Investment of $35tn needed for 1.5°C and energy transition tech paramount – IRENA

According to IRENA, by 2030, cumulative energy transition investments must amount to $44 trillion; 80% of this needs to be through transition technology, representing $35 trillion and prioritising energy efficiency, electrification, grid expansion and flexibility.

This is the bottom line of the International Renewable Energy Agency’s preview of its World Energy Transitions Outlook 2023, which was presented at the opening of the Berlin Energy Transition Dialogue today.

Although global investment in energy transition technologies reached a new record of $1.3 trillion in 2022, yearly investments must more than quadruple to over $5 trillion to stay on the 1.5°C pathway, states IRENA.

Introduced by IRENA’s director-general Francesco La Camera, the preview calls for a fundamental course correction in the energy transition.

Stated La Camera: “The stakes could not be higher. A profound and systemic transformation of the global energy system must occur in under 30 years, underscoring the need for a new approach to accelerate the energy transition.”

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According to the report’s preview, energy efficiency, electrification, grid expansion and flexibility measures must be prioritised in the coming years.

Specifically, energy efficiency in end-use sectors requires an average annual investment of $1.8 trillion under the 1.5°C Scenario.

Electrification of end-use sectors, hydrogen, direct use of renewables and district heat will require an additional $0.75 trillion annually.

Accelerated end-use sector electrification will need to be combined with a continuous drive to grow renewable power capacity, with an allocation of some $1.3 trillion annually.

The outlook states how such growth will require commensurate electricity network expansion and modernisation, at a cost of $0.5 trillion annually. By comparison, cumulative annual investment in fossil fuel supply and power capacity in the same period would amount to $1 trillion, halving current trends.

The preview states the need to adopt a power system structure that is conducive to high shares of variable renewable energy, which could include dual procurement of energy with long-term procurement through auctions and a short-term flexibility market.

To enhance flexibility, physical infrastructure upgrades, modernisation and expansion will increase resilience and build flexibility for a diversified and interconnected energy system.

Transmission and distribution will also need to accommodate both the highly localised, decentralised nature of many renewable fuels, as well as different trade routes. Planning for interconnectors to enable electricity trade, as well as shipping routes for hydrogen and derivatives, must, according to the Preview, consider different global dynamics and link countries to diversify and reinforce energy systems.

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Short-term measures

The Preview warns that a lack of progress further increases investment needs and calls for a systematic change in the volume and type of investments to prioritise the energy transition.

It also outlines some recommended ways to accelerate the energy transition in a short term-period.

Some notable measures include:

• Undertaking integrated cross-sector infrastructure planning for the energy transition with ambitious targets for expansion, including power grids, Electric Vehicle (EV) charging infrastructure and heat networks, all linked up to optimise variable renewable electricity.
• Providing incentives for infrastructure investments where market barriers exist, such as heat networks and EV chargers.
• Setting obligations or mandatory targets for new buildings, for example, through a mandated number of EV chargers per occupant and connections to heat networks.
• Providing more public finance for the development of the infrastructure required, such as through direct ownership of assets, such as transmission lines.
• Better synchronising power grid expansion and other infrastructure developments with renewable power deployment to avoid bottlenecks.
• Developing energy efficiency programmes and measures, such as standards in transport, industry, and buildings. And on the same note, increasing finance for energy efficiency through efforts to aggregate projects and de-risk investment.
• Promoting readiness for new fuels and electrification.
• Promoting behavioural changes, which can be done by incentivising slower driving using speed limits, mandating room temperature limits (e.g. offices and public buildings), reducing individual car usage by promoting public transport and car-sharing.

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Planning investments

According to the preview, any new investment decisions should be carefully assessed going forward.

It states how energy infrastructure is long-lived, so investment in fixed infrastructure should consider the long term.

Every investment and planning decision around energy infrastructure today should consider the structure and geography of the low-carbon economy of the future.

Electrification of end uses, for example, will reshape demand. Renewable power will require existing infrastructure to be modernised, with grid reinforcement and expansion on both land and sea.

The full report will be released later this year.