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Financing the Green

Energy Transition

A US$50 trillion catch

November 2023

The global community has been on a journey from

skepticism and fear of climate change to now one of

ambition to seize the opportunities for growth and

development. But the transition pathway is neither

costless nor easy. The energy and climate transition

represents one of the biggest modernization projects

of the production system of economies, worldwide,

since the Industrial Revolution; and the perils of

climate change mandate that this takes place in just a

fraction of the time.

This report on Financing the Green Energy Transition,

is the latest in Deloitte’s series of insights from the

macro analysis around the global economic imperative

to get to net zero in The Turning Point, to the criticality

of skills in Work toward net zero: the rise of the Green

Collar workforce in a just transition, and the potential

of new energy in Green hydrogen: energizing the path

to netzero. This report is a practical contribution to

the global eort in recognizing, at its foundation, that

nance is critical to economic growth and a key driver

of this economic modernization eort.

Critical to this report is not some simplistic articulation

of rates of return, but a detailed study in the factors

to help unlock nance in service of building new

markets with new rules, and, consequently, new risks

and strategic outlooks. Importantly, this report places

focus on a less recognized understanding of this

transition—that the optimal path to net zero requires

us to collectively manage the debt and equity aspects

of global investment ows in this transition upfront.

Why? Because the energy transition requires

developing economies as much as, if not more than,

the developed economies, for global growth consistent

with net zero by 2050. And as the nance community

knows well, de-risking projects, or making them

bankable, is key for both developed and developing

economies. The essence of a just transition sits at the

heart of this report.

The report highlights the magnitude of the global

task ahead of us to achieve net zero by 2050—an

investment ask of above US$7 trillion per annum

under current nancing conditions. But enabling

optimal, low-cost nance, by making projects

bankable, could help optimize the global investment

initiative and reduce the investment ask by around

US$2 trillion per annum—a US$50 trillion benet to

the global economy over the period to 2050.

This global transition proceeds having learned the

lesson of the last 80 years—that growth and the

equitable distribution of that growth are critical for a

sustainable future. The geopolitical imperative for this

cannot be ignored or not embedded into our collective

thinking going forward. This is a report to help make

the economic transition real—bankable—in the

service of global economic growth and prosperity.

Each day, the global community, and Deloitte’s clients,

stakeholders, and people confront the risks and

realities of the structural economic change ahead of

us. Our objective is to generate greater conversation

and debate on the best means of achieving our global

imperative of building a net-zero economy by 2050.

Tothis end, Deloitte welcomes you to engage with

us and each other, as we help build an ecosystem for

action, on the least-cost, optimal and equitable path to

reach our common ambitions.

