4 priorities for a clean energy transition in 2023

Reports indicate that the target of limiting global temperature to 1.5°C is rapidly slipping off the table. We urgently need to step up the clean energy transition now and throughout the remainder of this decade.

At ReNew Power, we have made bold steps to reach Net Zero by 2040 – 10 years ahead of our previous commitment.

However, globally more needs to be done. COP 27 was a step in the right direction, but clearly not enough. Every day, every year from now will be critical for making progress. It will need to pave a route that meets all of our energy policy goals — security, affordability and sustainability. ReNew Power’s contributions and of other progressive businesses like ours will be necessary but not sufficient on their own to achieve the required shift.

Here are four areas where the emphasis needs to be placed in 2023 to make a material impact:

1) Enhancing and re-prioritising the investment capacity of Multilateral Development Banks

Multilateral Development Banks have contributed significantly to kick-starting the energy transition. But the transition will be capital intensive – BNEF estimates that annual investment needs to reach $3 trillion, tripling from around $0.8-1.2 trillion today.

While most of that will come from global private capital and domestic savings, instruments like multi-sovereign guarantees, concessional finance and other de-risking finance must come from the multilaterals. This will need to be applicable across geographies (largely in the Global South) and across the value chain – including the mining of critical minerals, equipment manufacturing, clean energy generation, transportation and adoption.

Reforms in the shareholding of the multilaterals, their risk tolerance, their capital allocation frameworks, their speed of disbursements and greater transparency in data on their investments are absolutely critical to enable the necessary finance mobilisation. These are not entirely within the control of the multilaterals themselves, but it is within the control of the shareholders - the political leadership of major economies, who need to step up.

2) Doubling the number of countries announcing public policies to deliver existing commitments

The US’s Inflation Reduction Act, the EU’s REPowerEU package and China’s 14^th Five Year Plan, have all increased the likelihood that commitments made by major developed countries for 2030 will be met.

We need to see similar public policy actions in developing and middle-income countries - to both improve the attractiveness of investment for clean energy and for these to become export hubs of equipment (e.g. solar modules, electrolysers) and sustainable fuels (e.g. green hydrogen, green methanol). Countries could take inspiration from India and Egypt, where a number of companies, including ReNew Power, have been able to announce significant investments on the back of supportive policies.

3) Agreement on all new fossil fuel infrastructure to be made ‘fit for transition’

New hydrocarbon and fossil fuel infrastructure will continue to come up in the next few years, given energy sufficiency and independence concerns. 457 Giga Watts (GW) of coal power capacity and over 500 new-build trunk/transmission pipeline projects for transporting natural gas, oil, liquid natural gas are planned globally. The lifetime of these new fossil fuel assets is over 40 years – many of them will either become vulnerable to being a stranded asset or will hinder faster uptake of clean energy, given the need to recoup the capital invested in these projects. Perhaps we should be considering an agreement by countries to work together on a framework where all new assets are required to be ‘fit for the transition’ – such as being equipped to be retrofitted for carbon-capture technology or built to accommodate other low-carbon fuels like green hydrogen.

4) A jump-start to implementing corporate de-carbonisation

Mitigation action is, and will continue to, largely devolve to corporates. Utility companies, chemical and cement companies and automotive groups are currently taking the lead. Strong commitments were made last year – but they are not enough, and they are long term – the MSCI-Net Zero Tracker estimates that only sixteen percent of listed companies align with keeping global warming at or below 1.5°C. Most of the world’s major corporations are diversified businesses – they only partially fall in the hard-to-abate category. In many parts of their businesses, there are several shovel ready decarbonisation opportunities – including adopting cleaner electricity, using data and digital technologies to achieve better efficiencies and making forward investments in large scale carbon credits. Business leaders need to step up in driving the implementation of their targets.

While there are still many challenges for us to collectively overcome, the year 2023 is also the one where political opportunities present themselves to turn these ideas into action. India’s Presidency of the G20 and the conclusion of the first global stocktake of the Paris Agreement at COP28 in the UAE are two of those key moments. Let’s ensure they deliver the necessary change.