The energy transition will hinge on matching capital, projects and timings
The energy transition involves investments approaching USD 80 trillion over the next three decades, according to DNV’s Energy Transition Outlook (ETO) 2023. This sum calls for innovative and collaborative financing approaches beyond anything the finance industry has ever seen.
There is a widespread expectation that the capital is likely to be available, but securing and allocating it is complex. Each dollar will have its own appetite for risk, technology, geographic region, and so on.
The success or failure of the energy transition will hinge on matching money at the right price and time to the right projects in the right places.
The ‘most likely’ energy transition is affordable
Despite the huge price tag, the energy transition is affordable, according to DNV’s ETO model of the ‘most likely’ path and outcome of decarbonization efforts between now and 2050.
The ETO foresees energy expenditure as a percentage of global GDP declining from 3.2% in 2022 to 2.0% by mid-century due principally to greater energy efficiency. This, the ETO concludes, shows ‘a substantial financial upside’ to the transition, paying dividends to society for generations even before factoring in the avoidance of costs from climate change and air pollution.
Energy expenditure as a percentage of global GDP will drop from 3.2% to 2% by 2050
A quicker transition is economically feasible
DNV’s updated Pathway to Net Zero Emissions (PNZ) outlines a feasible transition which would just about keep the world within the 1.5°C Paris Agreement warming limit in 2100 but warns that it would cost 5% more than the ETO estimate. But even this would still be a smaller percentage of global GDP in 2050 than energy expenditure accounts for today.
Capital is not available universally or under equal terms
The availability, cost and terms of capital vary over time, by place, and by asset, and demand for it is growing. Respondents in our Industry Insights research shared their views:
Believe more large, capital-intensive projects will be approved in their parts of the energy industry than in the previous year.
Say their organizations are finding it increasingly difficult to secure reasonably priced finance for their projects
Say they are not finding it difficult to secure reasonably priced finance for their projects