Foreword

Jennifer Steinmann

Global Sustainability &

Climate Practice Leader

Deloitte Global

Financing the Green Energy Transition: A US$50 trillion catch | Foreword

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FinancingtheGreenEnergyTransitionAUS$50trillioncatchNovember2023FinancingtheGreenEnergyTransition:AUS$50trillioncatchForewordForewordTheglobalcommunityhasbeenonajourneyfromThereporthighlightsthemagnitudeoftheglobalskepticismandfearofclimatechangetonowoneoftaskaheadofustoachievenetzeroby2050—anambitiontoseizetheopportunitiesforgrowthandinvestmentaskofaboveUS$7trillionperannumdevelopment.Butthetransitionpathwayisneitherundercurrentfinancingconditions.Butenablingcostlessnoreasy.Theenergyandclimatetransitionoptimal,low-costfinance,bymakingprojectsrepresentsoneofthebiggestmodernizationprojectsbankable,couldhelpoptimizetheglobalinvestmentoftheproductionsystemofeconomies,worldwide,initiativeandreducetheinvestmentaskbyaroundsincetheIndustrialRevolution;andtheperilsofUS$2trillionperannum—aUS$50trillionbenefittoclimatechangemandatethatthistakesplaceinjustatheglobaleconomyovertheperiodto2050.fractionofthetime.ThisglobaltransitionproceedshavinglearnedtheThisreportonFinancingtheGreenEnergyTransition,lessonofthelast80years—thatgrowthandtheisthelatestinDeloitte’sseriesofinsightsfromtheequitabledistributionofthatgrowtharecriticalforamacroanalysisaroundtheglobaleconomicimperativesustainablefuture.ThegeopoliticalimperativeforthistogettonetzeroinTheTurningPoint,tothecriticalitycannotbeignoredornotembeddedintoourcollectiveofskillsinWorktowardnetzero:theriseoftheGreenthinkinggoingforward.ThisisareporttohelpmakeCollarworkforceinajusttransition,andthepotentialtheeconomictransitionreal—bankable—intheofnewenergyinGreenhydrogen:energizingthepathserviceofglobaleconomicgrowthandprosperity.tonetzero.Thisreportisapracticalcontributiontotheglobaleffortinrecognizing,atitsfoundation,thatEachday,theglobalcommunity,andDeloitte’sclients,financeiscriticaltoeconomicgrowthandakeydriverstakeholders,andpeopleconfronttherisksandofthiseconomicmodernizationeffort.realitiesofthestructuraleconomicchangeaheadofus.OurobjectiveistogenerategreaterconversationCriticaltothisreportisnotsomesimplisticarticulationanddebateonthebestmeansofachievingourglobalofratesofreturn,butadetailedstudyinthefactorsimperativeofbuildinganet-zeroeconomyby2050.tohelpunlockfinanceinserviceofbuildingnewTothisend,Deloittewelcomesyoutoengagewithmarketswithnewrules,and,consequently,newrisksusandeachother,aswehelpbuildanecosystemforandstrategicoutlooks.Importantly,thisreportplacesaction,ontheleast-cost,optimalandequitablepathtofocusonalessrecognizedunderstandingofthisreachourcommonambitions.transition—thattheoptimalpathtonetzerorequiresustocollectivelymanagethedebtandequityaspectsJenniferSteinmannofglobalinvestmentflowsinthistransitionupfront.GlobalSustainability&ClimatePracticeLeaderWhy?BecausetheenergytransitionrequiresDeloitteGlobaldevelopingeconomiesasmuchas,ifnotmorethan,thedevelopedeconomies,forglobalgrowthconsistentwithnetzeroby2050.Andasthefinancecommunityknowswell,de-riskingprojects,ormakingthembankable,iskeyforbothdevelopedanddevelopingeconomies.Theessenceofajusttransitionsitsattheheartofthisreport.03FinancingtheGreenEnergyTransition:AUS$50trillioncatchTableofContentsForeword03Glossary05Executivesummary061.Climateneutralityisanunprecedentedfinancialchallenge081.1.Limitingglobalwarmingto1.5°C091.2.Thestruggletofinancetheenergytransition091.3.Objective102.Towardaclimate-neutralworld122.1.Adynamicbutinsufficientpolicyenvironment132.2.Keytechnicalcharacteristicsofanet-zeroworld153.Whatisholdingbacksustainableinvestments?203.1.Politicalbarriers223.2.Marketbarriers223.3.Transformationbarriers234.Fosteringinvestmentsinthegreentransition244.1.Atoolkittofostersustainableinvestments254.2.Focusondevelopingeconomies344.3.Investmentimplications365.Acallforaction38Appendices42Appendix1.Calculationoflevelizedcostofelectricityandhydrogen42Appendix2.Deloitte’sEnergyTransitionInvestmentCalculator43Endnotes45Authors49Globalcontacts50DeloitteCenterforSustainableProgress5104FinancingtheGreenEnergyTransition:AUS$50trillioncatchGlossaryGlossaryTermDefinitionTermDefinitionASEANAssociationofSoutheastAsianNationsIPPIndependentpowerproducerBAUBusiness-as-usualLCOE/HLevelizedcostofelectricity/hydrogenCAPEXCapitalexpenditureLICsLow-incomecountriesCBIClimateBondsInitiativeMDBMultilateraldevelopmentbankCSTClimatestresstestMICsMiddle-incomecountriesCCSCarboncaptureandstorageNDCNationallydeterminedcontributionCCUSCarboncapture,utilizationandstorageNZENet-zeroemissions(C)CfD(Carbon)ContractfordifferenceOrganizationforEconomicCo-operationCO2CarbondioxideOECDandDevelopmentCOPConferencesofthePartiesOperationalexpenditureDBSADevelopmentBankofSouthernAfricaOPEXPowerpurchaseagreementDFIDevelopmentfinanceinstitutionPPAPhotovoltaicDRIDirectreductionofironPVResearchanddevelopmentEAFElectricarcfurnaceR&DRateofreturnECBEuropeanCentralBankRoRUnitedKingdomEIBEuropeanInvestmentBankUKUnitedNationsEmergingmarketsanddevelopingUNUnitedStatesEMDEseconomiesUSEnergyperformancecertificateEPCEnvironmental,socialandgovernanceESGEuropeanUnionEUElectricvehicleEVFeed-inpremiumFiPFeed-intariffFiTGreenbondsprincipleGBPGrossdomesticproductGDPGreenhousegasGHGInternalcombustionengineICEInternationalEnergyAgencyIEAInternationalMonetaryFundIMF05FinancingtheGreenEnergyTransition:AUS$50trillioncatchExecutivesummaryExecutivesummaryReachingnet-zerogreenhousegas(GHG)emissionsgloballyby2050requiresafundamentaltransformationofsocietyfromthecurrentfossilfuel-centricmodeltoahighlyrenewableandelectrifiedenergysystem.Thistransformationentailssignificantinvestments,Developingeconomies,whereaboutthree-quartersontheorderofUS$5trillion/yeartomorethanUS$7ofgreeninvestmentsshouldoccur,oftenfacegreatertrillion/yearthrough2050.However,currently,lessrisksandstricterpublicbudgetconstraintsforthanUS$2trillionareinvestedeachyeartodrivethisenergytransitionprojects.Therefore,greenprojects,transition.Ifinvestmentsdonotscaleuprapidly,theespeciallywhentheyareintheGlobalSouth,areoftenworldwillfailtomeetitsclimateobjectives.notbankable,i.e.,theirrisk-returnprofilesdonotmeettheinvestors’criteriatomobilizesufficientcapital.Adirectresultofpoorinvestmentopportunitiesandrisk-returnprofilesforgreenprojectsisthelackofDeloitte’sFinancingtheGreenEnergyTransitionprojectprivatemoneyfinancingtherequiredtransformation.aimstoraiseawarenessoftheneedforgovernments,Mostoftheidentifiedtechnologicalsolutionsforfinancialinstitutions,lendersandinvestorsandclimateneutrality(renewableenergy,electrification,projectdeveloperstojointlydevelopandagreeongreenhydrogen,etc.)arehighlycapital-intensivemechanismstofosterbankability.Thecurrentpaper,andoftennewandimmaturewithsignificantasthefirstofitsseries,addressesthisbankabilitydevelopmentuncertainties.Ahighlycapital-intensivechallengeandassessesthefinancialinstrumentsenergytransitionmeansthatthecostofcapitalisthatcanfosterinvestmentsinthegreentransition,akeycostdriver.Thisreflectsanimmutablelawofnotablyindevelopingeconomies,focusingonthefinance:theriskiertheprojectthehigherthecostofenergy-industrynexus,responsiblefor80%ofglobalcapital.Infact,financingcosts,stemmingfromthegreenhousegas(GHG)emissions.Inwritingthiscostofcapital,canaccountforasmuchashalfofthereport,Deloittecallsonitsreaderstoengageintheinvestmentexpenditure.conversationonthefutureofgreenfinanceandontheresolutionofkeyinvestmentbarrierstoacceleratetheGreenprojectscurrentlysufferfromunderinvestmentenergytransitiontoday.andhighrequiredreturnratesbecauseprivateinvestorsseegreentechnologiesasriskierthanGovernmentsofcountriesacrossthefullspectrumalternativeinvestments.Akeycontributortothisofeconomicdevelopmentshouldworkwithfinancialriskperceptionisthepoliticalandregulatoryrisksinstitutionstodevelopmechanismsandinstrumentsthatstemfromgovernments’failuretoestablishthatcanreducerisksandunlockprivatefinancethenecessarymechanismsandinstrumentsthatatattractivecosts.Theserisksareassociatedwithcanguaranteeattractivereturnsoninvestment.political,marketandtransformationbarriers.06FinancingtheGreenEnergyTransition:AUS$50trillioncatchExecutivesummaryThekeyactionleverstoovercomethemcanbegroupedincumulatively).About70%ofthoseinvestmentswouldtakethreemaincategories:reducingtherisksofgreenprojects,placeinlow-andmiddle-incomeeconomies.Reducingcapitalbridgingthecostgapbetweenfossil-basedGHG-intensivecostscanbothfacilitateprivatecapitalflowstowardtheproductsandtheirgreencounterpartsandcuttingtheuseoftransitionandreducetheircost.Achievingbankabilitycanfossilfuels.unleashprivatefinanceandbringinvestmentspendingdownbyUS$2trillioneveryyear(US$50trillioncumulatively,about•Clearclimatepolicies,guaranteemechanisms,offtakehalfofglobalyearlyGDPtoday)intheperiodto2050.reliabilityandthedevelopmentofdomesticcapitalmarketscansignificantlyreducetherisksassociatedwiththeseAchievingclimategoalsisaformidablechallenge.Decisiveandprojects.Notably,blendedfinancemechanismscanreducecoordinatedpolicysupport,andcollectiveactionfrominvestorsbothprojectrisksandfacilitatecommercialcapitalflowsandpolicymakersareparamounttoguideinvestmentstowardtogreenprojectsbyvirtueofthemobilizationpowerofgreenandsustainableprojects.concessionalcapital.US$1ofconcessionalpublicfinancecanmobilizemorethanUS$4commercialcapital,morethanhalf•Governmentsshouldreducetherisksthatthreatentheofwhichcancomedirectlyfromprivatecapital.bankabilityofgreeninvestments.Allunderlyingrisks,fromunreliableofftaketounstablemacroeconomics,raise•R&Dandupfrontinvestmentsupportschemes,theadditionfinancingcosts.De-riskingtheinvestmentlandscapecanofoperatingpremiumstogreenassetsandthepenalizationhelpunlockthelow-costcapitalthatwillmakethecostlyofGHG-intensiveassetsaresomeofthekeytoolstobridgeandcapital-intensiveenergytransitionmoreaffordable.thecostgapbetweengreenandGHG-intensiveassets.TheyOverall,governmentswillbepivotalinmakingmoregreenareoftenusedincombinationtofacilitatemarketintegrationprojectsbankable.ofgreenproducts(e.g.,carbontaxandfeed-inpremiums).•Undercurrentfinancingconditions,reachingnetzeroby•Endingfossilsubsidies,compensatingfortheearlyphase-out2050cancostmorethanUS$7trillion/year.ConcessionalofsomeofthefossilassetsandfacilitatingthejobtransitionfinanceviainnovativefinancingstructurescanreducetheofpeopleemployedinGHG-intensiveindustriestocleanonescostofthetransitionbynearly40%fordevelopingcountries,canfacilitatethetransitionbothsociallyandeconomically,loweringglobalinvestmentneedstoUS$5.5trillion/year.preparingthegroundworkforcuttingfossilassets.•SocietiesandinvestorsshoulddealwithsignificantDevelopingcountriesoftenfacehigherpoliticalandregulatory,upfrontinvestmentstodayandreapthebenefitslater.offtaker,marketliquidity,currencyandinflationrisks.TheseThecostofinactionishigherthantheburdenofasmooth,areallfactorsimpactingprojects’financingcosts,makingplannedtransitioninitiatedtoday.Thegreentransitioncancapital-intensiveenergytransitionprojectsdisproportionatelyincreasetheworldeconomybyUS$43trillionbetween2021expensive.Whiledevelopingregionsgenerallyhavebetterand2070.Requiredinvestmentlevelsremainbelow6%renewableendowments,highercostofcapitalentailshigherofglobalGDPannually,whereasacurrentpolicypathwayproductcostsintheseregions.Financingcostsaccountfor(alignedwith+3°Cofglobalwarming)wouldentailalmost8%aboutone-quarterofthelevelizedcostofelectricity(LCOE)ofglobalGDPlossby2070.fromsolarpowerplantsinadvancedeconomies,buttheyaccountforabouthalfofitindevelopingeconomies.Moreover,•Investorsshouldchannelgreenfundstodevelopingthegovernmentsofdevelopingcountriestendtorunontightereconomies.Currently,lessthanhalfofgreeninvestmentsbudgets.Therefore,twokeyeffortschieflyaimedatemergingtakeplaceindevelopingcountries.ExcludingChina,whicheconomieswillbetode-riskprojectstolowerthecostofcapital,accountsforone-thirdofgreeninvestments,thatnumberandtoremovebarriersconstrictingtheflowofprivatecapitalshrinksto16%.Toreachclimategoals,some70%ofgreentowardgreenprojects.investmentswouldneedtohappenintheGlobalSouthby2030.ThiscanonlybepossiblewithinternationalcooperationIntheabsenceofconcessionalfinanceindevelopingandtheactiveparticipationofdevelopmentfinanceeconomies,anet-zeroscenariowouldcostmorethanUS$7institutionsandmultilateraldevelopmentbanks.trillion/yearonaveragethrough2050(almostUS$200trillion07FinancingtheGreenEnergyTransition:AUS$50trillioncatch1.Climateneutralityisanunprecedentedfinancialchallenge1.Climateneutralityisanunprecedentedfinancialchallenge08FinancingtheGreenEnergyTransition:AUS$50trillioncatch1.Climateneutralityisanunprecedentedfinancialchallenge1.1.Limitingglobal1.2.Thestruggletofinancewarmingto1.5°CtheenergytransitionAnthropogenicgreenhousegas(GHG)emissionslikecarbonBoththeInternationalEnergyAgency11andInternationaldioxide(CO2),methaneandnitrousoxide(N2O)haveRenewableEnergyAgency12estimatethataboutUS$4causedmuchoftheobservedglobalwarmingoverthepasttrillion/yearofglobalinvestmentswillbeneededuntil2050150years.1toachievenet-zeroGHGemissionsandlimitglobalwarmingto1.5°C.ThisrequiresashiftfromthehistoricalvalueofClimatechangecausedbytheriseoftemperaturesovertheUS$1.8trillion/yearin2019andcurrentpolicytrajectoryofearth’ssurfaceseriouslythreatenstoendangerbiodiversity,US$3.3trillion/year.12makefreshwaterscarcer,andcausefrequentdevastatingeventssuchasdroughts,floodsandwildfires.2AccordingtoThus,despitestrongeffortsfromeachsideoftheeconomy,thetheIntergovernmentalPanelonClimateChange(IPCC),limitingworldhasbeenstrugglingtokeepupwiththeinvestmentneedsglobalwarmingto1.5°Ccould“reducetheprobabilityofextremeofthetransition.Financingtheenergytransitionhasprovendrought,precipitationdeficits,andrisksassociatedwithwaterparticularlychallengingindevelopingcountries,whichfaceevenavailabilityinsomeregions”.ThisrequiresveryrapidglobalGHGhigherinvestmenthurdlesthanadvancedeconomieswheretheemissionreductionsandreachingclimateneutralitybynolatertransitionisalsoslow.10,13than2050.3Moreover,thedevelopingworldwillbemoreseverelyaffectedEnergyandindustrialactivitiesareresponsibleformorebyclimatechangethanadvancedeconomiesandwillalsobethethan80%ofglobalGHGemissions.4Therefore,theprofoundhomeofmosthumansthroughoutthe21stcentury.14,15Thisiswhytransformationofbothenergysupplyandindustrialprocessesfinancingthetransitionindevelopingregionsisarguablythecruxisanunavoidablesteponthepathtoclimateneutrality.Thekeyoftheglobalracetonetzero.Thesilverliningliesintheimmensedecarbonizationleversoftheseactivitiesconsistoflarge-scalenaturalresourceendowmentofthedevelopingworld,fromrenewabledeployment,5electrificationofend-uses(buildings,preciousrawmineralstomakebatteriestosunbakedplainswhereindustrialprocessesandtransportsector),6directandindirectsolarpanelsthrive.Withitsyoungandincreasinglyeducateduseofgreenhydrogeninhard-to-abatesectors(e.g.,steelmaking,workforce,thedevelopingworldhaswhatittakestoleverageitse-fuelsforaviationandmaritimetransport)7andenergynaturalresourcesforthetransition.Thequestionnowishowtoefficiencyimprovements.6Moreover,carboncapture,utilizationresolvethefundingdeadlock.andstorage(CCUS)willberequiredtodecarbonizeindustrialactivitiesthatusefossilfuelsasfeedstock,andtoproducee-fuelsGovernments,andespeciallydevelopingcountries,cannotsingle-formaritimeandaerialtransport.8Suchatransformationofhandedlyfundtherequiredinvestmentstogettonet-zeroGHGtheenergy-industrynexusfromahighlyfossil-basedsystememissionsby2050.Theprivatesectormustbemobilized.Asmuch(above80%ofprimaryenergyandfeedstocksupply)9toanearlyoftherequiredtransformationconsistsofhighlycapital-intensivefossil-freeworldamountstoatruesocietal,cultural,economictechnologicalchanges,projectdevelopers,especiallyindevelopingandpoliticalrevolutionwhichwillrequireunprecedentedeffortscountries,arelimitedbyfinancialconstraints.Indeed,fundingandinvestments.10maynotalwaysbereadilyavailableforgreentransitionprojects,particularlyinplaceswhereinvestmentsfacehigherrisksorfornewtechnologieswithoutaproventrackrecord.Consequently,unlockingabundantandaffordablefundingforthetransitionwillrequirepolicyandmarketactorstoworktogethertoovercomekeyinvestmentbarriers.09FinancingtheGreenEnergyTransition:AUS$50trillioncatch1.Climateneutralityisanunprecedentedfinancialchallenge1.3.ObjectiveTheFinancingtheGreenEnergyTransition–AUS$50-trillionToanswertothesequestions,Deloitte’sFinancingtheGreenEnergycatchstudyaimstounderstandthekeybottlenecksthatTransitionstudyassesses:hindertheinvestmentsrequiredtoreachnetzero.01.thestateofplayoffinancialfacilitatinginstrumentsandtheirTheprojectconsistsofanidentificationofthekeyfinancialregionalandtechnologicalspecificities,andfacilitatinginstrumentstohelpacceleratethetransition,amappingofthegapsregardingthepracticalimplementationof02.theprojectfinanceenvironmentandsomeofitscomplexitiesthesefacilitatinginstruments,atechnology-andgeography-andsuggestionofapracticalcomprehensivesustainabledifferentiatedassessmentofthesefinancialinstrumentsbasedonfinanceecosystem.modeling,andastakeholderreturnonexperienceanddepictionofafutureprojectfinanceecosysteminserviceofsustainabilityThefirststepisthereforetounderstandthestateofplayandtheandclimatetargets.Moreprecisely,theoverarchinggoalofthisexistingfinancialinstrumentsinserviceofclimate.Giventhattheprojectistofindandlistouttoolsforincreasingthebankabilityenergy-industrynexusisthekeycontributortoglobalwarmingofgreenprojects,especiallyindevelopingcountries,tofacilitate(80%ofglobalanthropogenicGHGemissions),thisreportaimstoprivatecapitalflowstowardtheenergytransitionbyansweringthecreatesuchknowledgeandintroduceregionalandtechnologicalfollowingquestions:considerationstothisanalysisofthestateofplayalongwithmissingpiecesofthegreenenergytransitionfinancepuzzle.