BloombergNEF: Big Trends in Energy Transition Investment
Albert Cheung, Deputy CEO, of BloombergNEF joins us as our guest this week. BloombergNEF provides its clients with research on global commodity markets and the technologies driving the transition to a lower-carbon economy.
Here are some of the questions that Jackie and Peter asked Albert: How has the Inflation Reduction Act (IRA) changed your outlook for energy transition investment in the U.S.? How much did investment in energy transition increase in 2022 and what was the total level of investment? What are the hot areas for investment? Is current investing in clean energy deployments enough to be on track for achieving net zero by 2050? BloombergNEF data shows that in Q4 2022, 19% of new vehicle sales globally were electric, is that ahead of your expectations? What are your thoughts on Canadian clean energy investing? Do you anticipate that the current market volatility, including bank failures, high-interest rates, and SPACs could reduce investors’ appetite for investing in clean energy?
Please review our disclaimer at: https://www.arcenergyinstitute.com/disclaimer/
Check us out on social media:
X (Twitter): @arcenergyinst
LinkedIn: @ARC Energy Research Institute
Subscribe to ARC Energy Ideas Podcast
Apple Podcasts
Google Podcasts
Amazon Music
Spotify
Episode 195 transcript
Disclosure:
The information and opinions presented in this ARC Energy Ideas Podcast are provided for informational purposes only and are subject to the disclaimer link in the show notes.
Announcer:
This is the ARC Energy Ideas Podcast with Peter Tertzakian and Jackie Forrest, exploring trends that influence the energy business.
Jackie Forrest:
Welcome to the ARC Energy Ideas Podcast. I’m Jackie Forrest.
Peter Tertzakian:
And I’m Peter Tertzakian. Welcome back. Well, Jackie, we’ve got a new federal budget.
Jackie Forrest:
Yeah, the big news with the 2023 budget last week and lots to digest and lots of implications for the future of investing in clean energy in Canada. It’s a big topic. We’re not going to cover it today, but in our next episode, we will give you the low down on how we think it’s going to affect investment.
Peter Tertzakian:
No spoiler alerts today on that, so stay tuned for our views on the budget. But hey, other things are going on too, like a couple of weeks back we had the Young Women in Energy.
Jackie Forrest:
The event, yeah. Each year the Young Women in Energy gives out awards to exceptional women in energy, and I think it’s a great initiative. I give great recognition to Katie Smith-Parent, who leads this and she has for seven years. It’s really to foster a community for Young Women in Energy and hope that they stay with us because statistics show that a lot of women leave the industry.
We may have a fair amount of women in the junior parts of their careers. But as they get into more senior roles, fewer and fewer women are in the industry. I think it’s a great initiative. I was a judge this year, so it was a great event.
Peter Tertzakian:
I have been a judge. I think I was a judge in the first year six or seven years ago. It’s an impressive group of women who are the leaders of tomorrow. Big shout out there and they gave us a shout-out too.
Jackie Forrest:
Yes. This year they had a great magazine, which I enjoyed reading. It has stories from the recipients this year, but also articles are written by past alumni, I guess, of people that have won in the past over the last seven years. At the very end of it, they asked the alumni to recommend podcasts, and we were thrilled to find out we were the number one recommended podcast. Thank you, Women, in Energy, for that.
Peter Tertzakian:
Thank you.
Jackie Forrest:
All right, well, talking about energy, we want to talk about how much money is being spent on clean energy and what the future is.
Peter Tertzakian:
Right. Today, we have our special guest from Bloomberg New Energy Finance, otherwise known as BNEF, and we’re delighted to have the co-CEO, Albert Cheung, who’s joining us directly from London. Welcome, Albert.
Albert Cheung:
Thanks, Peter. Thanks, Jackie. I appreciate you having me on.
Jackie Forrest:
Good. Well, maybe tell us a bit about the firm. I mean, it seems to be getting bigger every year and getting more quoted and your role. I understand you’re recently into the role of Deputy CEO.
Albert Cheung:
Thank you for letting me talk a bit about BloombergNEF. We were founded as New Energy Finance back in 2005, and we had this hypothesis that low-carbon transition would be the most important theme of our life in terms of investments. It would create enormous opportunities and transform the energy markets. And that good data and analysis would be a key enablers.
