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Regulation and economics driving the greening of energy

Different powerful forces are driving the greening of energy generation, experts agreed at Real Asset Media’s Infrastructure summit: investing in new energy briefing, which was held online on REALX.Global recently.

Jim Wright, listed infrastructure fund manager, Premier Miton Investors

“The real key is the two parallel drivers working in tandem in the same direction and pushing for investments into energy transition”, said Jim Wright, listed infrastructure fund manager, Premier Miton Investors. “One is policy, as there is a global policy consensus, and the other is economics, as renewable energy is getting cheaper”.

The economic factor is important, said Wright: “Even under the hostile Trump administration solar and wind energy became 12% cheaper and that’s a powerful driver because it shows renewables make economic sense”.

Agreement on policy is crucial now that the US is being constructive on climate change and China is serious about reducing emissions. The EU has been at the forefront of green taxonomy and all 27 countries support the energy transition.

“There is pressure on companies from EU and national regulators”, said Sophia Truong, Energy law, PwC Legal. “In Germany the pressure is huge. The Federal Constitutional Court overruled our climate law because it doesn’t protect future generations enough”.

There is global consensus on the end goal of net zero emissions, but regulatory paths will differ depending on the situation each country is in.

Sophia Truong, Energy law, PwC Legal

“In the UK we’re happy to have a carbon tax, which is a stick to beat us with, while the US goes for the carrot of a tax credit”, said Wright. “An incentive is needed because a tax would not be tolerated. It’s interesting to see how different governments frame the issue, but they are all moving in the same direction, China included”.

As for companies, some are already tackling the issue but many more will have to follow soon because the pressure will only increase. The health crisis caused by Covid-19 has strengthened the case for the transition to green energy as a way of getting the economy back on track.

“Most governments see the transition as a way of relaunching their economies after the pandemic”, said Alejandro Ciruelos, managing director, renewable energy, Sustainable Development Capital LLP. “The need to foster the green recovery has focused everyone’s intentions, and investors and companies are aware of the risks of ignoring the issue. They know they just can’t carry on as before”.

Energy demand has been negatively impacted by the pandemic because of the correlation to GDP which has fallen across the board, but renewable sources of energy have remained on an upward curve.

“The sustainable and clean energy sector has proved to be extremely resilient”, said Ciruelos. “The economic headwinds have been counter-balanced by increasing interest in decarbonisation”.