•Whataretheexistingfinancialtoolstoincreasethebankabilityofsustainableprojectsandmakethemmoreattractivefromaninvestorperspective,andhoweffectivearethey?•Whatismissingfromtheexistingspectrumofsolutionsandwhyaretheinvestmentsnottakingplaceattherequiredscaleorpace?•Howdoesagreenprojectfinancingenvironmentlookandhowdodifferentactorsinteractinsuchanenvironment?Whatarethepracticalandinstitutionalinefficienciesinfinancingsuchprojectsandhowcantheybeovercome?•Whatarethepotentialnewinnovativefinancialinstrumentstopromoteglobally,andwhataretheregion-specificrequirementsforhelpingtoacceleratethetransitiontowardnet-zero?•Whatcanpublicandinternationalorganizationsdoascatalyzersofprojectfinance?Whatcanpolicymakersdotohelpeasethetransitionandguideprivatefundstowardclimatetargets?10FinancingtheGreenEnergyTransition:AUS$50trillioncatch1.ClimateneutralityisanunprecedentedfinancialchallengeTheoverarchinggoalofthisprojectistofindandlistouttoolsforincreasingthebankabilityofgreenprojects,especiallyindevelopingcountries,tofacilitateprivatecapitalflowstowardtheenergytransition.11FinancingtheGreenEnergyTransition:AUS$50trillioncatch2.Towardaclimate-neutralworld2.Towardaclimate-neutralworld12FinancingtheGreenEnergyTransition:AUS$50trillioncatch2.Towardaclimate-neutralworld2.1.AdynamicbutinsufficientpolicyenvironmentTheyear2015markedaturningpointforglobalclimateconsumption-basedmethodologyisshowingnow,sincemid-policywith195partiessigningtheParisAgreementandthe2000s,itisnotthemaindriverofthisdecouplinganymoreforUNadoptingits17SustainableDevelopmentGoals(SDGs).16mostadvancedeconomiessuchastheUK,EuropeandNorthHowever,thefollow-upontheselandmarkagreementsAmericancountries.26Cleanenergies,notablyrenewableenergies,hasbeendisparatearoundtheglobe,withsomecountrieshavealreadymanagedtochangethestoryastheybecomedoublingongreenenergypoliciesandothersstagnatingincreasinglyattractive.Notonlyaretheycatchingupwithfossilsince.17Themeasureofthisprogressarethenationallyfuelsintermsofcosts,buttheyalsoofferagreaterdegreeofdeterminedcontributions(NDCs),whichParisAgreementstrategicautonomy.Thisisespeciallyrelevantforcountriesthatsignatoriesshouldupdateeveryfiveyears.havehistoricallybeenhithardbyfossilfuelsupplyshocks.AsofOctober2023,177countrieshaveupdatedtheirNDCs.18GlobaltidesshiftinginfavorofclimateneutralitytransitionscanOfthose,107countriesrepresentingover80%ofglobalGHGbemeasuredbytheprogressmadeonnationalnet-zerotargets.emissionshaveoptedformoreambitiousemissionsreductionAsofAugust2023,93economies(92countriesandtheEU)havetargets.Theseincludehistoricalemitters(advancedeconomies)net-zerotargets,including19inpledges,51inpolicydocumentsandpotentialfutureemitters(emergingcountries).Althoughtheand22inlaw(Figure1).Advancedeconomies,LatinAmericaandreportingproceduresoftheParisAgreementaremandatoryAsia-Pacificnationsarelargelyleadingtheracetonet-zerobyforsignatories,theachievementofitsobjectivesisnot.19Hence,2050.Bycontrast,emerginganddevelopingregions,particularlytheParisAgreementiseffectivelynon-binding.ThisiswhyAfrica,China,theMiddleEast,RussiaandSouthAsiashowweakerNDCs,aswellasbindingnet-zeroGHGemissiontargetsarekeypledges,laterdeadlinesormissingtargets.Ifleftunchecked,thetosecuringclimateobjectivesagainstthetidesofgrowthandclimatefootprintoftheseboomingeconomiescouldescalate.crises,particularlywhenfossilfuelsubsidiesbecomepoliticallyIndiaforinstancetargetsnet-zeroemissionsby2070,bywhichattractive.Forinstance,therecentenergypricecrisisforcedpointitcouldhost16%oftheworld’spopulation27andbeclosegovernmentstodeployvastsubsidyplans20toprotectconsumerstoovertakingtheUSeconomy.28Therefore,despiteconsiderablewhoweretrapped21intheirdependencyonincreasinglyexpensivepoliticalprogress,morepledgesmustbemadetohelpsecurethefossilfuels.achievabilityofclimatetargets.Besidestemporarilyboostingfossilfuelsubsidies,theenergypriceRisinggreentechnologiesandbigclimatepromisesprovidethecrisishasalsoinducedaparadigmshift,placingenergysecuritybackdropfortheongoingconstructionofaglobalnetworkofandstrategicdependenciesatthetopofpolicymakers’agenda.22climatepoliciesandtransitions.GovernmentsandcompaniesThis,alongwithasharpriseinfossilfuelprices,hasreducedthearereleasingstrategieswithtargets,pathwaysandinvestmentgapineconomicattractivenessbetweenfossilfuelsandgreenoutlines.Emissionspricingmeasuresarealsograduallybeingtechnologies.Beforetheenergycrisis,economicgrowthwasimplementedgloballytoincentivizetheswitchtocleanenergies.largelyplannedaroundtheexpansionoffossilfuelconsumption.AccordingtotheWorldBank,suchmeasureswouldonlycoverThehistoricalrealityofdevelopedcountrieshavingbuilttheirabout23%ofglobalGHGemissionsin2023butarerampingupeconomiesonthebackoffossilfuelsmadeitparticularlyrapidly.29Indeed,totalrevenuesfromemissionpricingincreasedchallengingtoaskdevelopingcountriesnotto.However,today,sixfoldfrom2016to2022,bothduetohigherCO2pricesandcleanenergiesareenteringthefrayasaviablealternativegrowthtoexpansionintonewjurisdictions.30Cleanenergystrategiesmodel.EvenifGHGemissionsandeconomicdevelopmentwereandsupportschemesarealsobeingshapedaroundtheglobe.deeplycorrelatedinthepast,23somedevelopedeconomiesForinstance,therearenowaround60countrieswithnationalmanagedoverthepastfewdecadestodecoupletheireconomichydrogenstrategiesandroadmaps,upfromlessthanfivebeforegrowthandGHGemissions.24Themainreasonsforthis2020.31TheUSInflationReductionAct’s(IRA)section45V32observationareadecreaseincarbonintensityoftheenergydeployeduptoUS$100billioninmassivetaxcreditsforhydrogen,mixoftheseeconomiesaswellasadecouplingofenergyuseraisingthestakesglobally.33However,greensubsidiesofthisscaleandeconomicgrowth.25Explainingthisdecouplingonlybythearestilllargelylackinginthepartsoftheworldwherechallengingoffshoringofproductionoverseaswouldhavebeenprimarilyeconomicandfinancingconditionsmakethemmostimpactful.trueintheearlyyearsfollowingthisobservation.However,as13FinancingtheGreenEnergyTransition:AUS$50trillioncatch2.Towardaclimate-neutralworldFigure1.Globalmapofnet-zerotargetsNet-zeroemissionpledgesgloballyBefore2050Commitmentstrength20502051–2060Law2061–laterPolicyNotargetPoliticalpledgeSource:DeloitteanalysisbasedondatafromClimateWatch34,35Figure2.GlobalmapofgreentaxonomiesNationalinplaceSupranationalinplaceIndevelopmentIndiscussionNotaxonomySource:DeloitteanalysisbasedondatafromInstituteforEnergyEconomicsandFinancialAnalysisandfromClimateBondsInitiative36,3714FinancingtheGreenEnergyTransition:AUS$50trillioncatch2.Towardaclimate-neutralworldFurthermore,theramp-upoffinancialregulationsinservice2.2.Keytechnicalofclimatemitigationhasbeenslowerthanmoredirectenergyandclimatepoliciesandisalreadyshowingstronggeographicalcharacteristicsofdisparities.Thesedisparitiesarealreadysalientwithgreentaxonomies–classificationsystemsthatsetcriteriatolabelsomeanet-zeroworldeconomicactivitiesassustainable.DefininggreentaxonomiescancreateacommonunderstandingofwhichactivitiesareGreentransitionpolicyframeworksareconsideredconsidered“green”.Itcanalsohelpincreasesecurityforinvestorsinsufficienttodayinpartbecausegreentechnologiesandreducegreenwashingopportunities.Greentaxonomiesremainmisunderstood.Coordinatingandfinancingtheappeartobelargelyabsentfromofficialdiscussions(Figure2)ingreentransitionrequiresadeepunderstandingofthekeygeographiesincludingtheUnitedStates,Japan,Africa(exceptgreenproductsthatneedfunding.SouthAfrica)andtheMiddleEast.Despitetheirindividualbenefits,thedevelopmentofmanydifferentgreentaxonomiesaroundtheGlobalenergy-relatedCO2emissionsaredistributedacrosspowerglobecanreducetheircredibilityandeffectiveness.Forexample,generation,industry,transportandbuildings(Figure3).Eachalessclimate-ambitiouscountrywithahighshareofcoalinofthosesectorshasitsowncharacteristics,complexitiesanditselectricitymixcouldseenaturalgaspowerplantsasgreenpotentialsolutions,nullifyingtheprospectsofaone-size-fits-allinvestments,whereasamoreambitiouscountrywouldnot.decarbonizationsolution.Moreover,undertherightcircumstances,greentaxonomiescan•Powergenerationaccountedfor42%ofglobalenergy-relatedhelpreducefinancingcosts.Forinstance,allotherthingsequal,CO2emissionsin2022,41makingitoneofthehighest-emittingifequityinvestorsbecomeaversetoenvironmentalrisks,afirmsectoroftheglobaleconomy.Fossilfuel-firedpowerplantswithapoorenvironmentaltrackrecordcouldfacehigherequityproduced61%ofglobalelectricityin2022,andcoalalonecoststhanademonstrablygreenercompany.38Thesegreenequityaccountedforover35%ofelectricityproduction.42Thecostreductionsviagreentaxonomiesarenotclearlymirroredindevelopmentofcleanelectricitycanbringthedualbenefitofthedebtmarket,wheretheissuanceofso-calledgreenbondscuttingemissionsandhelpingenableelectrificationinend-usecurrentlylacksadequateinternationalstandardization.39Greensectorslikeindustries,transportandbuildings.43bondsareanotherkeygreenfinanceinstrumentandconsistsofdebtthatistraceablylinkedtogreeninvestments.Thekeyto•Industriesareresponsibleforaround9.2GtCO2emissionseachunlockingdebtcostreductionswithgreenbondsistobolsteryear(26%ofglobalCO2emissions).41Cement,chemicalsandtheirgreencredibility,i.e.,tomakethemmoretransparentandsteelarethelargestindustrialemitters,accountingforarounduniformvia,forinstance,taxonomies.Greenbondsandother60%ofenergyconsumptionand70%ofCO2emissions44insustainabledebtinstrumentscouldthushelpdebt-constrainedtheglobalindustrysector.Globaldemandforchemicalsandentitiesraisefundsforenergyinfrastructureprojects.Asof2022,steelisexpectedtoincreaseby30%and12%respectivelybyadvancedeconomiesconcentratedabout80%ofsustainabledebt2050,whilecementdemandisexpectedtoremainflatthanksissuances.40Furtherworkisthereforeneededtohelpstandardizetoefficiencymeasuresinconstruction.11Longinvestmentcyclesgreenfinanceinstrumentsandtoexpandtheiruseinandbeyondarecomingtoanendwithinthenextdecadeforanumberadvancedeconomies.ofindustrialsites,makingdecarbonizationanow-or-neverdecisionforalargeshareofthesector.11Duetothelowmaturityandsignificantinfrastructuretransformationrequirementsofhigh-temperatureelectricheatingtechnologies,decarbonizingindustrialsectors,particularlytheheavyoneslikecement,chemicalsandsteel,hasprovenchallenging.45•Transportaddedupto23%ofglobalenergy-relatedCO2emissionsin2022,41splitacrossadiversearrayofsectorsspanningaviation,road,railandmaritimetransport.Somesub-sectorssuchaspassengercarshaveclearlyidentifieddecarbonizationsolutionslikeelectricvehicles.46,47,48Otherslikeaviationarestrugglingtofindaviablealternativetoconventionaltechnology,oftenduetotechno-economicconstraintsontheuseofelectricityorhydrogenandlow-maturityofbiofuelsandsyntheticfuelstoreplacefossilfuelsinlargescale.•Finally,thebuildingssectoremitted3GtCO2in2022orjustunder10%ofglobalemissions.Today,buildingsaroundtheglobearelargelydependentontheuseoffossilfuels,15FinancingtheGreenEnergyTransition:AUS$50trillioncatch2.Towardaclimate-neutralworldparticularlynaturalgas,forcookingandspaceandwateristoenablethereadertomakeinformeddecisionsabouttheheating.Electrificationandefficiencymeasures(suchastheproductstheywanttoregulateorinvestin.Inparticular,thethermalinsulationofbuildings)areincreasinglyseenasviablefigurerevealsthehighcapital-intensivenessandrelativelylowdecarbonizationoptionsinthebuildingsector.49technologicalreadinessofmanyofthesolutionsthatstandoutwithregardstooverallcosts,systemdisruptiveness,andskilledFigure4showsthemaintechnologicaloptionstoreachnet-zerolaborrequirements.Asexploredthroughouttherestofthereport,GHGemissionsfromtheperspectiveofindividualsites,buildingsthecapitalintensivenessandriskinessofgreentechnologiesmakeorvehicles.Assuch,itdisplays,ataglance,someofthekeyreducingfinancingcostsahigh-priorityactionlevertohelpunlockcharacteristics,barriers,uncertainties,andtherebyopportunitiesthetransition.ofeachsolutionineachsector.ThepurposeofthisinformationFigure3.Globalenergy-relatedCO2emissionsovertimeandbreakdownbysectorbetween2019and202234.034.434.832.23.08.0GtCO2/year9.2201920202021202214.72022PowerIndustryTransportBuildingsSource:IllustrationbasedondatafromtheIEA4116FinancingtheGreenEnergyTransition:AUS$50trillioncatch2.Towardaclimate-neutralworldFigure4.Globaldecarbonizationhingesonhighlycapital-intensivetechnologies50SectorCategoryMainsolutionsAdditionalrequirementsCoststructureTRLNZPPotentiallimitationsof(2)thesolutionSkilledDisrup-CostUpfront/Lifetime(1)workerstivenessBothPowerRenewablesWindUpfrontLanduse,mineralneedsSolar(PV)UpfrontLanduse,concentratedmarket42%FossilfuelsGeothermalUpfrontGeographicalconstraintNuclearHydroUpfrontGeographicalconstraintofglobalRetrofitting(bio/H2)Fuelcost,limitedbiomassenergy-CCUSLifetimeMissingCO2infrastructurerelatedCO2GenIII+/SMRUpfrontSafety,wastemanagementemissionsElectrificationUpfrontPowerpriceandsupplystabilityHydrogenInfra.,hydrogenavailabilityChemicalsBioenergiesBothLimitedsustainablebiomassRecyclingBothPlasticcollectionratesIndustrySteelCCUSMissingCO2infrastructureCementElectrification(EAF)LifetimePowerprice,scrapavailability26%Hydrogen(DRI)LifetimeInfrastructure,technicallimitationsCCUSBothMissingCO2infrastructureofglobalAlternativeinputmaterialsLifetimeAvailabilityofgoodclaydepositsenergy-CCUSBothSafety,end-of-liferelatedCO2Hydrogen(heat)BothInfrastructurerequirementsemissionsElectrificationLifetimeMaturity/infrastructure/costissuesElectrificationLifetimePowerpriceandsupplystabilityLightHydrogenLifetimeInfrastructurerequirementsindustryBioenergiesLifetimeLimitedsustainablebiomassElectricity(battery)LifetimeInfrastructure,cleanelectricityRoadHydrogen(fuelcell)LifetimeInfrastructure,fuelcostBiofuels(ICE)BothFuelcost,limitedbiomassTransportMaritimeE-Fuels(ICE)UpfrontFuelcost,limitedCO2Biofuels(ICE)BothFuelcost,limitedbiomass,safety23%E-Fuels(ICE)LifetimeFuelcost,limitedCO2,safetyH2-pure(fuelcell)LifetimeFuelcost,lowrangeofglobalElectricity(battery)LifetimeSafety,verylowrangeenergy-Biofuels(ICE)LifetimeFuelcost,limitedbiomassrelatedCO2E-Fuels(ICE)LifetimeFuelcost,limitedCO2emissionsHydrogen(fuelcell)UpfrontSafety,lowrange,fuelcostElectricity(cable)LifetimeInfrastructurecost&feasibilityAviationHydrogen(fuelcell)LifetimeFuelcost,lowrangeHeatpumpsLifetimeConcentratedmarket,coolinggasesRailSolarthermalUpfrontSpacefootprintDistrictheatingLifetimeInfrastructure,non-renewableBuildingsHeating&Bio/H2gasboilersUpfrontLimitedcleangasescoolingSolidbiomassUpfrontLimitedbiomass,lowefficiency9%ThermalstorageUpfrontWearandtear(corrosiveness)Construc-SustainablematerialsLifetimeLonglifespanofbuildingstockofglobaltionRecyclingLifetimeLimitednet-zeropotentialenergy-UpfrontrelatedCO2UpfrontemissionsLifetimeHighMediumLowSource:DeloitteanalysisbasedontheIEA’sEnergyTechnologyPerspectiveandvariousothersourcesmentionedinthetext.