That’s what we believed. I like to think here we are, nearly two decades later, I think a lot of that has now, I would say, it’s safely been born out, that thesis. I’ve been there for much of the firm’s life. I joined in 2009. Shortly after that, we were required into Bloomberg and became BNEF, as we now like to call ourselves. A lot has changed for us. We’ve grown a lot. I think we’re around 300 people now globally in roughly 20 locations these days.
It’s great hearing you talk about the Young Women in Energy because we recently achieved a 50% female gender ratio in our team, which we’re very proud of. It took a long time to get there. I think we’re a much more diverse and inclusive team now than we ever were before, although there are still some ways to go on different dimensions and different seniority levels.
We know there’s further to go on that. But look, energy transition is much broader now than it was back then, and that means there are more demands for us and more demands for our time. I wear two hats now.
I’ve been the head of global transition analysis for about five or six years, looking after all of our research on the low carbon transition globally, and then recently took on this newly created role as Deputy CEO really to try and spend more time with our clients, given the great demand for our work. The idea was to have me also help to represent the company alongside Jon Moore, our CEO, among our clients. I’m looking forward to that new challenge. It’s all very fresh.
Peter Tertzakian:
Well, it was only less than a decade ago that if I walked into the office of a financial institution and said, “Hey, let’s talk about energy,” the implication was we’re talking about oil and gas because it was so dominant. And the new energy revolution hadn’t even… I mean, of course, it was talked about, but it wasn’t being measured effectively.
That’s one of the things that Bloomberg New Energy Finance or BNEF started to excel in and now arguably dominates in many ways that measurement. But when you talk about energy transition, speak to us about how you think about it, because we think about it holistically as transition comes from the established incumbents of oil and gas, which are still huge in the world and the new world. Do you take a holistic view?
Albert Cheung:
No, it’s a really good question. I think one place where we differ from maybe some of the other groups out there is that we started from the low carbon transition standpoint and then backed into the markets as they exist today over time because we recognized the connectivity and the importance of living in the world that we live in today and understanding how markets work today.
But where we are now is we do have that group of analysts that focus on the transition sectors and technologies like clean power, solar and wind and electric vehicles, and hydrogen and carbon capture, those technologies that are going to drive the transition.
We also have groups of analysts looking at the commodities markets, both the short-term traded markets today, think of gas and power and oil and carbon and even metals, but those teams also take the long-term view of where’s that all going, what’s the impact of the transition in these markets, and what are the implications for the companies that lead those markets as they navigate that transition.
We have other lenses as well. We have the transitions, the commodities. We have country teams who focus on individual countries that are relevant to the transition and try and bring together the story of how countries are navigating that.
And then finally, we have a group of analysts focused on what we call sustainability, which is how are corporates and financial institutions, A, manage their footprint, B, navigate the opportunities and challenges that come with this low carbon transition. I think we are holistic.
Jackie Forrest:
Well, let’s talk about the future and a little bit about what’s happening with clean energy investment. I think the first question I want to ask you about is the US Inflation Reduction Act. It’s changed the outlook for investing in the United States. Could you give us a sense of how much your outlooks for growth in clean energy have changed after the news came out in the summer that this policy was here, how impactful is it?
Albert Cheung:
Yeah, absolutely. Look, the Inflation Reduction Act is the most exciting development we’ve seen in a long time. I think like you and many others, I think when it finally hit, it was this moment of incredible excitement and energizing for everybody. Since that moment last August, each of our teams has gone back and said, “Okay, what does this mean for our sector? What does this mean for the forecast that we have?”
I can share just a few numbers from those reports. We’ve upped our electric vehicle sales forecast for the US. It now has above 50% EV sales penetration by 2030, where it was previously in the low 40s by then. We’ve upped our solar installations forecast by about 10 gigawatts per year in the second half of the decade, and it hit about 50 gigawatts per year of installations by 2030.
We’ve upped our wind installations in the region of 10 to 15 gigawatts per year as well. All our expectations on other areas like hydrogen and carbon capture are all increasing as well. It’s having a material impact on the outlook. We’re seeing a lot of opportunity, and a lot of investment being announced.
We’re going to issue a new energy outlook scenario in the next couple of months that will provide, here’s our view of the US energy transition, pulling all those different pieces together given the Inflation Reduction Act that would tell the story of how all of them fit together.
