Renewable energy investment environment is affected by higher capital costs, particularly in the wind sector and, geographically, in North America

A USD 18 trillion shortfall is impeding the progress of the green energy transition up to 2030, primarily hindered by adverse investment conditions, according to a report by the Boston Consulting Group (BCG) Centre for Energy Impact. The study, titled “Bridging the USD 18 Trillion Gap in Net Zero Capital,” scrutinises 260 of the world’s largest energy companies across power and utilities, oil and gas, and private equity.

Inflation, high capital costs, and supply chain pressures are critical factors slowing the energy transition. Despite these challenges, the energy sector has demonstrated proactive responses. Transactions within the sector surpassing USD 320 billion in 2023 indicate a fine-tuning of capital structures for the energy transition. The report builds on BCG’s previous publication, “The Energy Transition Blueprint,” emphasising the need for a USD 37 trillion investment by 2030 to facilitate the energy transition. Out of this, USD 19 trillion is already committed, with 20 per cent expected from government spending and 80 per cent from private capital. The latter includes contributions from private equity (USD 2 trillion), the oil and gas industry (USD 3 trillion), national oil companies (USD 4 trillion), and utilities companies (USD 6 trillion).

Nearly USD 2 trillion in new government spending is part of the committed investment. Company targets suggest a 15 per cent increase in energy expenditures between 2023 and 2027, with a rising share allocated to low-carbon investments. Approximately 70 per cent of the projected capital flows until 2030 are anticipated from the US (30 per cent), China (19 per cent), and Europe (18 per cent). The report identifies electricity, including renewable power investments and end use, encompassing consumer and industrial spending, as the most challenging areas. These sectors account for almost 90 per cent of the USD 18 trillion capital gap.

The renewable energy investment environment is affected by higher capital costs, particularly in the wind sector and, geographically, in North America. However, signs of consolidation in renewables are emerging to support ongoing investment. Power and utility companies are divesting assets to reduce debt and meet financing requirements. For end-users, a substantial USD 9 trillion investment shortfall is anticipated by 2030. Challenges include bureaucratic hurdles, insufficient infrastructure, and weak business cases. Notably, 93 per cent of proposed carbon capture projects and other investments remain in the early planning stages.