renewable energy investment in the period from 2013-2016.

But according to Peter Damgaard Jensen, CEO of the Danish pension fund PKA and chair of the IIGCC, the interest from many of the big institutional investors is mounting: “We are seeing clear and rapidly growing interest from private and institutional investors to invest in clean energy, but there are still some preconditions lacking to really accelerate investment.”

Lars Christian Lilleholt. (Photos: Hans Søndergaard)

Ensuring an attractive investment environment

At the CEIF four main action points were identified as drivers in accelerating private investments the coming years:

1. Co-creation and dialogue

Focusing on gathering stakeholders and ensuring a strong dialogue, coordination and co-creation between public and private sectors is vital.

Looking at some of the more successful nations when paving the way for private investments in clean energy technologies such as Denmark (wind) and Germany (solar), they have been, and are still based on this.

2. Predictable policies and clear political goals

Governments need to focus on fostering wide-ranging and long-term oriented energy policies. Especially in developing countries that are often marked by unstable political environments, the risk of policy change is a great barrier to new investments.

The report “Accelerating SDG7 Achievement” also highlights policy de-risking as an important driver for new investments: “Well-designed policy de-risking instruments can provide the long-term stability, visibility and transparency that is critical to attract and sustainably scale up private sector investment,” the report concludes.

3. Large scale projects

Looking at the current investment possibilities, many of the projects are still small scale and not coming from the traditional utilities – and consequently are not financially attractive for the private sector.

Looking at how to secure greater standardization, knowledge-sharing, and marrying technologies and projects are the way forward.

4. Mitigating risks

Balancing risk and value is key in future energy investments. Many of the projects are still high risk in terms of securing return of investment, which is also a factor currently holding back greater private investments. This creates a demand from private investors for projects where public and private actors invest together, reducing the risk factor for both parties.

About the Clean Energy Investment Forum

The Clean Energy Investment Forum (CEIF) serves as a platform to accelerate private investment with the aim of achieving action-oriented results worldwide. On the 22nd of May 2018, CEIF convened around 200 high-level decisions makers from government, finance, business and expert institutions to discuss how to accelerate private investments into clean energy projects.

The Clean Energy Investment Forum (CEIF) was an official side event associated with the ninth annual Clean Energy Ministerial meeting, which gathers the Energy Ministers from the world’s largest economies and leading countries in the clean energy transition, which took place in Copenhagen and Malmø from the 21th to the 25th of May 2018.