Jackie Forrest:
Good. Well, I’m looking forward to seeing that. It’s driving a lot of announcements as well. One question I have is, is that kind of growth going to be achievable because there are going to be limits on how many wind turbines we can build or how many solar panels we can build? Have you considered that when you look at the growth outlooks?
Albert Cheung:
Yeah, for sure. When we do our forecasting, we take into account all of the factors that you can think of. We, of course, think about policy and the IRA was a big part of that, but we also look at things like, how big the interconnection queues are in different markets. How challenging is permitting? What are the trends in supply chains and how are costs evolving?
Well, I should say a lot of those things are bottlenecks or breaks in our forecasts. If you remove those things, we go even faster because the economics of clean energy is getting better and better all the time. Oftentimes when we think about just pure economics, things could go even faster.
But on the ground realities of things is that you have to pull those forecasts back a bit and that’s how we end up with the numbers that we have.
Peter Tertzakian:
You’ve talked about supply chain potential, permitting restrictions, and so on and so forth. But what about capital? You just actually did release the Energy Transition Investment Trends report. Global spending was 1.1 trillion American dollars in 2022, a 31% gain over the previous year.
Do you sense that the capital injection into the space is going to accelerate enough to sustain these sorts of sales projections or I’ll call them adoption rate projections that you’re upping?
Albert Cheung:
Yeah. Well, maybe let me first talk about some of the findings from that report because I think there are a few things in there that caught the imagination. The first thing is that 1.1 trillion US dollars last year, that’s the first time it’s been in the trillions. We know that in the trillions, globally, ideally more than one, ideally three or 4 trillion globally to get on track for net zero.
We can talk more about that. But the other thing that captured the imagination was that as part of that report, we then went back and said, “Okay, well, how much is being invested in fossil fuel energy supply?” We did our top-down estimate of that, and we found that that number is also 1.1 trillion US dollars.
We came out with the conclusion that was that for the first time, money going into energy transition technologies has matched money going into fossil fuel energy supply.
Jackie Forrest:
Albert, I mean, it’s great that we’re in the trillion dollar mark, and that’s a major milestone, as you say, the same amount as what’s going into the oil and gas. However, you also conclude that to get on track for your net zero scenario spending would need to be three times higher for the rest of the decade. By the way, the IPCC report just came out saying you have to even go faster.
It’s got to be net zero in 2040. How practical is it, do you think, that we’re going to be on track for these net zero scenarios when you see the level of spending? It’s not even physically possible, I don’t think, to increase three times because of all the supply chain issues.
Albert Cheung:
When we do our net zero scenarios, we’re really careful to try and make sure that our scenarios are practically plausible and practically feasible. We look at the supply chains we look at the permitting. We look at the land availability and all of those things. In our net zero scenarios, which we published towards the end of last year, we achieved 1.77 degrees of global warming trajectory with net zero globally by 2050 with no overshoot.
This gets a little bit technical, but in some of the other scenarios out there, when they include overshoot, it essentially means that they need to do net carbon removals for much of the rest of the century to get back on track. They overshoot the carbon budget, and then the whole world has to be a net negative to get on track. We don’t do that. We’re trying to produce scenarios that are truly plausible and doable.
Within that, we have this tripling of investment required for the rest of this decade. Is it possible? Is it not possible? When I hear tripling, what I hear is it’s a doubling and then a bit more. If you’ve been in clean energy and EVs and these industries for the last 10 or 15 years, you get quite used to the idea of things doubling and things doubling every few years.
Just to give you an example, the amount of renewable energy in the world has roughly doubled over the last four years. Out of all of the renewable energy added from the year zero to the year, I think it was 2018 when the world hit one terawatt, and then the next terawatt happened in about four years.
When you’ve been in these industries that are used to growing at that rate, when you hear that things need to double and then double again, you get a little bit more relaxed than if you’re in industries that are used to growing at one or 2% per year. Are things possible?
They’re possible, but there’s a lot that needs to be done and we can talk about policy, we can talk about regulation, all those things. But I think physically possible, I think we do address that.
Peter Tertzakian:
Although tripling, it’s probably got to be more than that given the inflationary environment we’re in, and that a dollar today doesn’t go as far as it did yesterday.
