Investing in Renewable Energy is a win-win for the impact-minded private investor
In our introduction to True North Impact Fund I, we identified climate change as a thematic focus for significant investing potential to make an impact while realizing competitive financial returns. From more frequent and extreme weather events to rapidly rising temperatures, climate change is already impacting our planet. In 2018, the United Nations Intergovernmental Panel on Climate Change (IPCC) warned that global warming beyond 1.5 degrees Celsius (above pre-industrial levels) could have irreversible effects on our planet [1]. In its call-to-action, the IPCC urged that carbon emissions must be cut by 45% by 2030 to meet this 1.5-degree challenge. Achieving such an extraordinary reduction in just 10 years requires us to reflect on where cuts can and must be made. A major contributor to carbon emissions and, ultimately, climate change, is conventional power generation, with coal and natural gas making up 40% of global CO2 emissions overall [2]. By generating energy from renewable sources like solar and wind, and becoming more energy-efficient, we have the potential to reduce CO2 emissions by 90% [2]. Clearly, renewable energy is the key to helping us meet the IPCC’s goals.
Rapidly growing populations and increased industrialization have accelerated global energy consumption, which is set to see a 50% increase by 2050 [3]. While the Covid-19 pandemic decreased energy demand in early 2020 particularly from coal and gas sources, renewable sources of energy have seen growth [4]. Due to lower operating costs and increases in capacity, renewable sources are on track to make up almost 30% of worldwide energy by the end of 2020 [5]. Advances in technology, improved infrastructure, and increased production efficiencies have allowed solar and wind to compete with coal and gas, and these are now often the most cost-effective energy source in many countries [5]. In the past, investments in renewable energy used to come with a trade-off, forcing a choice between cost-savings and the environment. Now, renewables are a win-win for many, and with their falling costs and positive impact on our planet, there is a strong economic rationale for investing in this field.
Renewable energy is a steadily growing market that will reach USD 1.5 trillion by 2025, representing an attractive opportunity for investors across many geographies [6]. Typically, investments in renewable energy generation require hundred-millions to billions of dollars, so where can the private investor act? True North has identified investment opportunities in ancillary renewable energy industries, such as products, analytics, and storage, where private investors can make the most impact. In the U.S., Canada, and Western Europe, artificial intelligence and predictive analytics help identify energy consumption patterns through innovations like at-home smart meters and appliances. In China, large-scale development of renewable sources in response to the country’s commitment to clean energy will increase demand for smart grid networks and management systems [7]. In Africa, growing megacities and the need for organized waste collection turn the spotlight on waste-to-energy technologies, and rising electricity costs favour solar water heating panels for home use [8]. Many of these innovations are still in early stages, but private capital has the chance to help accelerate progress before it is too late.
Renewable energy’s potential to contribute positively to our climate is clear and investors have the power to further drive this demand. To reach the UN goals, 82% of our power must come from renewable sources by 2030, and immediate and comprehensive action is required by both governments and private investors. For example, Canada has committed to a 90% “clean energy” grid by 2030, and increased investment into renewable sources of power [9]. The market is moving toward renewables, and private investors can focus on renewable energy products and efficiency analytics. Addressing opportunities in climate change and renewable energy is just one of the ways we are building our portfolio at True North, giving investors the chance to make an impact while realizing returns.
To learn more about our True North Impact Fund I and how we connect investor capital based on the UN SDGs with impactful ventures around the world, please contact Fund Manager, Kai Chen (kai@truenorthimpact.com).
[2] McKinsey - The 1.5-degree challenge
[3] US EIA - Today in Energy
[4] IEA - Global Energy Review 2020
[5] Lazard - Levelized Cost of Energy
[6] Statista - Size of the renewable energy market worldwide
[7] McKinsey - Evolution of the smart grid in China
[8] The Africa Report - Now is the time to turn Africa’s waste into energy
[9] Government of Canada - Canada’s actions to reduce emissions