The Role of Private Markets in the Global Energy Transition

Private markets in the global energy transition

The Covid-19 pandemic and its economic impact have accelerated society's focus to confront the threat of climate change in an organized approach we have not seen before. In previous cycles, climate-related initiatives have been secondary considerations as businesses and consumers grappled with short-term financial challenges. This is not the case with the current cycle. Society at large, governments, and businesses are more aware of climate change than ever before and are experiencing the direct consequences with increasing frequency.

If we are to collectively deliver the climate goals of the Paris Agreement, approximately $7 trillion in investments will be required per year between now and 2030. Data from the Organization for Economic Co-operation and Development (OECD) also confirms that currently, energy production, transport, and building and water infrastructure are responsible for more than 60% of global greenhouse gas emissions today.

"By 2050 ... electricity is projected to overtake oil as the world's main way of consuming energy. This is the opportunity"

Governments throughout the world are wrestling with the dilemma between ensuring the continuity of increasing energy demands by people and businesses, while also building toward tomorrow's climate commitments. This equation will require a holistic response, and the role of private capital will become increasingly important in the transition to a net-zero world. As the managing director for BlackRock's Global Renewable Power business, I have seen firsthand how the challenges presented by the pandemic have permanently shifted the forward demand curve for energy and elevated climate change impacts to the top of public and private agendas.

BlackRock: Advancing Sustainability - Global Renewable Power, May 7, 2021

BlackRock: Global Renewable Power Worldwide - 250+ Wind and Solar Investments, 2020.

"Bloomberg New Energy Finance calculates the global investment needed for wind and solar generation capacity to be $9 trillion by 2050, with strong investment potential and long-term resilience with stable growth and income."

The Investment Opportunity

One of the most pertinent themes in this pivotal era for climate change is the drive to expand global electric power infrastructure.

Climate concerns are now combining with rapid technological advancements to transform the energy sector. Despite great headway in wind and solar power production, the power generation sector today is still mainly reliant on fossil fuels. By 2050, wind and solar sources are projected to produce nearly half of the world's electricity -- add in bioenergy, geothermal, and hydro energy, and that bumps it up to two-thirds. In the same timeframe, electricity is projected to overtake oil as the world's main way of consuming energy. This is the opportunity.

By 2050, wind and solar sources are projected to produce nearly half of the world's electricity -- add in bioenergy, geothermal, and hydro energy, and that bumps it up to two-thirds. In the same timeframe, electricity is projected to overtake oil as the world’s main way of consuming energy. This is the opportunity.

As one of the earliest investors in the renewable power sector, BlackRock's Global Renewable Power team has been at the forefront of the energy transition -- we now see the transition fully accelerated by the pandemic. As we continue to support the shift in global power generation, we are also helping our clients access a wide range of opportunities presented by this energy transition. Importantly, we are also supporting the technological development still critical to delivering long-term sustainable impacts, and to expanding electricity production from renewables and the supporting infrastructure.

Bloomberg New Energy Finance (BNEF) calculates the global investment needed for wind and solar generation capacity to be $9 trillion by 2050, with strong investment potential and long-term resilience with stable growth and income. These are investment outcomes that are very difficult to find these days, and even more difficult to access. They are also outcomes critical to the success of global pension funds as they strive to provide good financial futures for their members in retirement.

Bloomberg: Blackrock Expands Investments In Renewables, April 15, 2021.



"Most of the world's future growth in population, economic activity and therefore carbon emissions lies outside the world's wealthiest economies, and this is where renewable energy investments are lagging."

The Global Levelling Challenge

We remain conscious of the risks from climate change being truly global. Renewables markets around the world are moving through the energy transition cycle at very, very different paces. This reflects local trends in demand, supply, public policy, and importantly -- their stage in economic development.

As we consider the impact of climate change on the planet, it is clear that energy policy, generation, and hence investment solutions need to be geographically diverse. They cannot be limited to industrialized regions, and OECD markets. Most of the world's future growth in population, economic activity and therefore carbon emissions lies outside the world's wealthiest economies, and this is where renewable energy investments are lagging.

Developing regions around the globe are facing surging power demands in order to support their population and economic growth. These are also the regions bearing the heaviest burden from climate change -- with rising sea levels, climate variability, and intensifying drought and heat stress.

At BlackRock, we are focused on the renewable energy investments that can bring positive change to all countries. In doing so, we are providing cleaner energy, better job opportunities and sustainable communities, while also addressing the energy transition that has been accelerated by the pandemic.