Jackie Forrest:
Electrified transport was the biggest grower in 2022. It now makes up 40% of the 1.1 trillion in clean energy investment and it grew over 50% year on year. I think the latest data that you just put out showed that in Q4 2022, 19% of new car sales were electric, which to me seems ahead of what people’s expectations are.
Could you just comment a bit on if that’s the case and why we’re seeing electric cars grow at such a fast pace now?
Albert Cheung:
Yeah, thanks, Jackie. That 19% is pretty incredible to think that one in five cars that are being sold around the world is electric, I think, for most people unthinkable a few years ago. We occasionally go back over our past forecasts and kind of look at, hey, were we right or wrong? One thing that’s for sure is your forecasts are always wrong. You never get it right.
But we’ve been wrong in both directions over the years. We’ve been over-optimistic and we’ve been underestimating progress at different points in time. We don’t get it perfectly right. One thing is I think people view us as being one of the more aggressive forecasters out there in terms of electric vehicles. I think that may be true.
I think part of that is because we’re a global team with a global footprint, it’s allowed us to understand some of the dynamics in different market contexts and how they all can go quite quickly when the environment is conducive in particular markets, places like Norway or China or California. And not everywhere is California, and not everywhere is Norway clearly, but I think those markets give you a bit of a clue as to the signals to look for.
It is things like those crossover points where certain vehicle segments start to become economic. Battery electric vehicles start to become either total cost of ownership economic against internal combustion engines or even upfront cost competitive, which is largely still a couple of years away.
But those conditions have been created artificially in several different markets over time like in Norway with the very generous subsidies that they have there. I think that’s allowed us to take these little Petri dishes in different markets and apply that logic elsewhere. We still get it wrong. China tends to outperform. We tend to be wrong about China on the downside and things move faster there.
They have a very strong policy and very strong ambitions from the auto manufacturers who want to be leaders in these sectors. They want to be global leaders in these sectors. Whereas I think last year we got it wrong slightly on the downside and Europe’s EV growth was a bit slower in 2022 than we thought.
And that was partly to do with supply chain issues that happened during the pandemic. We enjoy trying to do the best job we can at forecasting. It’s not always easy, but we try to get it as right as we can.
Peter Tertzakian:
The adoption rate of electric vehicles is impressive, and there are supply chain distortions and things over the last few years, but there’s no question that it’s gone past an inflection point. Typically, these sorts of sales adoption curves follow an S-curve. There are many examples of S-curves in technology product adoptions where you go from zero to full adoptions or almost full like DVD players to streaming audio video.
There are many examples. Are those tech adoption S-curve types, I’ll call them sales curves, relevant to electric vehicles? Here’s where I’m going with this. I mean, if you ask most people in North America, I can’t speak for China, but they say, “Yes, I bought an electric vehicle. Oh, but by the way, I also have a combustion vehicle in the garage.”
Is the S-curve going to go so that it’s a full substitution, or is full adoption something like, I don’t know, 60% electric vehicles in the fleet, 40% internal combustion engines? I’m going to turn it over to you in a second. Because I mean, the example I like to think about is say stoves and microwave ovens. Most people have both, certainly in the North American context.
Just because I bought a microwave doesn’t mean I got rid of my stove. Just because I bought an electric vehicle doesn’t mean I got rid of my combustion vehicle. How are you thinking about that adoption in terms of the transition?
Albert Cheung:
Yeah, it’s a really good question. I mean, the thing about S-curves is they’re purely empirical. It’s just what you see after the fact. You can then apply some economic rationale back onto it to do with the fact that most consumers copy everybody else they see. Once you have enough EVs on the road, other people buy them because they see that if my friend thinks it’s good enough for him, it’s good enough for my kind of thing.
You can retrospectively apply the logic to it, but it’s not a law of physics. I think if you look at past S-curves and other technologies, it’s not a given that they always go to a hundred. Cars are an example of that. There was an S-curve in automobiles and it’s not 100%. Not every home in North America or Europe has a car.
Same thing with smartphones. You can still buy old-style brick phones. I’m not sure if anyone uses them for other reasons, but they exist.
Peter Tertzakian:
Or turntables.