(1):TRL=TechnologicalReadinessLevel;(2):NZP=Net-ZeroPotential17FinancingtheGreenEnergyTransition:AUS$50trillioncatch2.Towardaclimate-neutralworldThedecarbonizationofelectricityrestsonthedevelopmentruleofthumb,theeffectivenessofelectrificationdwindlesasofthreestrandsoftechnologies.temperaturesapproach1000°Cundercurrenttechnologicallevels.55Thisleaveslessspaceforelectricityinheavyindustries,•First,renewablepowergenerationcapacity,particularlysolarwhereprocessesusuallyoperateabove500°C.Inthechemicalphotovoltaic(PV)andonshoreandoffshorewind,willbyallsector,electrificationcanbeusedforsteamcracking,aprocessbenchmarksneedtoincreasemassivelyaroundtheworld.51inwhichlong-chainhydrocarbonsarebrokenintosimplerHydroelectricpowerplantsandgeothermalpowerplantsones.Inthecementsector,electricitycanbeusedtopowercanprovidepowersystemswithflexiblepowergenerationunitsthatproduceclinkerforcementproduction,althoughthatcapacity,buttheiroverallavailabilityisscarcearoundthetechnologyisstillatthedemonstrationstage.Inthesteelsector,globe.Renewables,includinggeothermalenergyandhydro-electricarcfurnaces(EAF)areanalreadyproventechnology.electricity,arebynaturehighlycapitalintensivebutincurzerofuelcosts.BothwindandsolarPVhavelowcapacity-to-landuse•Withawidevarietyofhighlyenergy-intensiveprocessesandratioscomparedtofossilplants,andfacehighlyconcentratedmanycarbon-basedproducts,thechemicalindustryisahard-upstreamsupplychains.However,windandsolarpowerplantsto-abatesectorwithnoone-size-fits-allabatementsolution.donotrequireanyfueltorun.Therefore,whiletheymightfaceRecyclingandespeciallythereuseofplasticsisatechnologicallyupfrontimportdependencechallenges,overtheirlifetime,maturedecarbonizationsolutionforchemicalsproduction.theyrequirenofuelimports,boostingtheresilienceoftheHowever,itwillrequirehigherplasticcollectionratesandlocalenergysystems.Duetotheirlowoverallcosts,gainsinlowerrecyclingcoststobecomeviable.56Carboncaptureandstrategicautonomyandinstantenvironmentalbenefitsuponutilization(CCU)isanothermaturesolution,butitscurrentinstallation,renewableswillformthebackboneoftheglobalenergyintensivenesscanoffsetthebenefitsofCO2captureandelectricitytransition.52makeitlesseconomicallyattractive.57,58Also,integratingcapturetechnologiesintoexistingchemicalprocessescanbecomplex•Second,theretrofittingofexistingfossilassetstocleangas(co-)andrequirecostlyCO2transportandstorageinfrastructure.combustionortopowerplantswithcarboncaptureandstorageLastly,hydrogenandbioenergyfeedstockshavebeenusedin(CCS)extensionscanreduceemissions,particularlyinregionstheindustry,buttheirconsumptionisslatedtosurgemassively.withpoorrenewableendowments.ThesesolutionsaredeemedThescaleoftherequiredimplementationwillthereforecallsomewhatdisruptivebecausetheyrequirethedevelopmentoffornewcostlyinfrastructure,puttingmorecapital-intensivecapital-intensivehydrogenorCO2infrastructurenetworks.Whilepressureonsuchdecarbonizationprojects.cleangascombustionislimitedbytheavailabilityandcostofthefuel,CCScanbelimitedbytheabsenceofCO2networks.•Today,blastfurnacesareoneofthemostcommonandhighestCO2-emittingsteelmakingpathway.59Hydrogen-baseddirect-•Third,thedevelopmentofnuclearenergycanbringsignificantreducedsteelmakingisseenasoneoftheprimaryapproachesemissionreductionsinsuitablelocationsthathavethemeanstohelptheindustryachieveitsdecarbonizationgoals.Manytofundsuchprojects.Indeed,nuclearpowerplantscomeatfirmsarealsoexploringopportunitiestoloweremissionssignificantupfrontcostsandverylongconstructiontimes.53throughtheincreaseduseofrecycledscrapsteel,meltedviaMoreover,thecostsofnuclearpowerplantdecommissioningtheelectricarcfurnace(EAF)steelmakingprocess,whichcanandwastedisposalremainhighlyuncertain.54Whilehighupfrontcut85%oftheemissionsofblastfurnaces.59Thewidespreadcostscangetredeemedoverenormouspowerproductionadoptionofthesesolutionsfacesbarrierssuchasunfavorablevolumesthankstohighutilizationfactorsoverlongperiods,investmentcyclesandscarceskilledworkforce.Addingtothat,mechanicalfailuresandchangesinnuclearsafetystandardshydrogen-basedgreensteelcurrentlysuffersfromthelackcanentailsignificantcosts.Concerningsmallmodularreactorsofinfrastructureandhighcostofgreenhydrogen.Finally,the(SMR),theyhaveyettogainmoretechnologicalmaturitytostartlimitedavailabilityofhigh-qualityscrapcanhurttheviabilitychallengingexistingfossilpowerplants.ofbothrecycledsteelproductionandhydrogen-basedgreensteelproduction.Overall,cleanelectricitygenerationpathwaysaretechnologicallymaturebuthighlycapitalintensive,makingthecostofdeveloping•Unlikeotherenergy-intensiveindustries,onlyone-thirdcleanprojectshighlysensitivetofinancingcostsinthissector.ofemissionsfromcementproductioncomesfromfuelBothrenewableandnuclearvaluechainsaremaintainedbyconsumption,whiletwo-thirdscomefromtheuseofrawhighlyskilledworkforce,whichemphasizestheimportanceofmaterials.60Usingcleanerinputmaterialscanoffersignificantformaltraining.emissionreductionpotentials,butthismaybelimitedbytheavailabilityofcleanerinputs.CarboncaptureandstorageTheglobalindustrialsectorshouldnotbeviewedasasinglecanbeanothersolutiontohelpdecarbonizecement.Likeinblocktodecarbonize,butasanarrayofindustrieswithotherindustrialsectors,CCSfacesbarrierswhichalsoincludevaryingconstraintsthatdictatedifferentresponsestothethepracticalchallengesofCO2leakageandsocio-politicalsamesolutions.acceptability.Finally,hydrogencanalsobeusedasachemicalinputtoreducerawmaterialneedsandtherebyemissions.•ElectrificationisakeyemissionreductionsolutionacrossaHowever,theeconomicviabilityofhydrogenuseincementnumberofindustrialsubsectorswhoseprocessesonlyrequireremainslowfornow.61low-tomedium-temperatureheating(below400°C).Asa18FinancingtheGreenEnergyTransition:AUS$50trillioncatch2.Towardaclimate-neutralworldPhysicalconstraintsvaryacrosstransportsectors,butEmissionsfrombuildingscomefromheatingandcoolingthreetechnologicalchoicesstandout:food,waterandspace,andconstruction.69Asheatingandespeciallycoolingdemandsareexpectedtorisewithglobal•Electrificationistheclearwinnerincars,light-andmedium-warming,70theirdecarbonizationisvital.Heating,coolinganddutyroadvehiclesandtrains,wherevehiclerangeorweightconstructionallseeclearsolutionsemergefromFigure4.arerelativelyloworwherecableelectricitycanbedispensed.Technologicalimprovementscouldpushelectrificationfurther•Thekeysolutionstohelpdecarbonizeheatingandcoolingareintomorehard-to-electrifysegmentssuchaslong-haulroadheatpumps,followedbydistrictheatingand,marginally,cleantransport,62butcommercialaviationandlargeshipsremainoutgasboilers.Heatpumpsaretwotofourtimesmoreexpensiveofreachfornow.63Electrificationiscapitalintensivebecauseupfrontthangasboilersbutarethreetofivetimesmoreenergyitrequiresthepurchaseofbatteriesandtheinstallationofefficient,makingthempotentiallycostsavingovertheirlifetime.71chargingnetworks.However,electricenginesarealsotwiceTheyareaprovenandmoderatelydisruptivetechnologythatasenergyefficientasinternalcombustionenginesdependingcouldbecomethefirstheatingtechnologyby2050.72onthetransportsegment,makingthemsaveenergyandtherebyemissions.•Districtheatingcanbeanotheroption,butitneedsacleanheatsourceandhighlycapital-intensiveinfrastructure.Finally,•Whilehydrogenfuelcellscoulddecarbonizethehard-to-electrifythebenefitsofcleangasboilersarelimitedbytheirlowenergytransportsectors,theyarecostly,requiringhighexpensesinefficiencyandtheavailabilityoflow-costhydrogenorbiogas.fuelcells,cleanhydrogensupplyandsupportinginfrastructureHydrogenboilerswouldalsorequirethecreationofcostlynetworks.However,theyofferlongerrangeandfasterfuelingdistributionnetworks,andtheiruseinbuildingspresentstimesthanbattery-electricvehicles,makingthemmoresafetychallenges.73,74operationallyversatile.64AkeyphysicallimitationofhydrogenvehiclesisthelowvolumetricenergydensityofhydrogenunderOverall,thedecarbonizationofbuildingswillrequirehighupfrontambientconditions,whichmakesittechnologicallyinfeasibleinvestmentsintoheatpumpsanddistrictheatingbutalsointotodaytoflyacommercialhigh-capacityaircraftonhydrogen.65cleanelectricitysupplyintheupstream.Theseimprovementscanhelpmobilizemanyskilledworkers,ontheorderof,forexample,•Drop-incleanfuelscouldprovideaninterimoptionwhilebatteryaround30,000heatpumpengineersintheUKalone.75Grantsandandfuelcellvehiclesramp-up,oralong-termsolutionwherefundingschemeswillbekeyforadoption,ashomeownerstendtoelectricityandhydrogencannotpenetrate.Syntheticfuelshavelimitedborrowingpower.(e-fuels)thathavethesamepropertiesasfossilfuelsbutaremadefromcleanhydrogenandclimateneutralCO266arelimitedRegardlessoftheirrespectiveprosandcons,clean(especiallybytheirhighcostandlowavailability.Whilebiofuels(producedgreen)technologiesareonaveragemorecapital-intensivethanfrombiologicalfeedstockratherthanfossilsources)havelowertheirfossilcounterparts.Financiallyconstrainedentitiescanproductioncoststhane-fuels,theyarelimitedbytheavailabilitythereforebetrappedintoacostlierfossilfuelpathwaysimplyofsustainablebiologicalfeedstock.67Despitebeingnet-zero,becausethegreenalternativemaybetooexpensiveupfront.Thistheircombustionstillproducesharmfulpollutionintheformcanhappenforinstancewithnaturalgas-firedpowergeneration,ofparticulatematter.Nonetheless,currenttechnologicallevelswhichischeaperupfrontbutfarmoreexpensivedownthelinefailtoelectanotheralternativethanbioore-jetfueltoreducethansolarelectricity.76Inaperfectworld,thissituationdoesnotemissionsfromaviation.68ariseasthecheaperoptionprevails.However,countries,firmsandindividualsfaceanintricacyofconstraintsthatmaybarOverall,transportwillhaveamulti-fuelfuture.Electricityislikelyinvestmentsfromflowingintotheenergytransition.totakethelion’sshareofpassengercar,light-dutyandotherelectrifiablesegmentswhilehydrogeninitspureform,hydrogen-basedsyntheticfuelsandbiofuelssharetherestbasedonoperationalcapabilities.Technologicalmaturityremainslowformanyofthetruenet-zerosolutions,implyinganeedforfurtherresearchanddevelopment(R&D)expenditure.19FinancingtheGreenEnergyTransition:AUS$50trillioncatch3.Whatisholdingbacksustainableinvestments?3.Whatisholdingbacksustainableinvestments?20FinancingtheGreenEnergyTransition:AUS$50trillioncatch3.Whatisholdingbacksustainableinvestments?Asshownpreviously,theenergytransitionwilllargelydependonthereplacementoffossil-basedmeansofproductionbycostliergreentechnologies.Thetremendousamountofneededcleanenergyinvestmentswillcallforbothprivateandpubliccapitalproviders.However,tohelpattractprivatefunding,decidersshouldfirstovercomeanarrayofstructuralinvestmenthurdlesthatcanbecategorizedintopolitical,marketandtransformationbarriers(Figure5).Eachgeographyfacesadifferentmixofthosebarriers.Thismeanstherewillbenoone-size-fits-allsolution.Figure5.MainbarrierstoinvestmentincleantechnologiesMacro-levelLackofrisk(countryinfrastructurerisk,inﬂation…)TranUnskilledMicro-levellabor(oﬀtaker,technologyrisk…)MarketsformationMissingPoliticalStrandedmarketsassetsLackofLackofregulatoryLackofclearstrategicframeworktransparencyandintegritypoliticaldirection21Source:DeloitteanalysisFinancingtheGreenEnergyTransition:AUS$50trillioncatch3.Whatisholdingbacksustainableinvestments?3.1.Politicalbarriers3.2.MarketbarriersPoliticsandthesocialacceptabilityoftheenergytransitionMarketforcesworkingagainstthegreentransitionconsistcanmakeorbreakgreeninvestments.Goodleadershipwillofmissinggreenmarkets,andmacro-andmicro-levelrisksbecriticalinremovingpoliticalhurdles,fromthehighlevelthatinterferewiththebankabilityofgreenprojects.wherestrategiesaremadedowntolocaladministrationsthatdeliverpermits.RemovingpoliticalbarrierscanallowAtthemacrolevel,globalinflationaryshockslikethe2022energypolicymakerstobothhelpbridgethegreen-fossilcostgapcrisistriggeredbytheRussia-Ukrainewar,canconstrictcapitalandde-riskgreenprojects.flows,raisingthecostoffinancinggreenprojects.InflationcancompoundwithdepreciationoflocalcurrenciesagainsttheThefirstbarriertoovercomeisalackofclearstrategicpoliticalUSdollartomakedebtrepaymentextremelydifficultforgreendirection.Unstablegovernmentsorambiguousprioritiescanprojectsindevelopingcountries.ThiswasthecaseinSierraLeone,sendnegativesignalstoprospectivelocalenergytransitionwhosecurrencylost40%ofitsvalueagainsttheUSdollarininvestors.LookingatNorthAfrica,LibyaandMoroccooffertwo2022-23asinflationsoaredby40%.90Greenprojectsoftenhaveradicallydifferentpoliticalperspectivesdespitecomparablesolarlonglifetimesofover25years,91overwhichforeignexchangeirradiations.72MoroccohasratifiedtheParisAgreement,issuedquotescanfluctuatewidely.Thecostofhedgingincreaseswithanambitiousnationallydeterminedcontributionandissuedatherisktohedge.92Thiscanmakeforeigngreeninvestmentscomprehensiveregulatorytransitionframework.72,77,78,79,80Theoverlyexpensiveintensemacroeconomiccontexts.Finally,localrulingMoroccangovernmentisalsoexpectedtostablyremainriskpremium,theaggregatedmarketmetricforthepoliticalinpowerandtokeepexpandinggreenenergy,includinggreenbarriersdescribedearlier,increasesthecostofcapital.ZoominghydrogenexportprojectswithEurope.81Bycontrast,theLibyanintomarkets,thekeyrisksarerelatedtoofftakers,projectpoliticalleadershipcanbeseenaslessstable,andthecountryhasmanagementandtechnologies.OfftakeriskdepictstheriskofneitherratifiedtheParisAgreementnorpublishednewenergyaprojectnotfindingreliablebuyersfortheirproduct.Thiscantransitionpoliciessince2012.77,82,83Despiteroughlyequalsolarhappenwithnewgreentechnologieslikecleanhydrogen,whichpowerpotential,asolarPVinvestorwouldchooseMoroccoovercanstruggletobreakthroughduetomissingdemand.93IntheLibyaduetolowerpoliticalrisksimpactingprojects’riskprofiles.samevein,liquiditycanbeakeyriskfornewgreentechnologies,whichmightnotbeabletogenerateenoughrevenuetocoverThesecondobstacleisthelackofclearandtransparentregulatorytheirduepaymentsontime.Forinstance,anoffshorewindfarmframeworks.Thiscantrickledownfrommissingstrategicthattooklongerthananticipatedtobebuiltmayfaceliquidityguidanceorpoliticalinstability,butitcanalsofrequentlyoccurchallengesifcreditorsaskforrepaymentbeforeitstartsoperating.inadvancedeconomies.Forinstance,untilrecently,theEULastly,technologyriskencompassesallthecomplexitiesdescribedregulatoryframeworkforgreenhydrogenwaslargelyunclearinsection2.2,plusuncertaintiesoncostreductionsandactualandthusseenasamajorbarriertoinvestmentsinthisindustry.84performanceinharshconditions.Forexample,battery-electricZoomingintolocalregulation,inefficientadministrationsposevehiclescanunderperforminextremetemperatures,94makinganotherriskforgreenprojects,especiallyasnewordisruptivethemlessattractiveinmanydevelopingcountries.technologiesoftenrequirespecialconstructionpermits.85In2022,theEUhadaboutfourtimesmorewindcapacityinpermittingAboveall,greenprojectsareriskybecausetheyoftenlackathaninconstruction,withleadtimesofoften5yearsfromthemarket.Greenhydrogen,forexample,doesnotyethaveaglobalstartofpermittingprocedures.86Yet,thefactorthatcanturnslowandoftenlocalmarket.Thismeansthatprospectiveinvestorsadministration,unclearregulationandunpredictablegovernancedonothavereliablepricesorquantitybenchmarks,lackvisibilityintoriggedprojecttendersiscorruption.87,88Eliminatingontechnologyanddeliveryspecificities,andwillhavelimitedcorruption,particularlyindevelopingcountrieswhereitmaybepredictabilityastofuturedemandandsupplypatterns.Formoreprevalent,89canhelpdecreasepoliticalrisksandfacilitateinstance,theIEAprojectsEUelectrolyzercapacitytoreach39GWgreeninvestments.in2030,lessthanhalfoftheEU’spoliticalobjectiveof80GW.95Therefore,despitegreenhydrogenbeingaviableoptionto,forexample,decarbonizesteel(Figure4),demand-sideinvestorshavelittlesupply-sidecertaintybesidespoliticalpledges.Supply-sideinvestorsexperiencetheoppositewithhighofftakeuncertainty,creatinga“chickenandegg”problemthatcanbesolvedbygovernmentintervention.Bycontrast,othercapital-intensivemarketslikerealestatetendtohavefarmorepredictablepatternsandhavelongmovedpastthe“chickenandegg”problem.Thus,greenfinancemayberiskierthanconventionalfinance,atleastuntilgreenproductmarketsareoperational.223.3.TransformationThecleanenergysectorbarriersalreadyemploysmorepeopleAsgreenprojectsgraduallycomeonline,fossil-basedworldwideprojectswillinevitablybediscarded,leavingfossilindustrythanthefossilassetsandworkersstranded.industryandisslatedtoToday,thefossilfuelindustryisvitaltomostcountries.InbeakeyjobKazakhstan,fossilfuelsaccountforaroundhalfofallexportsbycreationsourcemonetaryvalue.96Abruptlyclosingfossilfuelplantswithoutanthroughouttheimmediatesustainablereplacementcouldthereforehurtjobs,transition.98industriesandfinancialsystemsthatareoverexposedtostrandedassetrisks,likeinwealthycountries.97Thisincentivizesbeingslowtocutfossilfuelinvestments,whichinturncanmakepotentialgreeninvestorsunsureofwhethertheylosemoneybynotinvestinginfossilassets.However,thecleanenergysectoralreadyemploysmorepeopleworldwidethanthefossilindustryandisslatedtobeakeyjobcreationsourcethroughoutthetransition.98Theshifttocleaneconomiescancreatenewopportunitiesandlowerthecostsofgreenenergyforindustries.Thegainsinstrategicautonomyfromrenewableenergywillalsocushionfinancialmarketsagainstthevolatilityofglobalfossilfuelprices.Thetrueriskofphasingoutthefossilfuelindustrythereforeliesmoreinthecostofpoliticalinactionthanintheclosureofplants.Decarbonizingtheglobaleconomywillentailunprecedentedtransformationthatsomecountriesmightnothavethecapacitytoaccommodate.Upstreamfromgreenprojects,infrastructureandeducationareoftenpriorityareaswherecrucialinvestmentscouldremovebottlenecksdowntheline.Thisargumentisparamountwhenitcomestoenergyinfrastructure,particularlyelectricity.DevelopingcountriesloseanestimatedUS$120billion/yearfromfrequentpoweroutages.99Oneoftheworst-hitcountriesisNigeria,with4,600hoursofoutagesin2018,100mostlyduetopoorinfrastructureandgridmanagement.99,101However,Nigerianelectricityisoverwhelminglymadefromoil,gasandhydropower,whoseproductionisfarmorepredictablethanthatofsolarorwindpowerplants.102ThiscastsdoubtsonNigeria’sabilitytohandlevariablerenewablepowerproductionwithoutfirstinvestingintoaprofoundoverhaulofitselectricityinfrastructure.Yet,solarandwindpowercouldalsoalleviatepowerproblemsincountrieslikeBangladeshwheremostpoweroutagesarecausedbyfossilfuelshortages.103Skilledlaborisanothercapacitybarriertogreeninvestments,particularlyinthedevelopingworld.Bootsonthegroundarealwaysneededtoinstall,maintainandreplaceequipment.Thisrequiresskilledlabor,whichisscarcerindevelopingcountriesthaninadvancedeconomies.10423FinancingtheGreenEnergyTransition:AUS$50trillioncatch4.Fosteringinvestmentsinthegreentransition4.Fosteringinvestmentsinthegreentransition24FinancingtheGreenEnergyTransition:AUS$50trillioncatch4.Fosteringinvestmentsinthegreentransition4.1.AtoolkittofostersustainableinvestmentsGuidinginvestmentstowardsustainableprojectscallsforfinancingcoststohelpenablecriticalinvestmentsinsustainablethreetypesofactions:de-riskinggreenprojects,bridginginfrastructure.Bridgingthegreen-fossilcostgapmeansincreasingthecostgapbetweengreenandfossilprojectsandcuttingthecostcompetitivenessofgreenassetstohelpattractinvestorsfossilfuels.andofftakers.Inversely,bridgingthecostgapalsoimpliesreducingtheattractivenessoffossilassets.TheseactionscanThekeyactionlevershighlightedintheexistingliteratureonthesteertheeconomytowardreducingtheuseoffossilfuels,whosefinancingissuesofenergytransitionsuchastheworkofIEA,10economicburdenoncountries,firmsandpeople,particularlyinIRENA,12theWorldBank13andtheWorldEconomicForum105areemergingmarkets,shouldbemanagedthroughoutthetransition.summarizedinFigure6.De-riskinggreenprojectsentailsloweringFigure6.OverviewofkeysolutionstoturngreenprojectsmorebankableDe-riskgreenprojectsBridgethegreen-fossilcostgapCuttingfossilfuelsEndpublicsupportforfossilassetsDeveloplocalgreenfinancialmarketsDiluteriskviaportfoliodiversificationSetupgreenhousegasemissionpricingCreatealow-riskprojectenvironmentReducegreentechcostsDealwithstrandedassetsProvidelossreservesandguaranteesReducegreenprojectupfrontcostsDealwithstrandedpeopleReducerevenueriskMakegreenprojectsinvestableChannelprivatefundsintothegreentransitionSource:DeloitteanalysisbasedonIEA,10IRENA,12theWorldBank13andWorldEconomicForum10525FinancingtheGreenEnergyTransition:AUS$50trillioncatch4.FosteringinvestmentsinthegreentransitionDe-riskingsustainableandgreenprojectsseniordebtisrepaidbeforesubordinateddebtandthushasalowerdefaultrisk.ThesamesubordinationmechanismexistsforDevelopinglow-riskprojectenvironmentsequity.Thesemechanisms,commonlyusedinblendedfinanceSection3outlineshowregulatory,political,marketandcurrencyframeworks,areessentialtothetoolkitofdevelopmentbanks.risksdrivefinancingcosts.ImplementingandcoordinatingholisticenergytransitionpolicyframeworksattheregionalandBox1.TheJustEnergyTransitionInvestmentPlaninternationallevelscansomewhatmitigatetheseriskstoreduceinSouthAfricafinancingcosts.Concretely,thisamountstofosteringmarkettransparencyandregulatoryclarity,developinginfrastructureLikemanycountries,106SouthAfrica’snationallyplans,publishinglong-termtargetsandstrategiesandassistingdeterminedcontribution(NDC)tomitigatingclimateprojectdevelopers.Nationalenergyandclimatestrategiesarechangeinitiallylackedadetailedenergytransitionandoftenthestartingpointforsettingalow-riskenvironmentforinvestmentplanforthecountry.However,afterCOP27,greenprojects.SouthAfrica’sJustEnergyTransitionInvestmenttheSouthAfricangovernmentfilledthisgapbyissuingPlan(publishedinNovember2022)isacaseinpoint,whichitsJustEnergyTransitionInvestmentPlan(JETIP).107ThiscreatedasolidandtransparentbaseforthedevelopmentofgreenplanoutlinedtheUS$100billionofinvestmentsneededprojects(Box1).toachievethenation’sdecarbonizationcommitmentssetinitsNDCfor2023-2027.TohelpreachUS$100Lossreservesandguaranteemechanismsbillion,SouthAfricaandothercontributingcountriesFinancialsupportmechanismssuchasguaranteesorfirst-losshopetoleveragearoundUS$4ofprivatemoneyfortranchescanhelptoreduceprojectriskandthusfinancingcosts,everyUS$1ofpublicinvestment.Itisuncertainwhethermakinggreenprojectsmorebankable.Thefirst-losstrancherefersSouthAfricacanachievesuchleverage,butthehightothetranchewiththelowestpriorityintermsofrepayment.levelofdetailandclarityofJETIPseemstoprovideaTherefore,incaseofdefault,itwillfirstabsorbthelosses.Suchsolidbaseforattractingprivateinvestors.Theplanlaysreservesandguaranteeproductsinsureinvestorsagainstlossesouttargets,budgets,policytoolsandinfrastructureif,forexample,theprojectmeetsbottlenecks,underperformsorandskillrequirementstohelpbuildaconvincingfacesfinancialdifficulties.Thisriskreductionmakestheprojectcasethatgreenprojectscantakeplaceinalow-riskmoreappealingtorisk-averseinvestors,especiallyinemergingregulatoryenvironment.orriskymarkets.Subordinationofcapitalcanprovideadditionalsecuritytohelpattractinvestors.Aproject’sdebtstructuremayhavedifferentlayersofrepaymentpriority(Box2),wherebyBox2.ClimateInvestmentFunds50%seniordebtTodate,theClimateInvestmentFunds(CIF)hascommittedUS$7.5billionofblended70%seniorfinanceproductstodevelopingcountriesdebttounlockinvestmentsinlow-carbontechnologies,cleanenergystorageand20%industrialdecarbonization.108TheCIFexpectssubordinatedtomobilizeUS$62.1billionofco-financing,orUS$8foreachUS$1ofblendedfinance.109ThedebtinstrumentsCIFdeploystoattractinvestmentsarediverseandinclude110seniorconcessionalFirstlosstrancheloans,subordinatedloansandmezzanine(50%)instruments,111whichhelpreduceseniordebtdefaultrisk.Thefollowingfigureillustrates30%equityFirstlosstranche30%equitythebenefitsofdebtsubordination.Compared(30%)totraditionalfinancestructures,thefirst-losstrancheisgreaterinsubordinateddebtTypicalprojectBlendedﬁnancemechanisms,whichdecreasesdefaultrisksforﬁnancestructurestructureseniordebt.Source:IllustrativeexamplebasedonDeloitteanalysis26FinancingtheGreenEnergyTransition:AUS$50trillioncatch4.FosteringinvestmentsinthegreentransitionMarketcreationDevelopingcapitalmarketsCreatingorfacilitatingaccesstoanexchangeplatformfornon-Developinglocalfinancialecosystemscanincentivizesustainableexistingmarketscanreducerevenuerisks,loweringthefinancinginvestmentsinfourbroadways.First,anadequatelocalfinancialcostofcleanenergyprojects.Despitebeingkeytodecarbonizingmarketinstillsconfidenceinlong-terminvestments.115Second,hard-to-abatesectors,112greenhydrogenlacksitsownmarketwell-functioningmarketscanprovideinformationthroughandremainstooexpensivetocompetewithGHG-intensivegraypricediscoveryandfinancialreporting.Thiscanhelpreducehydrogen.95Forinstance,inJuly2023,USgrayhydrogenpricesinformationasymmetriesforprospectiveinvestors.116,117Third,werebelowUS$1/kgH2,whilethecheapestUSgreenhydrogendevelopingfinancialmarketscanincreasecompetitionbetweenwaspricedatUS$2.7/kgH2.113Offtakecontractscansolvethiscapitalsuppliers,whichpotentiallyreducesfinancingcosts.challengebyenablingbuyerstofindgreenproducts,andsellersFinally,maturefinancialecosystemscanofferawiderangeoftosecurebuyers.PowerPurchaseAgreements(PPAs)areatypehedgingandfinancingoptions,includingsolutionsthatarebetterofofftakecontractswherebythepartiesfixanexchangepricesuitedforgreenprojects,likegreenbonds.Growingdemandforforelectricity,usuallybasedonitslevelizedcostofproduction.climate-consciousfinancehasfueledtheriseofgreenbondsandThus,PPAscancreategreenproductmarketsandhelpbridgesustainabilitybonds,whoseglobalvolumeexceededUS$650thegreen-fossilcostgapbyreducinggreenproductrevenuebillionin2022.118Theseworklikeconventionalbondsexceptrisk.OtherPPAtypesincludefeed-intariffs(i.e.,PPAswherethetheyaimtoraisefundsforenvironmentallybeneficialprojects.governmentisthebuyer),andcontractsfordifference(seeBox8However,ensuringthatgreenbondsactuallyfundgreenprojectsformoreinformation).PPAvariantshelptoreducepriceandisimpossiblewithoutalsodevelopingglobalgreenbondstandardsvolumerisks,whichlowersrevenueuncertaintyand,inturn,toshoreuptransparency,comparabilityandthuscredibility.reducesfinancingcosts(Box3).Box3.ImpactofPPAsinde-FinancingVolumeriskFinancingriskingprojectscostsPriceriskcostsRevenueriskisakeycomponentofOperatingCostofcapitaldecreaseOperatingfinancingcosts,asinvestorsaimtocostscostsensureprojectsgeneratereturns.PPAscanreducefinancingcostsforUpfrontUpfrontrenewablesprojectsbydampeningcostscostsrevenuerisk.Securinglong-termcontractswithreliableofftakersLCOEImpactofPPALCOEwithPPAlikegovernmentsstabilizesprojectrevenuesthroughoutthePPA’sSource:IllustrativeexamplebasedonDeloitteanalysislifetime.Assuch,globalcontractedPPAvolumesrosefrom0.3GWin2012to36.7GWin2022,withan18%leapin2021-2022,partlyduetotheRussia-Ukrainewarraisingdemandforrevenuecertainty.114ThefollowingfigureillustratestheimpactofaPPAonthelevelizedcostofelectricity(LCOE–theaveragenetpresentcostofelectricityproductionoveraproject’slifetime).Stabilizingprojectrevenuedecreasesrisk,loweringinvestors’requiredreturnsandtherebyreducingfinancingcosts.27FinancingtheGreenEnergyTransition:AUS$50trillioncatch4.FosteringinvestmentsinthegreentransitionManysuchstandardsexistaroundtheworld,119but,ideally,issuershamperthegrowthofgreenbondsindevelopingcountries.121shouldworktowardinternationalconvergence.AmeasureofToovercomethis,nascentgreenbondmarketswillrelyonthethislackofconvergencetodayisthedispersionofgreenbondmaturingofgreentransitionframeworksandcapitalmarkets,issuancebycurrencyacrosseuros(45%),USdollars(26%)andandonoverallimprovementsinpoliticalstability.Experiencehasothercurrencies(29%).118,120Moreover,tolowerdefaultrisk,theshownthatgreenandothersustainablebondscanbeeffectiverisksofgreenbondsaretiedtotheissuer,notthegreenproject.capitalmobilizationtoolswhengrowthandtransitionobjectivesThisincidentallymakesthecredibilityoftheissuercentralalign(Box4).toriskassessments.Thus,politico-economicinstabilitycanBox4.GreenbondsinSouthAfricaHence,inApril2022,SouthAfricareleaseditsowngreentaxonomyinalignmentwiththeEUtaxonomy.123SouthAfricaisoneoftheleadingemergingeconomiesonDevelopmentbanksalsohaveakeyroletoplayinincreasingthegreenbondfrontthankstoitswell-developedfinancialthevolumeofgreenbondsinSouthAfrica.Indeed,thecostmarketswhichseesfrequentbondissuance.Thecountryofgreenbondslargelydependsontheissuer’scredibilitypioneeredgreenbondsamongemergingeconomieswith(andnottheproject’s)124anddevelopmentbankshavestrongafirstissuancein2014ofUS$143milliontohelpfundcleancreditratings.Finally,themajorityofissuanceinemerginginfrastructureprojectsinJohannesburg.CumulativeSouthcountries,andespeciallyinSouthAfrica(with84%share),AfricangreenbondissuancehasgrowntoUS$3billioninisinlocalcurrency.121Thiscancreatecurrencyrisksfor2022,butstilltrailsbehindthatofothercountrieswithlessinternationalinvestorswhothenfacehedgingcosts.Overall,developedfinancialmarketslikeBrazilorthePhilippines122SouthAfricacanovercomebarrierstogreenbondgrowthby(seethefollowingfigure).Thisgapinthevolumeofgreenshoringupitsmacroeconomicstabilityandunleashingtheandsustainability-linkedbondscalledforacertificationpotentialofitsalreadywell-functioningfinancialmarket.schemealignedwithinternationalenvironmentalcriteria.29028525US$billion20151050ChinaIndiaChileBrazilPolandSaudiArabiaPhilippinesThailandSouthAfricaCzechiaTurkeyColombiaQatarUkraineSerbiaBermudaPeruIsraelSource:ClimateBondsInitiative.11828FinancingtheGreenEnergyTransition:AUS$50trillioncatch4.FosteringinvestmentsinthegreentransitionPortfoliodiversificationAhealthy,low-riskgreenPortfoliodiversificationisariskmanagementstrategythattransitionstrategyinvolvesspreadinginvestmentsacrossvariousassetstomitigateshouldencouragetheimpactofeachspecificassetonoverallportfolioperformanceinvestmentsacrossthe(Box5).However,portfoliodiversificationonlyworksifthefullspectrumofthereturnsoftheassetsareeffectivelyuncorrelated.Thisbearseconomyinsteadoftwoimplications.First,optimaldiversificationmeansinvestinginfocusingonaspecificvarioussectorsortechnology125andconversely,investingheavilypartofthevaluechain,ingreenprojectscanincreaseassetscorrelationsandmakeoraspecifictechnology.diversificationlesseffective.Second,duringcrisesormajoreventslikethe2022energypricecrisis,assetcorrelationsrise,whichcandulltheeffectofdiversification.126Knowingtheselimitations,portfoliodiversificationcanstillbesuccessfullyappliedtoreducerisksforgreentransitioninvestors.Asshownpreviously,thegreentransitionwillbethesumofmultiplesimultaneouschangesacrossdifferentsectorsoftheeconomy.Ahealthy,low-riskgreentransitionstrategyshouldthusencourageinvestmentsacrossthefullspectrumoftheeconomyinsteadoffocusingonaspecificpartofthevaluechain,oraspecifictechnology,suchassolarpowerplants.Box5.ProjectriskreductionthankstoportfoliodiversificationCrucially,portfoliodiversificationcanreduceriskexposure,butcannoteliminateitfully(seethefollowingfigure).Allassetsaresubjecttosystematicrisksrelatingtobroadeconomicorgeopoliticalrisksthatcanaffecttheperformanceoftheassetsinthemarket.Awell-diversifiedportfolioshedsspecificriskslinkedtoaproject,industry,orsector,butwillalwaysbeexposedtosystematicrisk.125Toreducethisriskimpliesworkingtowardpoliticalandmarketsecurity,notablytoovercomethebarriersoutlinedinsection3previously.PortfolioriskAsset-speciﬁcriskMarketriskNumberofassetsintheportfolioSource:Illustrativeexamplebasedon2degreesinvestinginitiative.12529FinancingtheGreenEnergyTransition:AUS$50trillioncatch4.FosteringinvestmentsinthegreentransitionBridgingthecostgapbetweengreenandBox6.Casestudy:Impactofgrantsupportonthefossiltechnologieslevelizedcostofelectricity(LCOE)ReducingtheupfrontcostofsustainableassetsTheEUInnovationFund131aimstobringnewlow-carbonTwostrandsofdirectmeasurestoreduceupfrontcostsfortechnologiestocommercialmaturitybyprovidinggrantsgreenprojectsarerelevant:upfrontcostreductionsthroughthatcoverupto60%ofthecapitalcostsofeligibleR&D(costreductionsviainnovation)andinvestmentsubsidies.projects.Toalargeextent,thefundfocusesonaidingThesemeasurescanreduceprojectdevelopmentcostsinthecleanhydrogenprojectsacrosstheirentirevaluechain.shortrun,andtriggersystem-widecostreductionsinthelongThisfundusesCO2quotaauctionrevenuesfromtheEUrun.R&DsupportcanbringdowncoststohelpscaleupemergingEmissionsTradingSystem(EUETS),expectedtorecycletechnologies,easesinvestmentsbymakingnew-technologyuptoUS$21.6billion(€20billion,dependingontheprojectsmorebankableandhelpsbuildupaskilledworkforce.127CO2price)ofCO2quotasintocleantechnologysupportAdditionally,investmentsupportmechanismscanplayakeyroleduringtheperiodfrom2020to2030.GrantsupportslikeinmakingprojectsbankablebytakingonsomeoftheupfronttheInnovationFundcanhelpreducetheaveragecostcosts.Asexplainedinsection3,thiscanbeespeciallyrelevantofsupply(forinstanceLCOEforelectricityproduction)inemergingmarketswherepotentialinvestorsarefinanciallybyloweringinvestmentcosts,butalsofinancingcosts,constrained.Therearemanyfundsthatsupportclean-energyaslesscapitalmustberaised.Thefollowingfigureprojectsbyfinancingapartoftheircapitalexpenditures,whichshowshowsuchasupportcanreducethelevelizedcostultimatelyhelpssomegreenprojectsbridgethecostgapwithofaproject,bothbyreducingtheovernightcosts(thefossiltechnologies(Box6).investmentcostofaproject,assumingitwasdoneinovernight,meaningwithnointerest)directlyandthePenalizingGHG-intensiveassetsfinancingcostsindirectly.ThistypeoffinancialsupportCarbonpricingisanumbrellatermforvariouspolicyschemesthatcanbeeffectiveinemergingeconomies,wherefinancingputapriceonGHGemissionstointernalizetheircosttosocietycostscanbehigh.132,133andincentivizetheirreduction.Thetwomainstrandsofcarbonpricingschemesarecarbontaxes,whichsetafixedpriceonGHG41.8emissions,andcap-and-tradesystems,whichsetafixedquantityofGHGemissionpermitsandletparticipantstradepermits.InUS$/MWh23.2bothcases,GHGemissionsareassignedacost,encouraging24.3participantstoinvestincleanertechnologiesandpracticestocutexpensesor,withcap-and-trade,tosellexcesspermits11.6(Box7).Additionally,publicrevenuefromcarbonpricingcanberedirectedtoclimate-relatedinitiatives.Doingsowouldtransfer11.8revenuesfromfossilassetstotheirgreencounterparts128and5.9couldalsoservetoeasetheimpactoffossiljoborassetclosure(strandedassetsandpeople).Thisisoneofthegoalsofthe‘EU6.96.9EmissionsTradingSystem’(EUETS),whoserevenuesgoinparttothe‘ModernisationFund’whichsupportsthetransitioninpoorerReferenceInvestmentorfossil-dependentEUregions.129Today,mostofthedevelopingcasesupportworldandsomericheconomiesliketheUnitedStateslackacomprehensivenationwidecarbonpricingscheme.130AdegreeofOperatingcostUpfrontcostFinancingcostTotalregionalharmonizationinemerginggreenpolicieswillberequiredtohelpavoideconomicallyharmfulindustrialrelocations.ForSource:DeloitteanalysisofsolarproductioninSouthernAfricaexample,ifMexicotaxesGHGemissionsatUS$100/tCO2eqbutbasedontherenewableendowmentsfromthereanalysisofGuatemaladoesnot,aSouthMexicanindustrialcouldrelocateCopernicus-ERA5hourlysolarPVcapacityfactorsdatabase,134justafewkilometersintoGuatemalaandavoidtaxation.Incurrenttechnologycostsforrenewablesandelectrolyzersfromsummary,carbonpricingservestobridgethegreen-fossilcostIRENA135andIEA136costdatarespectivelyandcountry-specificgapbyincreasingthecostoffossilassetsandpotentiallybycostsofcapitalalignedwithIRENA’slowerandupperboundtransferringfossiltaxationtogreensupport.estimations.135Grantsupportisassumedtoaccountfora50%reductioninupfrontcosts.30FinancingtheGreenEnergyTransition:AUS$50trillioncatch4.FosteringinvestmentsinthegreentransitionBox7.CarbontaxinSwedenBox8.Casestudy:CfDsforenergysupplySwedenpioneeredcarbontaxationgloballybyContractsfordifferencewereintroducedtothepowerintroducinganaboutUS$26/tCO2taxin1991.ThetaxsectorintheUKin2014andhavebeensuccessfulinhassinceincreasedtoexceedUS$130/tCO2andgrownreducingpowerproducers’marketriskexposurebytocover95%ofSwedishGHGemissionsjointlywithkeepingthesalepriceofelectricityconstant.146Likewise,theEUETS.137,138TheSwedishcarbontaxhasbroughtFiTshaveproventheireffectivenessinhelpingtoimportantCO2emissionreductions.139,140However,itsfosterrenewabledevelopmentinEuropeandChina.147overlapwiththeEUETSalsoencouragedindustrialstoHowever,the“reversible”aspectofCfDsmakesthemincreasetheiremissionstocrosstheminimumemissionjustaseffectiveasFiTswhenmarketpricesaretoothresholdtofallundertheEUETS,wherethepricein€/low,butalsobringstaxrevenuewhenmarketpricestCO2wasforalongtimelowerthantheSwedishcarbonarehigh.Thus,CfDscanbeeasierforgovernmentstotax.TheSwedishcarbontaxalsoaffectedindustrialbalanceoutonabudget,makingthemanattractivesectorsthatcompetedinternationallywithfirmsthatoptiontosubsidizecleanenergydeployment.Inthisdidnotfacecarbonpricing,promptingexemptionsandvein,GermanyisstartinganewbillionCarbonCfD(CCfD)taxrebatesfor,asanexample,Swedishsteelmakers.programtocompensatedevelopersfortheextracostsLastly,theSwedishcarbontaxdisproportionatelyoflow-carbontechnologies.148Thisnewschemeplanstoaffectspoorerhouseholds,whotendtospendaaward15-yearcontractsviaanauctionwhereprojectslargershareoftheirbudgetsonfuel.Concernsofwillbidastrikepricein€peravoidedtonofCO2(€/internationalcompetitiveness141andsocialjustice142cantCO2avoided).Thefollowingfigureshowshow(C)CfDsdiscreditcarbonpricingdespiteitsbenefits.Therefore,(workingasoperationalsupport)andcarbonpricingcancarbonpricingmeasuresshouldnotbeintroducedastiltthescalesforthelevelizedcostsofgreenhydrogenstandalonepolicies,especiallyindevelopingcountriesproductioninsouthernEurope.Crucially,CfDsalsowhereafueltaxincreasewouldhitsmallbusinessesandhavedownsides:theydonothedgevolumerisk,theypoorhouseholdshardest.Instead,carbonpricingshouldmobilizeadministrativecapacityandtheirincentivesforbesetuptogetherwithredistributivemeasures,142producerstoreducecostsarenotreinforcedthroughoutandaplanforhelpingthelocalindustryagainstunfairthecontract’slifetime.internationalcompetition.143IntheEU,thisplanhastakentheformoftheCarbonBorderAdjustment5.1Mechanism,144whichputsacarbonpriceonproductsenteringthetradeblock.5Operationalpremiumstoguaranteebreakeven1.8US$/kgH21.8Theprevioussub-section(De-riskingsustainableandgreen43.3projects)presentedoperatingsupportschemesasawayto3reducerevenueriskinordertohelpclean-energyprojectsbreak3.2even.Anincreasinglycommonsolutiontoimprovethebankability2.3ofgreenprojectsis(carbon)contractsfordifference,or(C)CfD.22.32.1Thepartiesofa(C)CfDagreeonastrikeprice,andthesellerpaysthedifferencebetweenthemarketandstrikepriceifthemarket1priceishigherandreceivesthedifferenceifthemarketpriceislower.ThestrikepriceofaCfDisoftendeterminedthrough1.01.00.7auctionswheredevelopersbidastrikepricefortheirprojects,andCfDsareallocatedinascendingorderofbidsuntiltheauction’s0targetisreached.145AsthetechnologysupportedbytheCfDmaturesovertime,eligibilitycriteriacanevolvetotriggercost-1-1.9reductionsviaincreasedcompetition.145A(C)CfDworkslikeaCfD,exceptpricesaremeasuredpertonofavoidedCO2,tohelp-2ProductionProductionfromincentivizedecarbonizedsolutions.Box8discussestheeconomicReferencesupportnaturalgaseffectof(C)CfDsongreenhydrogenprojectsandhowtheydiffercasefromthemoreorthodoxfeed-intariffs(FiTs).OperatingcostUpfrontcostFinancingcostCarbontaxPremiumTotalSource:DeloitteanalysisbasedonthedatausedinBox6.AcarbonpriceofUS$220/tCO2ischosenbasedonShirizadehandQuirion(2021)149thatconcludethatreachingclimateneutralitywouldrequireacarbonpriceofatleast€200/tCO2.ThepremiumisbasedonIRA45V32andaccountsforUS$3/kgH2over10years.31FinancingtheGreenEnergyTransition:AUS$50trillioncatch4.FosteringinvestmentsinthegreentransitionCuttingfossilfuelstheattractivenessofGHG-intensiveactivitieslikecoalpowergenerationbyreducingtheimplicitsubsidiesthattheyreceive.151EndingpublicsupportforfossilassetsInpractice,thiswouldrequirevast,costlyandtime-consumingDespitetheirincompatibilitywithanet-zeroby2050trajectory,fiscalreforms.However,itcouldalsounlockpublicrevenuesfossilfuelsubsidiesaccountedforUS$7trillionin2022,7.1%ofofaroundUS$4.2trilliongloballyandUS$3trillioninemergingglobalGDPin2022,150upfromUS$5.9billionor6.8%ofglobaleconomiesin2025151—numbersclosetotheUS$5trillionofGDPin2020.151Fossilfuelsubsidiescanbeexplicit(directinvestmentsneededtoreachnet-zerointheIRENA’sscenario.12cashflows)orimplicit(taxrebates,etc.).EconomistsexplainthatImplementationremainsakeyproblem,andcompoundedbythefullsocialcostofcarbonconsistsofdirectsubsidiespaidbythecontroversialityoffossilfueltaxes.Fossilinvestmentsarestillthestate,andenvironmentaldamagethatisincurredbysocietyattractiveindevelopingcountries,wherefossilassetdebtissuanceasimplicitsubsidieswhennottaxedbythestate(Figure7).152hasmorethandoubledsince2015.154ThepictureappearstoThismakesimplicitsubsidiesoftenmonetarilylargerthanexplicitbethesameinG20countries,wherefossilfuelsubsidieshavesubsidies,153asmostcountries’fossilfuelpricesdonotfullyreflecthoveredaroundUS$160billiondespitephase-outpromises.155pollutionorclimatechangecosts.151IncorporatingthefullsocialNonetheless,theupsidehereisarecentspreadofnewcarboncostoffossilfuelsintotheirpricecanthereforeeffectivelylowerpricingandgreentaxonomiesmeasuresaroundtheglobe.154Figure7.DecompositionofthefullsocialcostofafossilfuelOtherGlobalwarmingcostsExternalcostsImplicitsubsidiesLocalairpollutioncostsSocialcostsTaxreliefSupplycostsExplicitsubsidiesFinalcostforconsumerIncurredbysocietyIncurredbygovernmentSource:InternationalMonetaryFund15432FinancingtheGreenEnergyTransition:AUS$50trillioncatch4.FosteringinvestmentsinthegreentransitionDealingwithstrandedassetsDealingwithstrandedpeopleInthecontextoftheglobalenergytransition,strandedassetsTheenergysectoraccountedforover65millionjobsin2019.98arefossilassets(infrastructure,resources)thatlose(potentiallyTheIEAestimatesthattheenergytransitionwillcreatemoreall)valueprematurely,i.e.,beforetheendoftheirassetlifetime.jobsthanitwilldestroy.168However,cuttingfossilassetswilllikelyThiscouldbeduetounforeseenchangesinregulation(e.g.,achangetheemploymentlandscape,ascanalreadybeseeninthenewcarbontax),markets(e.g.,EVsbecomecheaperthanICEs),coalsector.Forinstance,intheUS,thenumberofjobsinthecoalsocialnorms(e.g.,lessairtravel),availabletechnologies,financialsectordecreasedby57%between2011and2021,impactingmorecontext,orduetophysicalexpositiontoclimatechange.156,157than50,000workers.169WhilecoalworkerswillbethefirstonesStrandedassetsarealiability,andakeychallengeistodecidehitbythetransition,othersectorscanexpecttobeimpactedwhowillbearit.Managingstrandingassetsthusentailsidentifyinginthecomingyears,likeoilandgasandsomeheavyindustries.strandedassets,asbanksdoviaclimatestresstests(seeBoxThismakesjobtransformationandretrainingstrategies9)andchoosingwhoshouldbearthelosses.Inthatregard,paramount.SouthAfrica’sJETIP170includesanationwidestrategygovernmentcanchoosetofully,partially,ornotcompensatefortoanticipateandcoordinatethechangeinemploymentneedsstrandedassetslosses.158However,unplannedstrandingcouldforajusttransition.Thisplanemphasizesthecreationofajobhurttheeconomyduetothevalueoffossilassets.159TheWorldmarketplatformforcoal,renewableenergy,electricvehiclesBankestimatesthatunplannedstrandingcouldcost30%ofglobalandhydrogensectors,tomaptheskillsupplyinrelationtoGDP.160Asexplainedinsection3.3themainriskwithstrandedcurrentandfuturedemand.TheJETIPplanaimstounlockassetscomesfromthecostofinaction.DelayingstrandedaroundUS$140milliontodeveloptherequiredskillsfrom2023assetmanagementuntilafterstrandingoccursonlymakestheto2027.Furthermore,theimperativetofosternewskillsandjobcostgoup.161Governmentscanthuspreventivelycushiontheopportunitiespresentsachancetopromoteinclusivity.InChile,budgetaryimpactofassetsatriskofstranding,asisthecasein,theEnergíamásMujerinitiativewasimplementedtoinclude5,000e.g.,IndonesiaviatheClimateInvestmentFundsAcceleratingCoalmorewomenintheenergysectorby2030,171astheyonlymakeTransition.162Germany’scoalexitplanalsoincludesaprecisecoalup23%ofthesector’sworkforce.172Finally,inGermany,thecoalpowerplantshutdownscheduleandmorethanUS$4.5billionexitplancontainsamorethanUS$5billion(€5billion)payment(€4.35billion)packagetohelpcompensatecoalplantoperatorsplanuntil2048forolderligniteandcoalminersandpowerplantfortheirlosses.163workerswholosetheirjobs.163Box9.2022climateriskstresstestoftheECBIn2022,theEuropeanCentralBankcarriedoutaclimateriskstresstest(CST)164aspartofitsnewstrategicprioritiesfor2023to2025.165Therisksanalyzedincludedphysicalrisks,i.e.,therisksrelatedtoclimateeventslikewildfiresandfloods,andtransitionrisks,i.e.,therisksassociatedwithstrandingfossilassetsamidstthegreentransition.166TheCentralBank’sCSTassessesEuropeanbanks’physicalandtransitionrisksaswellasprogressontheirownCSTframework.ThisCSTfoundthataround60%ofbanksdidnothavetheirownwell-functioningCST,eventhough60%ofnon-financialcorporateinterestincomecamefromhigh-emittingindustries.164Inotherwords,theEuropeanbankingsectorishighlyexposedtotransitionrisksandill-preparedtomanagethem.TheCentralBank’sCSTalsofoundthatlossesarehigherinscenariosofdisorderlyfossilfuelcuts.Thismeansthatbankshaveastrongeconomicincentivetoproactivelyimplementlong-termgreeninvestmentplans.16733FinancingtheGreenEnergyTransition:AUS$50trillioncatch4.Fosteringinvestmentsinthegreentransition4.2.FocusondevelopingeconomiesGreenandsustainabletechnologiesareoftenmoreonlyaccesstoinvestments,butalsoaccesstoaffordablefinancecapital-intensivethantheirconventionalcounterpartsarethekeyenablersforgreenandsustainableprojects,especially(section2.2),thereforefinancingcostsandconditionsbearforthoselocatedindevelopingmarketswithhighpoliticalrisks.considerableweightingreenprojectinvestmentdecisions.Developingcountriesoftenfacehigherofftaker,marketliquidity,Forinstance,producinggreenhydrogenimpliesbuildingcurrencyandinflationrisks.112Theseareallfactorsimpactingprojects’renewablepowerplants,installingelectrolyzersandsettingupfinancingcosts,makingcapital-intensiveenergytransitionprojectselectricitysupply.Assuch,developinggreenhydrogenmeansdisproportionatelyexpensive.Whiledevelopingregionsoftenincurringvastinvestmentcosts,i.e.,raisinglargesumsofdebthavebetterrenewableendowments,theyalsofacehighercapitalandequity.Thismakestheavailabilityofliquiditycrucialwhencosts,leadingtohigheroverallproductioncosts(Box10).112Thus,developinggreenhydrogen.Illiquidmarketsraisefinancingcosts,makinggreenprojectsbankableandattractinginvestmentsismorewhichdamagestheeconomicprospectsofcapital-intensivegreenchallengingindevelopingeconomies.Furthermore,asdevelopinghydrogen.Akeydriveroffinancingcostsistherisksassociatedcountriesoftenoperateontighterstatebudgets,10bringinginwiththelocalpoliticalenvironmentandlegalframeworks,132whichmultilateraldevelopmentbanks(MDBs)anddevelopmentfinancecanoffsettheproductivityadvantageofsomeoftheworld’sinstitutions(DFIs)couldmarkedlyfacilitateinvestments.Therefore,twobestlocationsforrenewables.Privatecapitalprovidersexpectkeychallengesareattractinginvestmentsandaccessingconcessionalhigherreturnstocompensateforgreaterrisk.Thistranslatesintofinance(lowcostofcapital).Developinglocalcapitalmarketsandahigherweightedaveragecostofcapital(WACC),raisingoverallworkingwithfacilitatorslikeMDBsandDFIscanbeakeyenablerofprojectcostsbyincreasingtheirfinancingcomponents.Thus,notprivatecapitalmobilizationandofcostofcapitalreductions.Box10.Casestudy:Impactofthecostofcapitalonthe5.25.1levelizedcostofgreenhydrogenproductioninSouthernEurope(developedeconomies)and5SouthernAfrica(developingeconomies)SolarirradiationinSouthernAfricacanbetwiceas3.81.8highasinthesunniestpartsofSouthernEurope.173Therefore,thecostofgreenhydrogenproductionis42.7expectedtobelowerasthesamesolarPV-to-hydrogensystemproducesmorehydrogeninSouthernAfrica1.3thaninSouthernEurope.Nevertheless,incurrent3financingconditions,greenhydrogenmadeinSouthernUS$/kgH2Africaisslightlycostlierthantheoneproducedin2.3SouthernEurope(seethefollowingfigure).Thisisdue2tothehighercostofcapitalinSouthernAfrica.Whilefinancingcostsrepresent35%oftheLCOHinSouthern1.71.7Europe,theyadduptoalmost50%oftheLCOHinSouthernAfrica.Thisappliestootherenergyproducts1inotherdevelopingregions:a2023IEAreportfindsthatfinancingcostsaddupto50%oftheLCOEofsolar0.80.81.0powerindevelopingcountries,butonly25%-30%inadvancedeconomiesandChina.91Inthisexample,06%WACC6%WACCloweringtheSouthernAfricancostofcapitalto6%(its11%WACCSouthernEuropecurrentlevelsinEurope)reducesLCOHby26%,enoughtomakeSouthernAfricangreenhydrogen25%cheaperSouthernAfricathanitsSouthernEurope-madeequivalent.Hence,improvingfinancingconditionsandtherebyreducingOperatingcostUpfrontcostFinancingcostTotalthecostofcapitalisaneffectivewaytoencouragegreeninvestmentsindevelopingcountries.Source:DeloitteanalysisbasedontherenewableendowmentsfromthereanalysisofCopernicus-ERA5hourlysolarPVcapacityfactorsdatabase,134currenttechnologycostsforrenewablesandelectrolyzersfromIRENA135andIEA136costdatarespectivelyandcountry-specificcostsofcapitalalignedwithIRENA’slowerandupperboundestimations.13534FinancingtheGreenEnergyTransition:AUS$50trillioncatch4.FosteringinvestmentsinthegreentransitionAftertheadoptionoftheAddisAbabaActionAgenda174in2015,theunder-mobilizationofprivatecapital.ThisiswhereinitiativesthefocuspivotedtomobilizingprivatecapitaltomakethejumpliketheH2Globalhydrogenauctionplatform(Box11)andsubsidyfrom“billionstotrillions”indevelopmentfinanceinvestments.schemeareneeded.H2GlobalreducesofftakerisksontheBlendedfinancecouldguidethisleap,buta2023G20studyfoundsupplysidewithlong-termcontracts,andtransitionrisksonthethatitscurrentprivatecapitalmobilizationratiowas0.6privatedemandsidewithshort-termcontracts.Furthermore,growingUS$investedforeachUS$lentbyMDBs.175Anotherstudyfoundpleas175,179toinitiatetheshiftfrom“originatetohold”to“originatethat,oftheUS$4.1ofcommercialcapitalraisedforeachUS$1toshareorsell”180modelscanbeobserved.Finally,standardizingofconcessionalcapital,onlyUS$1.8camefromprivatecapitalDFIassetscouldeasetheirpooling,allowingDFIswithdifferentproviders.176Thus,becauseblendedfinanceseemstoattractriskpreferencestoworktogether.179Overall,makingmoregreenmoreDFIcapitalthanprivatecapital,177itisoftenperceivedasprojectsbankable,initiatingtheshiftto“originatetoshareorsell”“alltalkandlittleaction”today.178Thelackofbankableprojects,businessmodelandenablingDFIassetstandardizationcanhelpespeciallyinlowerincomecountries(LICs),isanothercauseofmaximizeprivatecapitalmobilization.Box11.FocusonH2GlobalH2GlobalisafacilitatingplatformforSeller10-yeargreenhydrogenimportstoGermany.pricecontractItisatwo-sidedauctionsystemwhichactsasabuffer,match-makerandBuyerH2Globalcost-bridgerbetweensupplyandpricepricedemandsides.Todoso,itestablishesaphysicalintermediary,theHydrogencompensationIntermediaryCompany(Hintco).Onthesupplyside,itallocateslong-1-yeartermcontractsthroughacompetitivecontractbiddingprocesstolowerthepurchaseBuyerCprice.Onthedemandside,H2GlobalBuyerBissuesshort-termsalescontractstoBuyerAthehighestbidder.Then,GermanSellerAgovernmentfundsthegapbetweenSellerBsellers’productioncostsandbuyers’SellerCwillingnesstopayforgreenhydrogen.H2Globallauncheditsfirstauctionforgreenammonia,methanolande-fuelimportsinDecember2022.TheresultswerenotmadepublicbutencouragedtheEUtograduallyincorporateH2GlobalattheEU-level.181Source:DeloitteillustrationbasedonH2GlobalStiftung18135FinancingtheGreenEnergyTransition:AUS$50trillioncatch4.Fosteringinvestmentsinthegreentransition4.3.InvestmentIntheabsenceofconcessionalfinanceindevelopingeconomies,implicationssuchatransitionscenariowouldrequirenearlyUS$200trillionthrough2050(aboutUS$7trillion/yearonaverage)consideringTheIEA’snet-zeropathway44isthechosenenergytransitioncleanenergy,feedstock,end-usetechnologiesandefficiencyscenariothatcoverscoveringboththeentireenergy-measures.Theinvestmentrequirementsamountto5.7%ofindustrynexusandtheuseofenergycommoditiesasglobalGDPin2030and3%ofitin2050.Thelion’sshareoffeedstockinindustriesandtransport.investmentsthrough2050goestoelectricityproductionandefficiencymeasuresandend-usetechnologyexpenditures(43%Thisscenarioalsodepictstheprofoundtransitionofourglobaleach).Oftheseinvestments,about70%shouldtakeplaceinlow-economiesfromthefossilfuel-centricmodeltoanewenergyandmiddle-incomeeconomies.Reducingthecostofcapitalcansystemlargelybasedonrenewablesandelectrification.Globalsignificantlyenhancetheabilityofdevelopingcountriestokeepprimaryenergysupplyinthisscenariofallsfromcurrentlevelsthetrackofthetransition.of620EJtoabout530EJby2050(Figure8.a).Theshareofrenewablesinprimaryenergysupplyincreasesfrom12%inReducingthecostofcapitalcanbothfacilitatetheflowofprivate2021to70%by2050.Windandsolarpowerarethedriverscapitaltowardthetransitionandreduceitscost.Incaseofsimilaroftheenergytransition,togetherrepresenting40%ofthefinancialconditionsindevelopinganddevelopedcountries,theprimaryenergysupplyby2050.Ontheconsumptionside,transitioncostcouldfallbymorethan25%,reachingaboutUS$5.5globalfinalenergydemandfallsbymorethan100EJinlessthantrillion/year(Figure9).Accessingsuchlevelsoflow-costfinance30years,reaching337EJ,thankstoefficiencyimprovements,wouldrequirethehelpofconcessionalfinanceenablers.Activeconsumer-sideeffortsandshifttomoreefficientelectricend-involvementofDFIs,internationalstandardization,increaseddebtuseappliances(Figure8.b).Infact,electricityrepresents52%oftoequityratio(vianotablysubordinatedloansandmezzaninefinalenergydemand,becomingthekeyend-useenergycarrierinstruments)andinnovativeguaranteemechanisms(suchasfirst-(vs.20%in2021).Theshareofoil,naturalgasandcoalinfinallosstranches)canreduceinvestorriskssignificantlyandreduceenergyconsumptionexperiencesasteepdeclinefromaboutthecostofbothequityanddebt.Ontopofclear-cutreductiontwo-thirdsin2021tolessthanone-fifthin2050.Hydrogenandoffinancingcostsdirectly,thesetoolscouldalsofacilitatehydrogen-basedmoleculesrepresentalmost10%offinalenergyinvestmentsintogreenprojectsindevelopingeconomies,consumptionby2050,partiallyreplacingfossilcommodities.improvingtheaccessoftheseregionstocapitalwhichwouldalsointurnreduceprojectrisks.Figure8.Globalprimaryandfinalenergymixalignedwithnet-zerothrough2050a)PrimaryEnergysupplyb)Finalenergydemand600600400400EJEJ2002000203020402050020302040205020212021HydrogenWindenergySolarEnergyHydroelectricityNuclearenergyElectricityBiogasBiofuelSolidbioenergyOtherBioenergiesOtherrenewablesAmmoniaOilNaturalgasCoalNaturalgasOilCoalHeatTraditionalbiomassSource:DeloitteanalysisbasedonInternationalEnergyAgency’snet-zeroemissionpathway4436FinancingtheGreenEnergyTransition:AUS$50trillioncatch4.FosteringinvestmentsinthegreentransitionFigure9.AverageannualinvestmentsinadvancedandElectrificationimpliesasignificantshiftinanimportantproportiondevelopingeconomiesthroughtheperiodtoofendusesinallsectors.Thisleadstoanimportanttechnological2050withandwithoutenablingconcessionalshiftintheend-usetechnologies(shifttoelectricvehicles,financeindevelopingcountriesheatingpumps,industrialprocesses,etc.)andincreaseintheshareofelectricityinthefinalenergyconsumption.Therefore,7.3investmentsinend-usetechnologies(includingefficiencymeasures)andcleanelectricityproductionmakeupthelargest2.45.5sharesofallinvestments—togetheraccountingforabout80%ofallinvestmentsbothinadvancedanddevelopingeconomies.Averageannualinvestments2.4Productionofcleanfuelssuchashydrogenandsyntheticfuels(US$trillion/year)capturesthesmallestpartintheinvestmentneeds,accountingfor4.9about4%oftheinvestmentneeds.3.1Theneededinvestmentsarehuge,andthefinancingcostsCurrentﬁnanceConcessionalﬁnancecanmorethandoubletheneededfunds.ForarealovernightindevelopingeconomiescostlevelofaboutUS$100trillionwithnofinancingcosts,thecurrentcostsofequityanddebt,withthecurrentratiosbetweenDevelopingeconomiesAdvancedeconomiesTotalthem183wouldalmostdoubletheneededfundsforcleanenergySource:Deloitteanalysis182investments.Blendedfinanceisthetooldesignedtohelpreducethesefinancingcosts.Currently,US$1ofconcessionalcapitalcanmobilizeoverUS$4ofcommercialcapital(leverageratio),includingnearlyUS$2fromprivateinvestors(privatecapitalmobilizationratio).177Moreover,privatecapitalmobilizationratiosalsoseemtoincreasewithinvestmentvaluation.177Largerprojectsthereforemayneedlesssubsidization.Thisconfirmsthatblendedfinancecanbeanappropriatetoolforfundinglarge-scaleenergyinfrastructureprojects.Poolingsubsidizedandcommercialcapitaltogethercanhelpfighthighfinancingcostsindevelopingregionstoenablethegrowthofaglobalnet-zero-compatibleeconomy.Figure10.Totalcumulativeinvestmentsthroughtheperiodto2050inthenet-zeropathwayinadvancedanddevelopedeconomiesbyinvestmentcategory,inUS$trilliona)Advancedeconomiesb)Developingeconomies173933734016437EﬃciencyandendusesInfrastructureCleanfuelsCleanelectricitySource:Deloitteanalysis182FinancingtheGreenEnergyTransition:AUS$50trillioncatch5.Acallforaction5.Acallforaction38FinancingtheGreenEnergyTransition:AUS$50trillioncatch5.AcallforactionCurrently,greenprojectsstilllackbankability,andinvestmentspressureonthecostofcapital.Section4identifiesanddetails(includingplannedones)arefarfromtherequiredlevels.Morethefinancialinstrumentstoimprovethebankabilityofgreenprecisely,projectssufferfromhighinvestmentcosts,missingandsustainableprojects,groupingthemintothreekeyactionfinancialincentives,uncertainreturnsoninvestment,lackofskilledlevers:de-riskinggreenprojects,bridgingthecostgapbetweenworkforce,significantmarket,politicalandtechnologicalrisks,lackgreenandfossiltechnologiesandcuttingfossilfuels.Figure11ofdataandmetricsandlimitedaccesstotherequiredfundings.Insummarizestheseinstrumentsandtheirimpactlevers,aswellasdevelopingeconomies,accesstofundingisevenmorechallengingtheirgeographicalandtechnologicalcomprehensiveness.andpoliticalriskstendtobegreater,puttingevenmoreupwardFigure11.FinancialtoolstofosterinvestmentsingreenandsustainableprojectsToolsandInstrumentsHowdoesitworkParameterinfluencedEffectivenessReducepoliticalrisksTechnologyRegionalGreenConv.LICsMICsHICsImplementSetclimateProvidesmarkettransparencypolicystrategiesandregulatoryclarityframeworksLossProtecttheinvestorsReducetheriskofdefaultreservesagainstlossesGuaranteemechanismMarketcreationFacilitateaccesstoanReducerevenueriskexchangemarketDe-riskingOfftakecontractsGuaranteeasellpricefortheReducerevenuerisksustainableand(PPA,CfD,FiT…)producergreenprojectsDevelopadomesticIncreaseconfidence,LowerborrowingcostsfinancialmarketinformationtransparencyLowerborrowingcosts,Bonds(green,blue,Categorizetheend-usegivestransparencysustainability-linked)ofbondsPortfolioapproachDiversifyinvestmentsReduceportfolioriskUpfrontcostR&DsupportActivatetheFinancialReduceinvestmentcostsandreductionexperiencesupportfinancingcostscurveMakefossilalternativemoreexpensiveBridgingtheCarbonpricingPutapriceoncostgapGHGemissionsOperationalpremiumsIncreasetherevenuelinkedtoMakecleanenergy(CfD,taxreduction)thesaleoftheproducttechnologiesmoreprofitableReducingtheEndingpublicsupportStopdirectsociallyuntargetedMakefossilalternativemoreuseoffossilfuelsforfossilassetssupporttofossilfuelsexpensiveCompensateforstrandedassetsCompensatetheEasetheeconomicunanticipateddevaluationimpactonthesocietyDoClimatestresstestoffossilassetsAvoidunanticipatedlossesSupportjobtransformationandallowdevaluationAssesstheexposureofmanagementportfoliototransitionriskProvideskilllaborfortheImplementtrainingprogramstransitionandsocialbenefitandjobreallocationSource:Deloitteanalysis.Thissectionprovidesinstrumentstofacilitatetransitionfromafossil-intensiveenergysystemtoacleanenergysystem.ForLICs,mostofthedevelopmentoftheenergysystemhasnotalreadyoccurredandtheyhavetheopportunitytodeveloptheirenergysystemdirectlyusingcleantechnologieswithoutdevelopingfossilfueldependency.Inotherwords,theycan“leapfrogdirectlyintoagreenerfuture”,asWernerHoyer,EIBPresidentsaid.18439FinancingtheGreenEnergyTransition:AUS$50trillioncatch5.AcallforactionAchievingclimategoalsisaformidablechallenge.Decisiveandcoordinatedpolicysupport,andcollectiveactionfrominvestorsandpolicymakersareparamounttoguideinvestmentstowardgreenandsustainableprojects.Theenergytransitionmustcommencethroughouttheglobetoday,butitwillcostunfathomablesumsofmoney,requiringprivatecapitalwhichislargelydeterredbytherisksofinvestingingreenprojects.Thesolutionsarehere,nowistheHowever,theenergytransitionwillCurrently,privatecapitalproviderstimetoimplementthem.Researchcosttoomuchforgovernmentstoaredeterredfrominvestingintheandfieldworkhaveclearlyidentifiedafforditalone;privatecapitalshouldgreentransitionbecauseitisriskiertechnologicalsolutionstodecarbonizealsobemobilized.Thequestsforthanalternativeinvestments.Thelackeachsectorofourglobaleconomy.Thoseeconomicgrowthandclimateneutralityofclearregulation,transparencyandsolutions,i.e.,renewables,cleanelectricity,convergeinaimingtomakegreengeneralcertaintyontheviabilityofandgreenhydrogen,arehighly-capitalinvestmentseconomicallyviable.Thisgreenmarketsismakingprivatecapitalintensiveandfacemanyinvestmentalignmentwillforgethepathofajust,providersthinktwiceaboutinvestinginbarriers.Nowisthetimetoarticulatecost-efficientandsuccessfultransition.greenprojects.TheircontributionwilleffectiveimplementationstrategiestoGovernmentsandespeciallydevelopinghoweverbepivotaltoachievenetzerosupportthegrowthofgreeneconomies.countriescannotsingle-handedlyfundby2050.therequiredseveraltrillionUS$peryearofrequiredinvestments.Privatecapitalprovidersmustbemobilized.Therefore,ourglobalinstitutionsmustprioritizetwosimultaneousactions:First,governmentsandregulatorsshouldreducetherisksSecond,concessionalcapitalprovidersmustmaximizethethatthreatenthebankabilityofgreenandsustainablepotentialofblendedfinancetomobilizeprivatecapital.investments.Allunderlyingrisks,fromunreliableoff-taketoUndertoday’srates,reachingnetzeroby2050willcostoverunstablemacroeconomics,raisefinancingcosts.De-riskingtheUS$7trillion/year.Concessionalfinanceviainnovativefinancinginvestmentlandscapewillunlockthelow-costcapitalthatcanstructurescanreducethecostofthetransitionbynearly40%formakethecostlyandcapital-intensiveenergytransitionmoredevelopingcountries,loweringglobalinvestmentneedstoUS$5.5affordable.Overall,governmentswillbepivotalinmakingmoretrillion/year.greenprojectsbankable.Onthisjourney,policymakerswillneedtobalancelocalconstraintswithglobalgreenpolicytrends:Atthemicro-level,thetoolstoreachnet-zeromustbeAtthemacro-level,greenpolicyguidelinesandframeworksadaptedtotheirlocalsetting.Experiencehasshownthatmustbeharmonizedglobally.Theglobaltransitiontoframeworksshouldbetailoredtospecificgeographiesandnetzeroshouldbemorethanthesumofindividualnationaltechnologies.Thereisnoone-size-fits-allsolution,andthecontributions.Itsachievementwilltakeunprecedentedlevelstransitionneedstobemulti-solution,oritwillfailtotakeoff.ofinternationalcooperation.Thiscallsforthedevelopmentandglobalharmonizationofstandardsforgreenpolicies,technologiesandfinancialinstruments.Dissonantframeworkscancreateunaffordableinefficiencies.40InvestorsandlendersshouldbereadytofaceThestruggletofosterthechallengeahead:sustainableinvestmentsisapressingchallengetoSocietiesandcapitalprovidersshoulddealwithhugeremedyandthefindingsupfrontinvestmentstoday,reapingthebenefitslater.ofthisstudysuggestThetransitionisanunprecedentedfinancingchallenge,butthethatthereisaneedforcostofinactionishigherthantheburdenofasmooth,plannedallactorsoftheprojecttransitioninitiatedtoday.ThegreentransitioncanincreasethefinanceenvironmentworldeconomybyUS$43trillionbetween2021and2070.185tomutualizetheirkeyRequiredinvestmentlevelsremainbelow6%ofglobalGDPlearningsfromyearsofannually,however,acurrentpolicypathway(alignedwith+3°Cexperienceinthefield.ofglobalwarming)wouldentailalmost8%ofglobalGDPlossbyThisreport’sfindings2070.Delayingthestartofthetransitionwillonlymaketheriseofcallforpoolingpracticalgreenandfalloffossilmorechallengingandcostly.knowledgeongreenfinanceandthecreationMorethanever,investorsshouldchannelgreenfundsofnewfinanceecosystemtodevelopingeconomies.Currently,lessthanhalfofgreenmodelstohelplaytheinvestmentstakeplaceindevelopingcountries.ExcludingChina,foundationsforaglobalwhichaccountsforone-thirdofgreeninvestments,thefiguresustainablegreenfinanceshrinksto16%.40Toreachclimategoals,some70%ofthegreenenvironmentalignedwithinvestmentsneedtohappenindevelopingcountriesby2030.climateambitions.ThiscanbepossiblethroughactiveparticipationofDFI/MDBsandinternationalcooperation.41FinancingtheGreenEnergyTransition:AUS$50trillioncatchAppendicesAppendicesAppendix1.CalculationoflevelizedcostofelectricityandhydrogenElectricitygenerationiscalculatedusingyearlywindspeedandsolarirradiationtimeseriesfromtheCopernicus-ERA5dataset.134Fixedground-mountedPVsystemswithoptimizedtiltangleswereconsideredtorepresentsolarpowerplantsinthemodeltocomputetheirannualaverageyieldsintheconsideredcells.Inthecaseofhydrogenproduction,theoutputiscalculatedwithaPythonscripttogettheoptimalelectrolyzercapacityoverPVcapacityratioandannualgreenhydrogenproductionperunitinstalledelectrolyzercapacity.Figure12summarizesthekeytechno-economicparametersconsideredinthecalculationofthecostofhydrogenproductionviaelectrolyzersandsteamreformationofnaturalgas.Figure12.Techno-economicparametersofhydrogenproductiontechnologiesTechnologyEfficiencyLifetimeOvernightcostVariableO&McostsFixedO&McostSolarPV100%25649US$/MWe0US$/MWhe14US$/MWheAlkalineelectrolyzers62.50%20793US$/MWe0.53US$/MWhe11.9US$/MWhe𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶+∑𝑙𝑙𝑡𝑡𝑂𝑂𝑂𝑂𝑂𝑂𝑋𝑋𝑓𝑓𝑓𝑓𝐿𝐿𝐿𝐿𝐿𝐿(𝐻𝐻𝑜𝑜𝑜𝑜𝐸𝐸)=𝑡𝑡=1𝑙𝑙𝑡𝑡Steammethane∑𝑂𝑂𝑂𝑙𝑡𝑙𝑡𝑂𝑡=𝑡𝑂𝑂1𝑋𝑋𝑂𝑓𝑂𝑓𝑂𝑓𝑂𝑓𝑓𝑂𝑓𝑂𝑓𝑋𝑓𝑓𝑋𝑓𝑓,𝑓𝑡𝑓𝑡𝑓0𝑓+(𝑓𝑓.1𝑂𝑓0𝑂𝑓+𝑓𝑂8,𝑂𝑊𝑡𝑂𝑡𝑊𝑂+U𝑋𝑊𝑋𝑂𝑊S𝑣𝑂𝑊𝑣𝑂𝑊𝑣$𝐶𝑂𝑣𝐶𝑂𝑣/𝑡𝑂𝑣𝑡G𝑋,)𝑡𝑋𝑡𝑡×𝑡𝑣J𝑣𝑣𝐸𝑣𝐸𝑣𝑡𝑣𝑡,𝑡𝑡×𝐸𝐸𝑡𝑡∑𝑡𝑡=1(1+𝑊𝑊reformers90%20869US𝐶𝐶$𝐶𝐶/𝐶k𝐶𝐶W𝐶𝐶𝐶H+240.8US$/kWH2𝐿𝐿𝐿𝐿𝐿𝐿(𝐻𝐻𝑜𝑜𝑜𝑜𝐸𝐸)𝐶𝐶𝐶=𝐶𝐶𝐶𝐶𝐶𝐶𝐶+∑𝑙𝑙𝑡𝑡Source:Owncalculations,basedonIEA(2019),186B𝐿o𝐿𝐿la𝐿t𝐿𝐿a(n𝐻d𝐻Th𝑜𝑜ie𝑜𝑜l(𝐸2𝐸0)14=),187Hydrogen4𝑡𝑡E=U1𝑙𝑙(𝑡𝑡20𝐶∑2𝐶𝐶2𝑙𝑡𝑙𝑡𝐶𝑡=)𝑡𝐶,𝐶118𝐶𝐸((8𝐶𝐸11𝐶I𝑡𝐶𝑡R+++E𝑊𝑊N𝑊𝑊∑𝐸𝑊𝑊𝐸A𝑊𝑊𝑡𝑙𝑡𝑡𝑙𝑊𝑡𝑊𝑡=𝑊𝑊𝑡(𝐶𝐶2𝐶1𝐶𝑡𝑡0𝑡𝑡𝑂))𝑂2𝑡𝑡𝑂𝑡𝑡2𝑂𝑂)𝑂1𝑋3𝑋5𝑓𝑓𝑓𝑓𝑓(𝑓𝑓1𝑓𝑓+𝑓,𝑊𝑡𝑡𝑊+𝑊𝑂𝑊𝑂𝑊𝑂𝑊𝐶𝑂𝐶𝑂𝑂𝑋)𝑋𝑡𝑡𝑣𝑣𝑣𝑣𝑣𝑣,𝑡𝑡×𝐸𝐸𝑡𝑡𝐿𝐿𝐿𝐿𝐿𝐿(𝐻𝐻𝑜𝑜𝑜𝑜𝐸𝐸)=∑𝑡𝑡=1(1+𝑊𝑊𝑊𝑊𝑊𝑊𝐶𝐶𝑙𝑙𝑡𝑡𝑡𝑡)𝑡𝑡𝑂∑𝑂𝑂𝑙𝑂𝑙𝑡𝑂𝑡𝑂𝑋𝑋𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝐸𝑓𝐸,𝑡𝑡𝑡𝑡+𝑂𝑂𝑂𝑂𝑂𝑂𝑋𝑋𝑣𝑡𝑣𝑡𝑣𝑣𝑣𝑣,𝑡𝑡×𝐸𝐸𝑡𝑡𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶+∑𝑡𝑡=1𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝑡𝑡=1(1+(1𝑊𝑊+𝑊𝑊𝑊𝑊𝑊𝑊𝑊𝐶𝑊𝐶𝑊𝑡𝑡𝑊)𝐶𝑡𝐶𝑡𝑡𝑡)𝑡𝑡𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶+∑𝑙𝑙𝑡𝑡𝑂𝑂𝑂𝑂𝑂𝑂𝑋𝑋𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓,𝑡𝑡+𝑂𝑂𝑂𝑂𝑂𝑂𝑋𝑋𝑣𝑣𝑣𝑣𝑣𝑣,𝑡𝑡×𝐸𝐸𝑡𝑡𝐿𝐿𝐿𝐿𝐿𝐿(𝐻𝐻𝑜𝑜𝑜𝑜𝐸𝐸)=Thelevelizedcostofhydrogen(LCOH)andthelevelizedcostofelectricity(LCOE)can𝐿b𝐿𝐿e𝐿𝐿c∑𝐿a(𝑙𝑡l𝑙𝑡𝑡c𝐻=𝑡u𝐻1l(𝑜a1𝑜t+𝑜e𝑜𝑊d𝑊𝐸𝐸𝑊𝐸𝐸𝑊a𝑡𝑡)𝑊𝑊s𝐶𝐶=i𝑡𝑡n)𝑡𝑡Eq.𝑂𝑂𝑂𝑂𝑂𝑂𝑋𝑋1:𝑡𝑡𝑓=𝑓𝑓1𝑓𝑙𝑓𝑙𝑓𝑡𝑡𝑓𝑓𝑓𝑓,𝑡𝐶𝑡𝐶𝐶𝐶𝐶𝐸(𝐶𝐸1𝐶𝑡𝑡𝐶+𝐶𝑊𝐶+𝑊𝑊𝑊∑𝑊𝑊𝐶𝑙𝑡𝑙𝑡𝐶𝑡=𝑡𝑡𝑡)1𝑡𝑡𝑂𝑂𝑂𝑂𝑂𝑂𝑋𝑋𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓,𝑡𝑡+𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑋𝑋𝐶𝐶𝐶𝐶𝐶+𝐶𝐶𝑂𝑂𝐶𝑂𝐶𝑂𝑂𝐶𝑂𝑋𝑋×𝐸𝐸𝐿𝐿𝐿𝐿𝐿𝐿(𝐻𝐻𝑜𝑜𝑜𝑜𝐸𝐸)=∑𝑡𝑡=1(1+𝑊𝑊𝑊𝑊𝑊𝑊𝐶𝐶𝑡𝑡)𝑡𝑡(1+𝑊𝑊𝑊𝑊𝐿𝐿𝐿𝐿𝐿𝐿(𝐻𝐻𝑜𝑜𝑜𝑜𝐸𝐸)=𝐶𝐶𝐶𝐶𝐶𝐶𝑙𝑙𝐶𝑡𝑡𝐶𝐶𝐶𝑂+𝑂𝑂𝑂∑𝑂𝑂𝑋𝑙𝑡𝑙𝑡𝑋𝑡=𝑡𝑓𝑓1𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝐶,𝐶𝑡𝑡𝐶+𝑓𝐶𝑓𝑂𝐶𝑓𝑂𝑓𝑓𝑂𝑂𝐶(𝑓𝑂𝑓1𝐶𝑂𝑂𝑓𝑂𝑓𝐶𝑂+𝑋𝑓𝐶𝑂,𝑋𝑊𝑡𝐶𝑣𝑂𝑡𝑊𝑣𝑂𝑣𝑊𝑣𝑊𝑋𝑣𝑣𝑊𝑋,𝑊𝑡𝐶𝑡𝐶×𝑡𝑡𝐸)𝐸𝑡𝑡𝑡𝑣𝑡𝑣𝐶𝑣𝑣𝐶𝑣𝑣𝐶,𝑡𝐶𝑡𝐶𝐶𝐶𝑡𝑡𝐶𝐶𝐶𝑡𝑡𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶+∑𝑡𝑡=1𝐸𝐸𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓,𝑡𝑡∑𝑙𝑡𝑙𝑡𝑡=𝑡1(1+𝑊𝑊𝐸𝑊𝐸𝑊𝑡𝑡𝑊𝑊𝐶𝐶)∑𝑙𝑡𝑙𝑡(𝑡=𝑡11+𝑂(𝑊1𝑂𝑊𝑂+𝑊𝑂𝑊𝑊𝑂𝑊𝑊𝑊𝑂𝐶𝑊𝐶𝑋𝑊𝑡𝑡𝑡𝑊𝑡𝑋𝑊)𝑓𝐶𝑡𝑓𝐶𝑡𝑓𝑡𝑓𝑡𝑓)𝑓𝑡𝑓𝑡𝑓𝑓𝑓,𝑡𝑡𝑡𝑡𝐿𝐿𝐿𝐿𝐿𝐿(𝐻𝐻𝑜𝑜𝑜𝑜𝐸𝐸)=∑𝑙𝑡𝑙𝑡𝑡=𝑡1(1+𝑊𝑊𝐸𝑊𝐸𝑊𝑡𝑡𝑊𝑊𝐶𝐶𝑡𝑡)𝑡𝑡𝑡𝑡𝐶𝐶𝐶𝑂𝐶𝑂𝐶𝑂𝐶𝑂𝐶𝑂𝐶𝑂𝐶𝑋𝐶𝑋𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓,𝑡𝑡𝑂𝑂𝑂𝑂𝑂𝑂𝑋𝑋𝑣𝑣𝑣𝑣𝑣𝑣,𝑡𝑡(Eq.1)𝑡𝑡𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝑂𝑂𝑂𝑂𝑂𝑂𝑋𝑋𝑣𝑣𝑣𝑣𝑂𝑣𝑂𝑣,𝑂𝑡𝑡𝑡𝑡𝑂𝑂𝑂𝑋𝑋𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓,𝑡𝑡Where𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶istheovernightcosts(inve𝑂s𝑂t𝑂m𝑂𝑂e𝑂n𝑋𝑋tsatthebeginningoftheproject),𝑂𝑂𝑂𝑂𝑂𝑂𝑋𝑋𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓,𝑡𝑡is𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐸𝐶𝐸𝐶𝑡𝐶𝑡𝑣𝑣𝑣𝑣𝑣𝑣,𝑡𝑡thefixedoc𝐶o𝐶p𝐶se𝐶t𝐶r𝐶tah𝐶t𝐶ia𝑂o𝐶t𝑂𝐶n𝑂d𝑂ae𝑂n𝑂p𝑋de𝑋𝑓nm𝑓𝑓d𝑓𝑓a𝑓s𝑓i𝑓no𝑓𝑓tn,e𝑡𝑡nthaencecost(inannualbasi𝐸s𝐸)𝑡𝑡inyear𝑡𝑡,𝑂𝑂𝑂𝑂𝑂𝑂𝑋𝑋𝑣𝑣𝑣𝑣𝑣𝑣,𝑡𝑡isthevariableoperationandm𝑂𝑂a𝑂𝑂in𝑂t𝑂e𝑋𝑊n𝑋𝑓𝑊𝑓a𝑓𝑊𝑓n𝑓𝑊𝑓c𝑓𝑊𝑓e𝑊𝑓𝑓𝑊,𝑊𝑡𝑡productionlevel,ion𝑡𝑡𝐸𝐸istheannualhydrogenproductout𝑡𝑡putinthecalculationofLCOHLCOE,is𝑂𝑂t𝑂h𝐸𝑂𝐸e𝑂𝑡𝑡𝑂w𝑋𝑋e𝑣𝑣ig𝑣𝑣h𝑣𝑣t,𝑡e𝑡da𝑂𝑂n𝑂d𝑂𝑂t𝑂h𝑋e𝑋𝑓𝑓a𝑓𝑓𝑓n𝑓𝑓n𝑓𝑓u𝑓,a𝑡𝑡lelectricityproductionfor𝑊𝑊𝑊𝑊𝑊𝑊𝑊𝑊averagecostofcapitalinyear𝑡𝑡and𝑙𝑙𝑙𝑙isthelifet𝑡i𝑡meoftheproductionfacility.