Energy

Financing for renewable energy initiatives

Energy consumption is projected to rise by 35-40% from 2012 to 2035, with 95% of growth in demand expected to come from emerging markets. responsAbility has expanded its activities in the energy sector over the past ten months, financing renewable energy technologies, energy access initiatives, and energy efficiency upgrades. All offer attractive opportunities for investors in a broadly diversified growth sector.

Global energy demand continues to grow. Over the next several decades, population and income growth - and an unprecedented expansion of the global middle class - are expected to create new demands for energy. Energy consumption is projected to rise by 35-40% from 2012 to 2035, with 95% of that growth in demand expected to come from emerging markets. When dozens of countries and billions of people move up the development ladder, as they are doing today, it has a broad impact on wealth creation and progress. It also creates attractive opportunities for investors across an array of sectors - each affected by, though not necessarily directly linked to, growing energy demand.

Energy demand trends vary around the world as countries move along different trajectories in terms of key demand drivers including population, demographics, economic growth, and income levels. As households in Asia come out of poverty and join the middle class, for instance, the share of their budgets devoted to modern conveniences such as refrigerators, fans, washing machines, and air conditioners goes up; many of the goods the rising middle class purchase require energy to use and to manufacture. In sub-Saharan Africa, increases in working-age populations are at the forefront of the energy demand: in order to fully benefit from this demographic shift, African countries require other key ingredients for economic growth - education, healthcare, industry, technology - most, if not all, of which also require energy.

USD 1 trillion of additional capital required
The global energy challenge is to manage and meet demand affordably, sustainably, and securely. Meeting this challenge is far from easy. There are many barriers, including the fact that the annual capital needed to resource this need is expected to rise steeply from roughly USD 2 trillion today. Yet businesses across industries are rising to the challenge. In the financial sector, public and private investors are allocating debt and equity finance to on- and off-grid renewable energy projects. While public funds provide a large and ready source of capital, there is a recognized need for the private sector to help close the finance gap. Private equity provided for the construction and operations of small-scale hydropower plants in remote parts of Kenya, for example, has the potential to leverage the country’s still unexploited 2,970MW of small-hydro power. Loans made to off-grid solar companies may help electrify hundreds of thousands of Indian households that lack access to grid-tied electricity. Off-grid solar lanterns and home systems have the potential to provide energy access to the roughly 1.3 billion people around the world who currently go without.

But energy demand is not just about growth. It is also about using energy more efficiently - in everything from vehicles to appliances to industry; without efficiency gains global energy demand would grow not by 40% but by 140%. Energy efficiency is also an attractive starting point for reducing greenhouse gas emissions, which are expected to be about 6 billion tons higher in 2040 than they were in 2010. Rising greenhouse gas emissions place undue stress on food and water supplies; they also act as a risk multiplier that exacerbates other problems like poverty, illness, and security, against which many emerging market countries are struggling. The future of global energy is therefore also about reducing CO2 emissions. While every country faces a unique set of priorities and resource constraints, almost every nation - regardless of circumstance - seeks solutions that help curb emissions without harming the prospects of greater prosperity for its citizens.

This has always been the case, as has the reality of people needing energy. But today the combination of favorable government policies, technological advancements, and awareness of renewable energy solutions among emerging market consumers make the objectives of energy access and efficiency not only more viable, but also more investible. responsAbility has expanded its activities in the energy sector, financing renewable energy technologies, energy access initiatives, and energy efficiency upgrades. All offer attractive opportunities for investors in a broadly diversified growth sector.