Albert Cheung:
Yeah, yeah, exactly. I think with EVs, I think you raise a really good point about second-car or two-car homes. I think that’s something to pay attention to, a lot of those homes have been the early adopters, and I think it remains to be seen how many of them finally get rid of the other one. Norway gives us some clues. Norway’s been running at about 90% plug-in vehicles in terms of new sales for the last couple of years.
That’s 90% including plug-in hybrids. I think it’s only about 80% if you take pure electrics. It hasn’t hit 100. You know may ask, okay, will it hit 100 or not? I think there are two key considerations there. I think one is, what do automakers do when you get to that 60, 70, or 80% penetration? Do automakers still want to be in a market that’s shrinking, that’s low volume, or do they just give up on it?
And then like with phones, it gets harder and harder to find the brick phone because nobody’s making them because it’s not an attractive market. That’s one question. I don’t know the answer. I suspect the upper-segment players and lower-segment players may have different answers.
Peter Tertzakian:
But do you think Norway is the right example? Because I mean, given their massive sovereign wealth fund from oil and gas, they subsidize the electric vehicles to such a great extent that it’s compelling. That’s not true of most countries in the world.
Albert Cheung:
Yeah, I think that’s valid. I think the way we like to think about Norway is that it is a postcard from the future. Because at some point, batteries are going to get cheap enough that the economics will look a bit like how they look today in Norway.
That’s not going to be the same, and there are lots of other differences between Norway and every other country in the world, but there’s some relevance to that, that the economic rationale will look a bit like… Norway just got their way quicker by subsidizing very strongly.
Jackie Forrest:
Another thing, Albert, I read from one of your reports, you have a great electric car annual report, but you looked at Africa in some of these countries where the electricity grid needs to be more reliable before electric cars will be adopted.
I mean, you think of the challenges of building infrastructure in North America when we already have a reliable grid, it’s much harder. I think you were quite pessimistic about adoption rates in some of those countries as well.
Albert Cheung:
Yeah, I think that a lot of emerging markets countries face multiple challenges. There’s certainly the grid reliability and infrastructure issue, and that is real. My wife is South African. We’re in Cape Town quite often, and the energy reliability there is very poor as you can imagine. Any conversation around electric vehicles is colored by that observation.
But there are other issues too, just purely a lack of funding available to fund the transition because we’re still not quite at that stage where electric vehicles are cost-competitive. There’s a lack of manufacturing and battery technology knowledge, all of those issues. I think there’s a lot of work to be done there.
I think one of the things that we highlight in our electric vehicle outlook is if you want to achieve a global net zero electric vehicle suite when you start paying attention to some of these emerging market challenges, it’s not just a China, US, and Europe story.
Peter Tertzakian:
Let’s talk about China because a significant portion of that 1.1 trillion is China. China is huge in the clean energy space. By the way, it’s also huge even according to the Bloomberg report and the Bloomberg analyst in terms of the pull on oil these days. Talk about China and what’s going on there.
Albert Cheung:
China’s the world’s largest market for all the different transition technologies, and frankly, it’s half of everything. You pick your sector, it’s probably half of the world’s market. That is exactly what we found in our Energy Transition Investment Report. It is half of the $1.1 trillion globally. It’s about $550 billion of spending.
At the moment, we’ve got a very strong policy around electric vehicles, and very high ambitions around renewable energy. Currently, they’re in the process of building out these megabases, wind and solar farms far away from load centers. Enormous projects connected by HVDC. It is absolutely by far the leader, and it’s also the leader in factory spending.
As part of the work that we do we track the deployment spending, but we also now are tracking the investment into the manufacturing facilities for the technology for the transition. China is not half, but about 90% of the spending on the actual supply chain in factories for the transition.
I think at some point you have to take your hat off and say China’s done an incredible job promoting these industries. It’s been very strategic, it’s been very proactive, and as such has taken this very dominant position as we are today in the energy transition.
Jackie Forrest:
Well, when I looked at that number, $550 billion or something, it got me thinking. We think about China, as you say, it’s something like 90% of the factory of where the clean technology’s being produced. Of course, we think of them as just all exporting products and trying to get rid of the competition outside of China, but they consume a ton internally.
Policies like the IRA are trying to say, “You know what, we don’t want to depend on China anymore. We want to bring those supply chains home.” But when you think about it, China, they have so much of the world’s technology and know-how today. It gets me thinking, is it going to be easy for the ramp-up of these new industries when we barely have anyone outside of China that knows how to do these things?
