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Over the past decade, global investment spending on the energy transition has increased significantly, with up to $5.2 trillion of investment in the market across investor categories (including PE funds, venture capital, pension funds, strategic investors, etc.). has flowed into. However, the majority of this (about 60%) is directed towards renewable energy only.
Renewables can decarbonize only about 20% of the world’s total energy consumption, while the remaining 80% has not yet been penetrated. The focus now is on investments targeting the decarbonization of key pieces of the energy consumption puzzle. These areas have already attracted around $1 trillion worth of investment in the past two years. Given the emphasis on accelerating decarbonisation, COP28 will focus on long-term goals and the entire energy transition chain is expected to see higher rates of investment than seen over the past decade. Masu.
At the current rate of decarbonization, global warming is on a trajectory of 2.1 to 2.8 degrees Celsius, as opposed to the targeted 1.5 degrees Celsius trajectory. The recent COP28 urged countries to reconsider their Nationally Determined Contribution (NDC) emission reduction targets for the next two years, ensuring the inclusion of all GHGs and limiting global warming to 1.5 degrees. The focus was on what I wanted. COP28 mobilized $30 billion in UAE funds, with an additional $250 billion expected in climate change investment by 2030. Key areas attracting attention and investment include renewable energy, green hydrogen, carbon economy and energy efficiency. The Indian market is expected to cover a wide variety of sectors. Subsegments of the energy transition chain will see varying levels of investor traction next year.
Renewable energy provides scope for additional capital as countries race to increase production capacity and meet renewable energy goals. However, when it comes to investing in the energy transition, investors are currently building a disproportionate pipeline of non-renewable energy segments.
Smart meters provide a venue for large-scale capital deployment next year. To date, India has licensed around 222 million smart meters (of which only around 8 million have been installed) and aims to install around 250 million smart meters by December 2025. To achieve the goal of installation, there is scope for rapid implementation.
Circular economy, such as waste and water management and waste-to-energy, has seen strong traction in recent years with investors looking to inject capital into this sector. The presence of fragmented and decentralized players has been confirmed in this segment, creating strong consolidation opportunities in the near future. Investors are showing significant interest in sub-segments such as biofuels (including biogas) and sustainable aviation fuels, with multiple partnerships and individual targets announced.
The carbon economy is a nascent industry and is already attracting strong investor attention. The Indian government aims to have a carbon credit trading scheme operational by 2026 and increase attention to carbon markets, but other business models are also emerging. These include developments such as carbon communities, CCUS technology, and ancillary decarbonization services that are in early stages of feasibility testing. The formalization of this segment is expected to proceed into 2024 with strong traction in the coming years.
Regarding green hydrogen, in recent years there has been little investment or capital commitment across the green hydrogen value chain, but more strategic partnerships/JVs have been formed. We expect this segment to gain investment attention in 2024 as players build capacity while proving commercial viability and investors support new business models across the value chain.
While green hydrogen will gain investment attention in 2024, the rest of the energy transition chain will contribute to the expansion of business segments across themes such as circular economy, energy efficiency, carbon markets, carbon capture technologies and energy storage. .
The emerging energy transition segment has already attracted approximately $1 trillion in investments worldwide in the past two years and is expected to accelerate in pace over the next decade. Most of these segments are in early stages of development and most of the players are fragmented, so early stage investors with a higher risk appetite, such as funds established with specific decarbonization obligations. It is expected that participation will increase. As these businesses scale up and achieve commercial viability, these sectors will attract larger private equity funds.
The transition chain consists of industries with different risk profiles, sector stages and return levels, which provide investment opportunities to different sets of investors with different investment obligations.
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