𝑊𝑊𝑊𝑊𝑊𝑊𝑊𝑊𝑂𝑂𝑂𝑂𝑂𝑂𝑋𝑋𝑣𝑣𝑣𝑣𝑣𝑣,𝑡𝑡𝑙𝑙𝑙𝑙𝐸𝐸𝑡𝑡𝑊𝑊𝑊𝑊𝑊𝑊𝑊𝑊𝐸𝐸𝑡𝑡𝑂𝑂𝑂𝑂𝑂𝑂𝑋𝑋𝑣𝑣𝑣𝑣𝑣𝑣,𝑡𝑡𝑡𝑡𝑂𝑂𝑂𝑂𝑂𝑂𝑋𝑋𝑣𝑣𝑣𝑣𝑣𝑣,𝑡𝑡𝑙𝑙𝑙𝑙𝑊𝑊𝑙𝑙𝑊𝑙𝑊𝑙𝑊𝑊𝑊𝑊𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶+∑𝑙𝑡𝑙𝑡𝑡=𝑡1𝑂𝑂𝑂𝑂𝑂𝑂𝑋𝑋𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓,𝑡𝑡+𝑂𝑂𝑂𝑂(𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑋𝑋𝐸𝑣𝐸𝑣𝑡𝑣𝑡𝑣𝑣𝑣,𝑡𝑡𝑊𝑊𝑊𝑊𝑊𝑊𝑊𝑊𝐸𝐸𝑡𝑡𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿=𝐸𝐸𝑡𝑡𝑊𝑊𝑊𝑊𝑊𝑊𝑊𝑊𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿=𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑊𝑊𝑊𝑊𝑊𝑊𝑊𝑊𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶+𝐶𝐶∑𝐶𝐶𝐶𝑙𝑙𝐶𝑡𝑡+∑𝑂𝑂𝑂𝑙𝑡𝑙𝑡𝑂𝑡=𝑡𝑂𝑂1𝑋𝑋𝑂𝑓𝑂𝑓𝑂𝑓𝑂𝑓𝑓𝑂𝑓𝑂𝑓𝑋𝑓𝑓𝑋𝑓𝑓𝑓,𝑡𝑓𝑡𝑓𝑓+𝑓𝑓𝑂𝑓𝑂𝑓𝑂𝑓𝑂,𝑡𝑂𝑡𝑂+𝑋𝑋𝑂𝑣𝑂𝑣𝑂𝑣𝑂𝑣(𝑂𝑣1𝑂𝑣𝑋,𝑡+𝑋𝑡×𝑣𝑊𝑣𝑣𝐸𝑊𝑣𝐸𝑣𝑊𝑡𝑣𝑡𝑊,−𝑊𝑡𝑡𝑊×𝐻𝐶𝐶𝐻𝐸𝑡2𝑡𝐸)𝑡𝑝𝑡𝑡𝑝−𝑡𝑝𝑝𝐻𝑝𝑝𝐻𝑝2𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝×𝑝𝑝𝑝𝐸𝑝𝐸𝑝𝑡𝑝𝑡𝑝×𝐸𝐸𝑡𝑡∑𝑙𝑡𝑙𝑡𝑡=𝑡1(1+𝑊𝑊𝐸𝐸𝑊𝑊𝑊𝑊𝑊𝑊𝑊𝑙𝑊𝑙𝑙𝑙𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿=𝑙𝑙𝑙𝑙𝑡𝑡=1𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝑙𝐶𝑙𝑡𝐶𝑡𝐶+∑∑𝑙𝑡𝑙𝑡𝑡=𝑙𝑡𝑡𝑙𝑡𝑡=𝑡1(1𝐸(1𝐸1𝑂𝑡𝑂+𝑡+𝑂𝑊𝑂𝑊𝑂𝑊𝑊𝑂𝐸𝑋𝑊𝑊𝐸𝑊𝑋𝑊𝑡𝑊𝑓𝑡𝑊𝑊𝑓𝑊𝑓𝐶𝐶𝑓𝐶𝑓𝐶𝑡𝑓𝑡𝑡𝑓𝑡)𝑓)𝑓𝑡𝑡𝑡𝑓𝑡,𝑡𝑡+𝑂𝑂𝑂𝑂(𝑂1𝑂𝑋+𝑋𝑣𝑊𝑣𝑣𝑊𝑣𝑣𝑊𝑣𝑊,𝑊𝑡𝑡𝑊×𝐶𝐶𝐸𝐸)𝑡𝑡𝑡−𝑡𝐻𝐻2𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝×𝐸𝐸𝑡𝑡𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿=∑𝑡𝑡=1𝑡𝑡𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶−𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼_𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿=𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶+∑(𝑙𝑙𝑡1𝑡+𝑊𝑂𝑂𝑊𝑂𝑊𝑂𝑊𝑂𝑊𝑂𝑊𝑋𝐶𝑋𝐶𝑓𝑡𝑓𝑡𝑓)𝑓𝑓𝑓𝑓∑𝑓𝑓𝑓𝑙𝑡,𝑙𝑡𝑡𝑡=𝑡𝑡+1𝑂(𝑂1𝑂𝑂+𝑂𝑂𝑊𝑋𝑊𝑋𝐸𝑣𝑊𝐸𝑣𝑊𝑡𝑣𝑡𝑊𝑣𝑊𝑣𝐶𝑣𝐶,𝑡𝑡×)𝑡𝐸𝑡𝐸𝑡𝑡−𝐻𝐻2𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝×𝐸𝐸𝑡𝑡𝑡𝑡4𝑙𝑙2𝑙𝑙𝑡𝑡=1𝑂𝑂𝑂𝑂𝑂𝑂𝑋𝑋𝑡𝑡+𝑡𝑡𝑂𝑂𝑂𝑂𝑂𝑂𝑋𝑋×𝐸𝐸𝑙𝑙𝑡𝑡𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿=𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿=𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶−𝐶𝐶𝐼𝐶𝐼𝐶𝐼𝐶𝐼𝐶𝐼𝐼−𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼_𝑠𝐼𝑠𝐼𝑠𝐼𝑠𝐼𝑠𝐼𝑠𝐼_𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠+𝑠𝑠∑𝑠𝑠𝑠𝑙𝑠𝑙∑𝑡𝑠𝑡+𝑙𝑙𝑡∑𝑡𝑂𝑂𝑂𝑙𝑡𝑙𝑡𝑂𝑡=𝑡𝑂𝑂1𝑋𝑋𝑓𝐶𝑓𝐶𝑓(𝐸𝑓𝐶𝑓1𝐸𝑓𝐶𝑡𝑓+𝑡𝐶𝑓𝐶𝑓𝑊𝑓𝐶𝑓,𝑓𝑊𝐶𝑡𝑓𝑡𝐶𝑓𝑊𝑓+𝐶(𝑊𝑓𝑓𝑊+1𝑂𝑓𝑊𝑂𝑓+𝐶𝑂𝑓∑𝐶𝑂,𝑡𝑊𝑡𝑂𝑡𝑙𝑡)𝑊𝑂𝑙𝑡𝑡=𝑋𝑡𝑊𝑋𝑊1𝑣𝑊𝑣𝑊𝑂𝑣𝐶𝑂𝑣𝐶𝑣𝑂𝑡𝑣𝑂𝑡,)𝑂𝑡𝑡𝑂𝑡×𝑡𝑣𝑋𝑣𝑋𝑣𝐸𝑓𝑣𝐸𝑓𝑣𝑡𝑓𝑣𝑡𝑓,𝑓𝑡𝑓𝑡𝑓𝑓𝑓𝑓,𝑡𝑡𝑡𝑡+𝑂𝑂𝑂𝑂(𝑂1𝑂𝑋+𝑋𝑣𝑂𝑊𝑣𝑂𝑣𝑊𝑂𝑣𝑂𝑣𝑊𝑂𝑣𝑊,𝑂𝑊𝑡𝑋𝑡𝑊×𝑋𝐶𝐶𝐸𝑡𝑡𝐸)𝑡𝑡𝑡−𝑡𝐻𝐻2+𝑝𝑝𝑂𝑝𝑝𝑂𝑝𝑂𝑝𝑂𝑝𝑂𝑝𝑂∑𝑝𝑋𝑝𝑝𝑋𝑡𝑝𝑣𝑡𝑝𝑣=𝑣𝑝𝑣1𝑣×𝑣(,𝐸𝑡1𝑡𝐸𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿=𝑡𝑡=𝑡1𝑡=1()𝑡𝑡𝑡𝑡𝑙𝑙𝑡𝑡𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓,𝑡𝑡𝑂𝑂𝑂𝑂𝑂𝑂𝑋𝑋+𝑂𝑂𝑂𝑂𝑂𝑂𝑋𝑋×𝐸𝐸−𝐻𝐻𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝×𝐸𝐸∑𝑙𝑙𝑡𝑡𝐸𝐸𝑡𝑡1+𝑊𝑊𝑊(𝑊1𝑊𝑊+𝐶𝐶𝑊𝑡𝑡𝑊𝑊𝑊𝑙𝑙𝑊𝑡𝑊𝑡𝐶𝐶𝑡𝑡𝑂)𝑂𝑂𝑂𝑂𝑂𝑋𝑋𝑓𝑓𝑓𝑓𝑓𝐶𝑓𝐶𝑓𝑓𝐶𝑓𝐶𝑓𝐶,𝑙𝑡𝑙𝐶𝑡𝐶𝑡+𝐶𝐶𝑂𝐶𝑂𝑂+𝑂𝑂∑𝑂𝑋𝑋𝑡𝑡𝐸𝑣=𝑣𝐸𝑣𝑡1𝑡𝑣𝑣𝑣,𝑡𝑡×𝐸𝐸𝑡𝑡𝑡𝐶𝑡𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝑂𝑂𝑂𝑂𝑂𝑂𝑋𝑋𝑓𝑣𝑓𝑣𝑓𝑣𝑓𝑓𝑣𝑓𝑣𝑓𝑣𝑓,𝑡𝑓𝑡𝑓,𝑡𝑡FinancingtheGreenEnergyTransition:AUS$50trillioncatchAppendices𝐸𝑡𝑡𝐸𝑡𝑡𝑊𝑂𝑂𝑊𝑂𝑊𝑂𝑊𝑂𝑊𝑂𝑊𝑋𝑊𝑋𝑊𝑣𝑣𝑣𝑣𝑣𝑣,𝑡𝑡A𝑙𝐸𝑙𝐸𝑙𝑙𝑡p𝑡remiumontheproductionisnormallyconstantovertime,withoutanyindexationtoinflationordiscountinge𝑊f𝑊fe𝑊𝑊c𝑊t𝑊.𝑊T𝑊hepremiumisincludedinLCOHcalculationtoshowitsdirecteffectontheoverallLCOHreduction(Eq.2).𝑙𝑙𝑙𝑙𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶+∑𝑙𝑡𝑙𝑡𝑡=𝑡1𝑂𝑂𝑂𝑂𝑂𝑂𝑋𝑋𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓,𝑡𝑡+𝑂𝑂𝑂𝑂(𝑂1𝑂𝑋+𝑋𝑣𝑊𝑣𝑣𝑊𝑣𝑣𝑊𝑣𝑊,𝑊𝑡𝑡𝑊×𝐶𝐶𝐸𝑡𝑡𝐸)𝑡𝑡𝑡−𝑡𝐻𝐻2𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝×𝐸𝐸𝑡𝑡(Eq.2)𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿=∑𝑙𝑡𝑙𝑡𝑡=𝑡1(1+𝑊𝑊𝐸𝑊𝐸𝑊𝑡𝑡𝑊𝑊𝐶𝐶𝑡𝑡)𝑡𝑡(Eq.3)𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶+∑𝑙𝑡𝑙𝑡𝑡=𝑡1𝑂𝑂𝑂𝑂𝑂𝑂𝑋𝑋𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓,𝑡𝑡+𝑂𝑂𝑂𝑂(𝑂1𝑂𝑋+𝑋𝑣𝑊𝑣𝑣𝑊𝑣𝑙𝑣𝑊𝑙𝑡𝑣𝑊𝑡,𝑊𝑡𝑡𝑊×𝐶𝑂𝐶𝐸𝑂𝑡𝑡𝐸𝑂)𝑡𝑂𝑡𝑡𝑂−𝑡𝑂𝑋𝐻𝑋𝐻𝑓2𝑓𝑓𝑓𝑝𝑓𝑝𝑓𝑝𝑓𝑝𝑓𝑝𝑓𝑝𝑓𝑝,𝑡𝑝𝑡+𝑝𝑝𝑝𝑝𝑂𝑝𝑂𝑂𝑝𝑂×𝑂𝑂𝐸𝑋𝐸𝑋𝑡𝑣𝑡𝑣𝑣𝑣𝑣𝑣,𝑡𝑡×𝐸𝐸𝑡𝑡Oi𝐿𝐿n𝐿𝐿𝐿𝐿nte𝐿𝐿𝐿𝐿trh𝐿𝐿e𝐿𝐿es𝐿𝐿tcr==oantet𝐶r𝐶s𝐶a𝐶.r𝐶T𝐶y𝐶h,𝐶𝐶te𝐶h−ien𝐼𝐼c𝐼in𝐼l𝐼u𝐼v𝐼se𝐼𝐼i𝐼so𝐼𝐼t𝐼nm𝐼o𝐼e𝐼𝐼fn𝐼∑t𝐼𝐼th_𝑙𝑡𝑙𝑡𝑠s𝑡i=𝑠𝑡s𝑠u1𝑠𝑠sp𝑠u𝑠p𝑠p𝑠o𝑠p𝑠r𝑠𝐸𝑠to𝐸𝑠𝑡+𝑡irst∑gi𝑡n𝑡i=v𝑡𝑡t1ehneaLtCyOeHa(1r+i0s𝑊,r𝑊we𝑊𝑊p𝑊h𝑊𝐶ri𝐶ce𝑡𝑡h)s𝑡𝑡ehnatsednobydeEpqr.e3c.iationimpactbecauseofthe∑(𝑙𝑡1𝑙𝑡𝑡=𝑡+1𝑊(𝑊1𝑊+𝑊𝑊𝑊𝑊𝐶𝑊𝐶𝐸𝑡𝑊𝐸𝑡𝑊𝑡)𝑡𝑊𝑊𝐶𝐶𝑡𝑡)𝑡𝑡𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝑑𝑑𝐶𝑑𝐶𝑑−𝑑𝑑𝑑𝐼𝑑𝐼𝑑𝐼𝑑𝐼𝑑𝐼𝑑𝐼𝑑𝐼𝑑𝐼𝑑𝐼𝑑𝐼𝐼_𝐼𝑟𝐼𝑟𝑟𝐼𝑟𝐼𝑟𝐼𝑟𝐼𝑟𝑟𝐼×𝐼𝐼_𝐶𝑠𝐶𝑠𝐶𝑠𝐶𝑠𝐶𝑠𝐶𝑠𝐶𝑠𝑠𝐶𝑠𝐶𝑠𝐶𝑠×𝑠𝑠𝑠(+𝑑𝑑∑𝑑𝑑𝑑𝑙𝑡𝑑𝑙𝑡𝑑𝑡=𝑡𝑑𝑑1𝑑𝑑𝑂𝑑𝑂𝑑𝑂𝑑𝑂𝑑𝑂𝑑𝑂_𝑋𝑟𝑋𝑟𝑓𝑟𝑓𝑟𝑓𝑓𝑟𝑓𝑟(𝑓𝑟𝑓1𝑟𝑓𝑓×+𝑓,𝑊𝑐𝑡𝑡𝑐𝑊+𝑐𝑊𝑐𝑂𝑐𝑊𝑐𝑂𝑊𝑐𝑂𝑊𝑐𝐶𝑂𝑐𝐶𝑂𝑐𝑂𝑐𝑋)𝑐𝑋𝑐𝑡𝑡𝑣𝑐𝑣𝑐𝑣𝑐𝑣𝑐𝑣𝑐𝑣𝑐,𝑐𝑡𝑡𝑐×𝑐𝑐𝐸𝑐𝐸_𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡+1)𝑎𝐿𝐿𝑎𝐿𝑎𝐿𝑎𝐿𝑎𝑎𝐿𝑎𝐿𝑎𝐿𝑎𝑎𝑎𝑎=𝑎𝑎=𝑡𝑡1−∑𝑙𝑙(𝑡𝑡1+𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝐸𝑑𝐸𝑑𝑡𝑑𝑡𝑑𝑑𝑑𝑑𝑑𝑑_𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟)−𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑡𝑡=1(1+𝑊𝑊𝑊𝑊𝑊𝑊𝐶𝐶𝑡𝑡)𝑡𝑡T𝑑𝑎𝑎𝑑h𝑎𝑑𝑑e𝑎𝑑𝑑𝑎𝑑𝑎c𝑑𝑎o𝑑𝑎𝑑s𝑎𝑑𝑎𝑑𝑎t𝑎𝑑𝑎o𝑑𝑎𝑑f𝑑_c=𝑟a𝑟p𝑟𝑟i𝑟t𝑟𝑑a𝑑𝑟𝑑𝑟l𝑑𝑑u𝑑𝑑=𝑑s𝑑𝑑e𝑑𝑑d𝑑𝑐𝑑𝑐𝑑a𝑐𝑑𝑐_s𝑐𝑟𝑐𝑟t𝑟𝑐h𝑟𝑐𝑟_𝑟e𝑟𝑜𝑟𝑜×d𝑜𝑜𝐶i1s𝐶_𝐶c𝑑−𝐶o𝐶𝑑𝐶𝑑(u𝐶𝑑𝐶1𝑑n𝐶𝑑+𝐶𝑑t×𝑑𝑑r𝑑(𝑑a×𝑑𝑑𝑑𝑑t𝑑𝑑𝑑e𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑠d𝑑𝑑𝑠𝑑𝑑ℎe𝑑𝑑𝑑𝑑p𝑑𝑎𝑑𝑑𝑑𝑎e𝑑_𝑎𝑑𝑟n𝑎𝑑𝑟_𝑎𝑟d𝑎𝑟𝑟𝑟𝑟_𝑟𝑟s𝑟𝑟𝑜𝑟𝑟𝑜o𝑟)𝑜𝑟−𝑟n𝑜×_𝑙𝑙𝑙r𝑑𝑐𝑙𝑙𝑐e𝑑𝑙𝑐𝑙𝑑𝑐g𝑙𝑐𝑑𝑙𝑐𝑙𝑑u𝑐𝑙𝑑𝑐𝑙l𝑙𝑐𝑑𝑙a𝑐𝑑𝑙𝑐𝑙t𝑐𝑐o+𝑐𝑐r𝑐𝑐y𝑐𝑐𝑐𝑐r𝑐𝑐i𝑐𝑐s𝑐𝑐𝑐k𝑐_𝑐𝑡s𝑐𝑡𝑡𝑐,𝑡_p𝑡𝑜𝑡𝑡o𝑜𝑡𝑜+l𝑜it_1i𝑒c)𝑒a𝑒𝑒l𝑒r𝑒i𝑒s𝑒𝑒k𝑒s𝑒𝑒,×off𝑠t𝑠aℎk𝑎e𝑎r𝑎𝑎r𝑎𝑎is_k𝑜𝑜s𝑜,𝑜c_u𝑒𝑒r𝑒r𝑒e𝑒𝑒n𝑒𝑒c𝑒𝑒y𝑒𝑒risksandotherland,resourceandtechnicalrisks.Amongtheseelements,themostimportantonesareregulatoryandpoliticalrisks,thatcanaccountforuptohalfoftheweightoftheriskelements.132Theconsideredweighteda𝑑𝑑v𝑑e𝑑𝑑𝑑r𝑑a𝑑𝑑g𝑑e𝑑𝑑c𝑑𝑑o𝑑𝑑s_t𝑟o𝑟𝑟f𝑟𝑟c𝑟𝑟a𝑟pi=talv𝑐𝑐a𝑐l𝑐u𝑐𝑐e𝑐𝑐s_𝑜fo𝑜𝑜r𝑜_S𝑑o𝑑𝑑u𝑑t𝑑h𝑑𝑑e𝑑r×nEu𝑠𝑠rℎo𝑎p𝑎𝑎e𝑎𝑎a𝑎_n𝑜d𝑜𝑜S𝑜_o𝑑u𝑑𝑑t𝑑h𝑑𝑑e𝑑r𝑑n+Afr𝑐i𝑐c𝑐a𝑐𝑐𝑐a𝑐𝑐r_e𝑜𝑜6𝑜%𝑜_𝑒a𝑒𝑒n𝑒d𝑒𝑒𝑒1𝑒𝑒1𝑒%𝑒𝑒×res𝑠p𝑠ℎe𝑎c𝑎t𝑎i𝑎v𝑎𝑎e_ly𝑜𝑜.𝑜T𝑜h_𝑒e𝑒𝑒s𝑒e𝑒𝑒c𝑒𝑒o𝑒𝑒s𝑒𝑒tofcapitalvaluesarealignedwithIRENA’slowerandupperboundestimations.135Appendix2.Deloitte’sEnergyTransitionInvestmentCalculatorDeloitte’sEnergyTransitionInvestmentCalculatorquantifiesthecostofthegreenenergytransition.ItusestheIEA’sNet-ZeroEmissions(NZE)pathway44asakeyenergy,feedstockandindustrialactivities’transitionscenariotocomputethetotalinvestmentneededannuallyuntil2050.Bothenergydemandandfeedstockusesofenergycommoditiesareconsideredtocalculaterequiredinvestmentsinphysicalassets.Totalenergydemandisdividedbysector(industry,buildingsandtransport)andsubsector(steelmaking,cement,aviation,etc.)andIEA’sfuturedemandestimationsfor2030,2040and2050areused.Deloitte’sEnergyTransitionInvestmentCalculatorcomputesthetotalinvestmentcostsusingthefollowingmethodology:01.First,additionalcapacitiesineachsubsectorareretrievedbasedontheevolutionofannualenergydemandintheNZEpathway.Additionalcapacitiesinphysicalassetsaredividedintocategories:end-use,electricitygeneration,energyinfrastructureandlow-emissionfuels.Eachofthesecategoriesincludesthemeansofdecarbonizationandthustheinvestmentsneededinbuildings(e.g.,retrofits,heatpumps,renewableheating),transport(e.g.,electricvehiclesandfuel-cellvehicles,aviation,shipping),carbonremovals(i.e.,carboncaptureandutilizationorstorage),industry(i.e.,steel,cement,chemicalsandlightindustry),powergeneration(i.e.,renewables,nuclearandotherlow-carbongeneration)andinfrastructuredevelopment(i.e.,networks,storagesassetsandvehiclecharginginfrastructures).02.Then,aninvestmentcost(orovernightcost)isassociatedtotheadditionalcapacity.CostdataofDeloitte’sEnergyTransitionInvestmentCalculatorarebasedonIEA’s“WorldEnergyOutlook2022”NZEscenario,44theEuropeanCommission’s“JointResearchCentre(JRC)DataCatalogue”,189IEA’s“GlobalHydrogenReview:Assumptionsannex”190andArgonneNationalLaboratory’sdatabase.191Theovernightcostsevolveduringtheconsideredperiodbasedontechnicalmaturityexpectedorchangeinmaterialcosts.AllcostdataareconvertedinUS$2021.43𝑂𝑂𝑂𝑂𝑂𝑂𝑋𝑋𝑣𝑣𝑣𝑣𝑣𝑣,𝑡𝑡𝑊𝑊𝑊𝑊𝑊𝑊𝑊𝑊𝑊𝐸𝐸𝑊𝑡𝑡𝑊𝑊𝑊𝑊𝑊𝑊𝑙𝑙𝑙𝑙F𝑙𝑙i𝑙n𝑙ancingtheGreenEnergyTransition:AUS$50catchAppendices𝑊𝑊𝑊𝑊𝑊𝑊𝑊𝑊trillion𝑙𝑙𝑙𝑙𝑙𝑙𝑡𝑡𝑂𝑂𝑂𝑂𝑂𝑂𝑋𝑋𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓,𝑡𝑡+𝑂𝑂𝑂𝑂𝑂𝑂𝑋𝑋𝑣𝑣𝑣𝑣𝑣𝑣,𝑡𝑡×𝐸𝐸𝑡𝑡−𝐻𝐻2𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝×𝐸𝐸𝑡𝑡𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿=𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿=𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶+∑𝑙𝑡𝑙𝑡𝑡=𝑡1𝑂𝑂𝑂𝑂𝑂𝑂𝑋𝑋𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓,𝑡𝑡+𝑂𝑂𝑂𝑂(𝑂1𝑂𝑋+𝑋𝑣𝑊𝑣𝑣𝑊𝑣𝑣𝑊𝑣𝑊,𝑊𝑡𝑡𝑊×𝐶𝐶𝐸𝑡𝑡𝐸)𝑡𝑡𝑡−𝑡𝐻𝐻2𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝐶𝐶𝑝𝐶𝑝𝑝𝐶𝑝𝐶𝑝𝐶𝑝𝐶𝑝𝐶×𝐶𝐶𝐸+𝐸𝑡𝑡∑𝑡𝑡=1∑𝑙𝑙𝑡𝑡(1+𝑊𝑊𝑊𝑊𝑊𝑊𝐶𝐶𝑡𝑡)𝑡𝑡𝐸𝐸𝑡𝑡03.Finally,theinvestmen𝑂𝑂t𝑂𝑂c𝑂𝑂o𝑋𝑋st∑is𝑙𝑡𝑙𝑡𝑡=𝑡a1s(+s1i+𝑂g𝑂𝑊𝑂n𝑂𝑊𝑂𝐸e𝑊𝑂𝐸𝑊𝑋𝑡d𝑡𝑊𝑋𝑊𝐶t𝐶𝑡o𝑡)𝑡t𝑡h×e𝐸𝐸y−e𝐻a𝐻r𝑝𝑝w𝑝𝑝𝑝h𝑝𝑝e𝑝𝑝n𝑝𝑝𝑝𝑝it𝑝×is𝐸𝐸incurredusin𝑡g𝑡=a1n(1a+n𝑊𝑊n𝑊𝑊u𝑊𝑊i𝐶t𝐶y𝑡𝑡)f𝑡𝑡ormula.Thetotalinvestm𝐶e𝐶𝐶n𝐶𝐶t𝐶𝐶c𝐶o𝐶𝐶s+t∑in𝑙𝑡𝑙𝑡𝑡=c𝑡l1udes𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓,𝑡𝑡𝑣𝑣𝑣𝑣𝑣𝑣,𝑡𝑡𝑡𝑡2𝑡𝑡costs.financingcostsdependonthetechnologycost,𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿=capitalspe(n1+t𝑊a𝑊n𝑊𝑊d𝑊𝑊𝐶f𝐶i𝑡𝑡n)𝑡a𝑡ncingThe+𝑂𝑂𝑂𝑂𝑂𝑂𝑋𝑋×𝐸𝐸𝑂𝑂𝑂𝑂𝑂𝑂𝑋𝑋tchoensctarpua𝐶c𝐶c𝐶t𝐶iiot𝐶𝐶yn𝐶𝐶i𝐶np𝐶−setr𝐼a𝐼i𝐼o𝐼ll𝐼ed𝐼𝐼d𝐼s𝐼𝐼,𝐼a𝐼c𝐼no𝐼ds𝐼𝐼t𝐼t𝐼∑oh𝐼𝐼_fe𝑙𝑡𝑙𝑡𝑠𝑡=𝑠𝑡e𝑠c1𝑠qo𝑠(𝑠u1s𝑠+𝑠it𝑠t𝑊𝑠yo𝑠𝑊𝑠,𝐸𝑠f𝑊𝐸𝑠c𝑊𝑡+c𝑡𝑊o𝑊a∑𝐶s𝐶p𝑡t𝑙𝑡𝑙𝑡)𝑡i=𝑡o𝑡t𝐿𝑡a1𝐿f𝑂𝐿l𝑂d.𝐿𝑂I𝐿𝑂en𝑂𝐿𝑂bv𝑋𝐿𝑋te𝐿𝑓𝑓as𝑓𝑓=𝑓tn(𝑓m𝑓1d𝑓𝑓+𝑓𝐶e,𝑊e𝐶𝑡𝑡𝐶n𝑊+q𝐶𝑊t𝐶𝑂𝑊u𝐶s𝑂𝑊𝐶𝑂𝑊i𝐶𝐶𝑂ta𝐶𝐶𝑂y𝑂𝐶r𝑋)−-e𝑋𝑡d𝑡𝑣𝐼𝑣t𝐼𝑣e𝐼𝑣r𝐼𝑣ba𝑣𝐼,𝐼𝑡tn𝐼𝑡×𝐼r𝐼s𝐼𝐸a𝐼l𝐸𝐼a𝑡𝐼t𝑡it𝐼oe𝐼𝐼.d𝐼T𝐼𝐼ih𝐼n_e𝑠t𝑠o𝑠𝑠a𝑠an𝑠𝑠nn𝑠𝑠nu𝑠𝑠u𝑠i𝑠t𝑠iy+tiei∑ss𝑙𝑡𝑙𝑡c𝑡=𝑡ion1mclupduitn𝑓e𝑓g𝑓d𝑓𝑓(𝑓t𝑓1w𝑓h𝑓+𝑓ei,𝑊𝑡t𝑡i𝑊hr𝑊𝑊lt𝑊ih𝑊f𝐶e𝐶e𝑡t𝑡)im𝑡𝑡𝑣𝑣𝑣e𝑣𝑣𝑣s,𝑡,𝑡𝑡𝑡𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿=𝑡𝑡∑𝑙𝑡𝑙𝑡𝑡=𝑡1(1+𝑊𝑊𝐸𝑊𝐸𝑊𝑡𝑡𝑊𝑊𝐶𝐶𝑡𝑡)𝑡𝑡followingequation:∑𝑙𝑙𝑡𝑡𝑂𝑂𝑂𝑂𝑂𝐸𝑂𝐸𝑋𝑡𝑋𝑡𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓,𝑡𝑡+𝑂𝑂𝑂𝑂𝑂𝑂𝑋𝑋𝑣𝑣𝑣𝑣𝑣𝑣,𝑡𝑡×𝐸𝐸𝑡𝑡𝐿𝐿𝐿𝐿𝐿𝐿𝐶𝐶(𝐶𝐶𝐻𝐶𝐻𝐶𝐶𝐶𝑜𝐶𝑜𝐶𝑜−𝑜𝐼𝐸𝐼𝐼𝐸𝐼)𝐼𝐼𝐼𝐼=𝐼𝐼𝐼𝐼𝐼𝐶𝐼𝐶𝐶𝐼𝐶𝐼𝐼𝐶𝐼𝐶𝐼𝐶𝐼𝐶_𝐶𝑠𝐶𝑠𝑠+𝑠𝑠𝑠𝑡∑𝑡𝑠=𝑠𝑙𝑡𝑙𝑡𝑠1𝑡=𝑠𝑡(𝑠1𝑠1𝑠𝑠++𝑊∑𝑊𝑊𝑙𝑡𝑊𝑙𝑡𝑡=𝑊𝑡𝑊𝐶1𝐶𝑂𝑡(𝑡𝑂)1𝑂𝑡𝑂𝑡+𝑂𝑂𝑊𝑋𝑊𝑋𝑓𝑊𝑓𝑊𝑓𝑓𝑊𝑓𝑊(𝑓𝐶𝑓1𝐶𝑓𝑡𝑓+𝑡𝑓),𝑊𝑡𝑡𝑊+𝑊𝑂𝑊𝑂𝑊𝑂𝑊𝐶𝑂𝐶𝑂𝑂𝑋)𝑋𝑡𝑡𝑣𝑣𝑣𝑣𝑣𝑣,𝑡𝑡×𝐸𝐸𝑡𝑡𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿=𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑_𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟×𝐶𝐶𝐶∑𝐶𝐶𝐶𝑙𝑙𝐶𝑡𝑡𝐶𝐶𝐶∑×𝑙𝑡𝑙𝑡(𝑡=𝑡𝑑𝑑1𝑑𝑑(𝐸𝑑1𝐸𝑑𝑡𝑑𝑡+𝑑𝑎𝑑𝑊𝑑𝑎𝑑𝑊𝑎𝐸𝑑𝑊𝑎𝐸𝑑𝑊𝑡𝑑𝑎𝑡𝑊𝑑𝑎𝑊𝑑𝐶𝑎_𝐶𝑎𝑟𝑡𝑡𝑟𝑎)𝑟𝑎𝑡𝑟𝑎𝑡𝑟𝑎𝑟𝑎𝑟𝑎𝑟×=𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑑𝑐𝑑𝑐𝑑𝑡𝑐𝑡𝑑𝑐𝑑𝑑𝑐𝑑𝑐𝑑𝑐𝑑𝑐𝑑𝑐𝑑𝑐𝑐𝑑𝑐𝑑𝑐𝑑𝑐𝑑𝑐𝑑𝑐__𝑟𝑡𝑟𝑡𝑟𝑡𝑟𝑡𝑟𝑡𝑟𝑡𝑟𝑡𝑟𝑡×+𝐶1𝐶𝐶)𝐶𝐶𝐶𝐶𝐶𝐶𝐶×(𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑_𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟×𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐_𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡+1)𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎=𝑡𝑡=1(1+𝑊𝑊𝑊𝑊𝑊𝑊𝐶𝐶)𝑡𝑡1−(1+𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑_𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟)−𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑙(Eq.4)1−(1+𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑡𝑡𝑑𝑑_𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟)−𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑙W𝑎𝑎𝑎h𝑎e𝑎𝑎r𝑎e𝑎𝑎𝐶𝑎𝑎𝐶𝑎𝐶𝑎𝐶𝑎𝐶𝐶=𝐶𝐶𝐶𝐶𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑_𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟×𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶×(𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑_𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟×𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐_𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡+1)E+q.5𝑐𝑐:𝑐𝑐𝑐𝑐𝑐𝑐_𝑜𝑜𝑜𝑜_𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒×𝑠𝑠ℎ𝑎𝑎𝑎𝑎𝑎𝑎_𝑜𝑜𝑜𝑜_isthetotalovern1ig−ht(c1o+s𝑑t𝑑𝑑𝑑a𝑑𝑑n𝑑𝑑d𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑_𝑑𝑟𝑑𝑟𝑟𝑑𝑟𝑑𝑟𝑑𝑟𝑟𝑑𝑟𝑑)𝑑−𝑑𝑑𝑙𝑙_𝑙𝑙𝑟𝑙𝑙𝑟𝑙𝑟𝑙𝑙𝑟𝑙𝑟𝑙𝑙𝑟𝑙𝑟𝑙𝑟𝑙𝑙is=the𝑐𝑐w𝑐𝑐e𝑐𝑐i𝑐g𝑐_h𝑜t𝑜e𝑜d𝑜_a𝑑v𝑑𝑑e𝑑r𝑑a𝑑𝑑g𝑑e×cos𝑠t𝑠ℎo𝑎f𝑎c𝑎𝑎a𝑎p𝑎_it𝑜a𝑜𝑜l𝑜g_i𝑑v𝑑e𝑑n𝑑𝑑𝑑b𝑑𝑑y𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑_𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟=𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐_𝑜𝑜𝑜𝑜_𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑×𝑠𝑠ℎ𝑎𝑎𝑎𝑎𝑎𝑎_𝑜𝑜𝑜𝑜_𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑+𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐_𝑜𝑜𝑜𝑜_𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒×𝑠𝑠ℎ𝑎𝑎𝑎𝑎𝑎𝑎_𝑜𝑜𝑜𝑜_𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑂𝑂𝑂𝑂𝑂𝑂𝑋𝑋𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓,𝑡𝑡(Eq.5)𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑_𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟=𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐_𝑜𝑜𝑜𝑜_𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑×𝑠𝑠ℎ𝑎𝑎𝑎𝑎𝑎𝑎_𝑜𝑜𝑜𝑜_𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑+𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐_𝑜𝑜𝑜𝑜_𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒×𝑠𝑠ℎ𝑎𝑎𝑎𝑎𝑎𝑎_𝑜𝑜𝑜𝑜_𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑡𝑡Thecos𝑂t𝑂s𝑂𝑂o𝑂f𝑂𝑋d𝑋e𝑣𝑣b𝑣𝑣t𝑣𝑣a,𝑡𝑡ndequity,aswellastheequity-debtratioaretechnologyspecificanddifferbetweenemergingeconom𝐸𝐸i𝑡e𝑡sanddevelopedeconomiestoreflectdifferenceinriskpremia.ThelowerandupperboundofWACClevelsarederivedfromIEA’sWorldEnergyOutlook202244andareconsideredconstantuntil2050.𝑊𝑊𝑊𝑊𝑊𝑊𝑊𝑊Deloitte’sEnergyInvestmentCalculatoralsoallowstoaccesstothedistributionofinvestmentbetweenadvancedandde𝑙v𝑙𝑙e𝑙lopingeconomies.Thisisthekeyrequirementtoassesstheefficiencyofconcessionalfinance(notablythroughblendedfinancestructures)inloweringthecostoftheglobalgreentransition.Whenonlyglobaldataareavailableforcapacities,aweightingcorrectionfactorisappliedtorepresentarealisticdistributionofinvestmentbetweenthetwocategoriesofeconomiespreviouslymentioned.AstandardponderationfactorbasedonGDPisusedforaviation𝐶𝐶,𝐶m𝐶𝐶𝐶a𝐶𝐶r𝐶i𝐶t+im∑e𝑙𝑡𝑙𝑡𝑡=𝑡s1h𝑂𝑂ip𝑂𝑂𝑂p𝑂𝑋i𝑋n𝑓𝑓g𝑓𝑓𝑓𝑓a𝑓𝑓n𝑓𝑓d,𝑡𝑡+in𝑂𝑂d𝑂𝑂(u𝑂1𝑂𝑋s+𝑋t𝑣𝑊𝑣r𝑣𝑊i𝑣e𝑣𝑊𝑣𝑊,s𝑊𝑡𝑡𝑊×𝐶e𝐶𝐸x𝐸)𝑡c𝑡𝑡−𝑡e𝐻p𝐻2t𝑝s𝑝𝑝𝑝t𝑝e𝑝𝑝e𝑝𝑝l𝑝𝑝a𝑝𝑝n𝑝×d𝐸𝐸c𝑡𝑡ementproduction.Forcementandsteelproduc𝐿t𝐿i𝐿o𝐿n𝐿𝐿,𝐿a𝐿cu=stomratioisapplied∑to𝑙𝑙𝑡𝑡consid𝐸e𝐸𝑡r𝑡thege𝑡𝑡ographicpeculiarityofthesetwoindustrysectors,whicharenotcorrelatedwithGDP.Moreover,𝑡𝑡f=o1r(1th+𝑊e𝑊c𝑊𝑊o𝑊𝑊a𝐶𝐶l𝑡𝑡)in𝑡𝑡dustry,thiscorrectionfollowsthegeographicdistributionofthisindustrygivenbytheIEA.Finally,theponderationforheatingisbasedonthegeographicdistributionoftheenergyconsumed𝐶i𝐶n𝐶𝐶𝐶s𝐶p𝐶𝐶a𝐶𝐶c−e𝐼𝐼𝐼h𝐼𝐼e𝐼𝐼a𝐼𝐼t𝐼i𝐼n𝐼𝐼g𝐼𝐼,𝐼b𝐼𝐼a𝐼𝐼_s𝑠e𝑠𝑠d𝑠𝑠𝑠o𝑠𝑠n𝑠𝑠𝑠t𝑠𝑠h𝑠+e∑s𝑙𝑡a𝑙𝑡𝑡=𝑡m1𝑂e𝑂𝑂𝑂d𝑂𝑂a𝑋𝑋t𝑓a𝑓𝑓𝑓b𝑓(𝑓𝑓1a𝑓𝑓+s𝑓,e𝑊𝑡𝑡𝑊+.𝑊𝑂𝑊𝑂𝑊𝑂𝑊𝐶𝑂𝐶𝑂𝑂𝑋)𝑋𝑡𝑡𝑣𝑣𝑣𝑣𝑣𝑣,𝑡𝑡×𝐸𝐸𝑡𝑡𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿=𝑡𝑡TransitionInvestmentC∑a𝑙l𝑙c𝑡𝑡ulator𝐸𝐸a𝑡𝑡llowstostudythetofchangingthefinancingstructureDeloitte’sEnergy𝑡𝑡=1(1+𝑊𝑊𝑊𝑊𝑊𝑊𝐶𝐶𝑡𝑡)𝑡𝑡impaconthetotalcostoftheenergytransition.Thecostofcapitaldrivesannualinvestmentsbyimpactingannuities,wMhDicBhs)d𝑎a𝑎en𝑎c𝑎dr𝑎e𝑎f𝑎oa𝑎sr𝑎𝑎me𝑎𝑎𝑎w𝑎(ih.e=e.,netq𝑑h𝑑u𝑑e𝑑𝑑i𝑑t𝑑cy𝑑𝑑o,𝑑𝑑sd𝑑t𝑑e𝑑𝑑ob𝑑_ft𝑟,c𝑟𝑟ca𝑟𝑟op𝑟𝑟n𝑟i×tca𝐶el𝐶s𝐶d𝐶s𝐶e𝐶io𝐶f𝐶lna𝐶𝐶at×el,(s𝑑g.𝑑𝑑rT𝑑𝑑a𝑑h𝑑n𝑑e𝑑t𝑑)𝑑c𝑑o𝑑o𝑑f𝑑s𝑑a_t𝑟𝑟op𝑟𝑟fr𝑟𝑟oc𝑟𝑟aj×ep𝑐c𝑐i𝑐tt𝑐a’𝑐s𝑐l𝑐f𝑐i𝑐us𝑐𝑐n𝑐a𝑐d𝑐f𝑐f𝑐ie𝑐n𝑐𝑐cg𝑐𝑐t.𝑐e𝑐T𝑐d_h𝑡𝑡b𝑡e𝑡y𝑡m𝑡𝑡t𝑡ho+ed1eo)lraigllionw(is.et.o,pausbsleics,sptrhiveadteir,ect1−(1+𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑_𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟)−𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑙impactofthecostoffinancingontotalinvestments.𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑_𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟=𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐_𝑜𝑜𝑜𝑜_𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑×𝑠𝑠ℎ𝑎𝑎𝑎𝑎𝑎𝑎_𝑜𝑜𝑜𝑜_𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑+𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐_𝑜𝑜𝑜𝑜_𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒×𝑠𝑠ℎ𝑎𝑎𝑎𝑎𝑎𝑎_𝑜𝑜𝑜𝑜_𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒44FinancingtheGreenEnergyTransition:AUS$50trillioncatchEndnotesEndnotes1.IntergovernmentalPanelonclimateChange,“AR5ClimateChange:The28.GoldmanSachsEconomicResearch,“Thepathto2075–SlowerGlobalPhysicalScienceBasis–SummaryforPolicymakers”,2013.Growth,ButConvergenceRemainsIntact”,December2022.2.EuropeanCommission,“ConsequencesofClimateChange”,accessed29.TheWorldBank,“CarbonPricingDashboard”,accessedAugust2023.August2023.30.InstituteforClimateEconomics,“GlobalCarbonAccountsin2022”,3.IntergovernmentalPanelonclimateChange,“GlobalWarmingof1.5°C-September2022.SummaryforPolicymakers”,2018.31.TaskforceHydrogène,“Stratégieshydrogène”,accessedAugust2023.4.WorldResourcesInstitute,“4ChartsExplainGreenhouseGasEmissionsbyCountriesandSectors”,February2020.32.TheUSCongress,“InflationReductionActof2022”,August2022.5.JulianneDeAngeloetal.,“Energysystemsinscenariosatnet-zeroCO233.Accordingtoanopenlettersentby18organizationstofederalagencies.emissions”,NaturecommunicationsVol.12(1),2021.34.ClimateWatch,“Net-Zero-Tracker–TargetYear”,accessedAugust2023.6.OytunBabacanetal.,“Assessingthefeasibilityofcarbondioxidemitigationoptionsintermsofenergyusage”,NatureEnergyVol.5(9),2020.35.ClimateWatch,“Net-Zero-Tracker–TargetStatus”,accessedAugust2023.7.InternationalRenewableEnergyAgency,“GlobalHydrogenTradetoMeet36.InstituteforEnergyEconomicsandFinancialAnal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lobalnetworkofmemberfirms,andtheirrelatedentities(collectively,the“Deloitteorganization”).DTTL(alsoreferredtoas“DeloitteGlobal”)andeachofitsmemberfirmsandrelatedentitiesarelegallyseparateandindependententities,whichcannotobligateorbindeachotherinrespectofthirdparties.DTTLandeachDTTLmemberfirmandrelatedentityisliableonlyforitsownactsandomissions,andnotthoseofeachother.DTTLdoesnotprovideservicestoclients.Pleaseseewww.deloitte.com/abouttolearnmore.Thiscommunicationcontainsgeneralinformationonly,andnoneofDeloitteToucheTohmatsuLimited(“DTTL”),itsglobalnetworkofmemberfirmsortheirrelatedentities(collectively,the“Deloitteorganization”)is,bymeansofthiscommunication,renderingprofessionaladviceorservices.Beforemakinganydecisionortakinganyactionthatmayaffectyourfinancesoryourbusiness,youshouldconsultaqualifiedprofessionaladviser.Norepresentations,warrantiesorundertakings(expressorimplied)aregivenastotheaccuracyorcompletenessoftheinformationinthiscommunication,andnoneofDTTL,itsmemberfirms,relatedentities,employeesoragentsshallbeliableorresponsibleforanylossordamagewhatsoeverarisingdirectlyorindirectlyinconnectionwithanypersonrelyingonthiscommunication.©2023.Forinformation,contactDeloitteGlobal.DesignedbyCoReCreativeServices.RITM1609765

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