How long is it going to take? I know you’ve seen some of the announcements where China’s starting to be a bit more concerned about their technology and know-how leaving the country and they’re talking about things around wafers not allowing the production facilities or the machines that would do them to be exported. Do you think that’s going to slow down the ability to build these supply chains in other places?
Albert Cheung:
It’s a really interesting question. I mean, we’re in a moment right now where the momentum around investing in the US and North America and the pre-trade agreement countries with the US, that momentum is growing. We’ve tracked at least $35 billion in announced investments for the EV and battery space in the US, and I think it is going to happen.
I think there is going to be a build-out of local manufacturing and supply chains. The IRA is doing its job in attracting investment. I think we could have a discussion around location versus ownership. Should we be saying actually in North America, the factories can be in free trade agreement countries?
They could potentially be owned by Chinese companies that have the know-how, that bring technological expertise and experience. Could we think about that? Some other Asian countries and companies are pursuing those opportunities.
I think there’s also a big question, which is really around trade-offs because I do think the US, North America can be successful in stimulating investment, but the trade-off is you’re capturing the value there, you’re capturing the economic benefits and the jobs. And from a political economy perspective, that makes a lot of sense, but you are creating inefficiencies.
You are raising trade barriers and subsidizing, which your economics textbook tells you creates inefficiency, and raises costs. You may end up inadvertently raising the costs of the transition, increasing the taxpayer burden of the transition by trying to promote that local investment. Now, it’s a trade-off that every country needs to make. It’s not necessarily the right answer, but I think we should be aware that that is a trade-off.
Peter Tertzakian:
Well, let’s talk about the energy landscape. You spoke about investment and we want to talk about where the money is going and where the money is sourced, the impact of the Silicon Valley Bank failures backs, and so on. But before we get to that, I want to talk about what’s hot.
Where’s the money going? I mean, the energy landscape is so big, all the way from biofuels to hydrogen to batteries to solar panels to geothermal to wherever. What’s hot right now?
Albert Cheung:
This is going to be an annoying answer, but everything’s growing right now. Out of all the sectors that we look at, everything’s growing with one exception, which is unclear. Nuclear is broadly flat. It’s not shrinking. It’s not growing, the steady investment into nuclear. But in the fastest growing areas, hydrogen more than tripled last year in terms of commitments from a very small base. It’s a billion out of a trillion.
It’s a thousandth of the total. You can barely see it on the chart, it is growing quickly and it tripled. Carbon capture and storage also tripled last year, or I think was just short of tripling last year. It was about 6 billion in terms of new investments. Carbon capture, those facilities are across a range of different sectors. There’s carbon capture in the power sector, and in the oil and gas sector. [Inaudible 00:26:44] Different flavors of it.
Those are probably the fastest-growing areas, and that’s great to see because those are the areas that we need to mature and scale over this decade. We want them to be successful because they’re going to drive the next phase of decarbonization out into the 2030s.
Jackie Forrest:
I mean, one thing about hydrogen is it was a billion, as you say, and renewables like wind and solar were over 500 billion. But I feel like we talked about hydrogen more than we talked about anything. I think for the amount of investment, it’s certainly getting a lot of hype.
Peter Tertzakian:
It’s not nearly as established as nuclear. Can you just for the nuclear fans on our podcast talk about why nuclear never seems to get any traction, even though it’s an amazing base load high energy density product for joules?
Albert Cheung:
Look, I think nuclear at the right cost, and all of that is part of the solution for the energy transition. It’s a base load, clean power, and practically zero carbon emissions. A couple of issues. One is I think after the Fukushima accident more than a decade ago now, I think several countries decided they didn’t want to go that way anymore for safety reasons. But I think there are also still a lot of question marks around the cost.
Being in the UK, we have this story of Hinkley Point C, where the costs have just continually ballooned higher and higher over time, and at the point where you have to look at nuclear and say, “There is an economic problem here. These are not cost-competitive technologies. They don’t look like being at the moment.” I think that’s the challenge the sector faces. Now, can we tackle some of that with small modular reactors?
That would be brilliant. If we can get those 50-megawatt size plants going so that you can start to drive economies of scale so it becomes more of a manufacturing technology rather than an engineering technology, then hopefully you can start to have more rapid deployments. But I think right now you’ve got to look at it and go, the costs are pretty challenging.
Jackie Forrest:
Well, we’ve covered a lot of ground here. I’m a big believer in small modular, so I do hope that that technology proves to the people that are championing it to be the safer option and the lower cost option. Now, you also track clean energy investment in Canada. Any thoughts on Canada? How much is being spent and what are the areas of spending versus others?
Albert Cheung:
Yes. Canada’s clean energy investment is growing quite rapidly. It was $14 billion, according to our definition and our scope last year, and more than doubled actually over the last couple of years. It’s growing well. I guess just for context, 14 billion, I mean, it doesn’t sound like much compared to China, but it puts Canada just outside the top 10 of our countries ranked in 2022. It’s a significant market and growing well.
Peter Tertzakian:
To be clear, the 14 billion would include the sales of electric vehicles to solar panel installations.
Albert Cheung:
Renewable deployments and EV sales make up a decent chunk of that, but Canada is also a leading market for electrified heat. That’s our residential heat figures, where we include that because it’s demand electrification. And that’s good to see.
And then it doesn’t reflect on the numbers just yet, but looking forward, I think there are really exciting opportunities around hydrogen and carbon capture, again, those smaller markets that are now going to grow. There’s a real core of expertise and competence in Canada around the oil and gas sector that’s going to be leveraged into these new clean energy technologies.
I think with the new tax incentives that are coming in with hydrogen and CCS in Canada, I’m optimistic that we’re going to see a lot of momentum there.
Peter Tertzakian:
There are tax incentives and lots of incentives, but on the other side, there’s a lot of instability in banking, and a general feeling of increasing risk aversion. Of course, there was the Silicon Valley Bank, which was a lender to a lot of upstart tech companies, including a lot of clean energy companies.
How do you see the financial system’s woes at the moment affecting clean energy investment in let’s just say the Western economies going forward?
Albert Cheung:
We’ve been thinking about this for many years because a lot of the clean energy sector grew up in a low-rate environment during the 2010s where money was more or less free. For many years we thought, what on earth’s going to happen to the sector when rates rise and financing becomes more constrained Actually what we’ve observed over the last year or two is that it hasn’t had such a huge impact.
I think there are a couple of reasons for that. I think one is certainly the bulk of the money is still going to renewable energy and the fact that these technologies are cost-competitive in most of the markets when competing at coal and gas. I think it means that there’s more room to absorb the higher cost of capital. That’s not straightforward. I think emerging markets are a different story.
But by and large, you can say that the economics still work and the capital is still there. But I think the other point is that over the last few years, we’ve just seen so much appetite from the buy side, from the investment community to gain exposure to green low carbon investments and assets. You can call it ESG or not, but there’s an appetite out there.
There’s money being allocated to target these sectors. In a way, I think the industry has been somewhat insulated from what’s going on in the wider market.
Jackie Forrest:
I mean, it is interesting when you think about this SPAC era, late 2020 and 2021, how much clean energy equities have come off since then and still grow in the new capital being deployed. In the past clean tech eras, when something like that happened, the money just stayed away for 10 years or more, right?
Peter Tertzakian:
Yeah, I agree. All of this stuff is fairly new, this banking instability, the continually rising rates. To me, it’s to be seen yet what the impact is on the whole investment paradigm into clean energy. It’s been amazing over the last dozen years, but things have been upended on the capital market side. We’ll see what happens.
Jackie Forrest:
Like Albert told us, you got to grow three times the annual rate we’re doing right now to get to the net zero.
Peter Tertzakian:
On a real basis. You got to adjust for inflation too. Well, Albert, thank you for joining us, Deputy CEO, Bloomberg New Energy Finance or BNEF. It’s been great having you provide us with insights on some of the trends that are happening in the world of energy, especially new energy. I don’t know, I learned a lot.
Jackie Forrest:
Yeah, thank you so much, Albert. It was a great conversation.
Albert Cheung:
It’s my pleasure. Thank you so much for having me. I enjoyed our discussion. Thank you.
Jackie Forrest:
And thank you to our listeners. If you enjoyed this podcast, please write us on the app that you listen to and tell someone else about us.
Announcer:
For more ideas and insights, visit arcenergyinstitute.com.
