The energy transition has become a significant opportunity in the infrastructure sector, with a majority of transactions in the past decade occurring in this domain. The need for substantial investment in sustainable energy solutions is crucial as the world grapples with climate change.
According to Bloomberg New Energy Finance (BNEF), an estimated USD 175 trillion will be required by 2050 to facilitate this transition, with a significant portion allocated to renewable energy and transforming the transport sector. Decarbonizing transport represents a significant investment opportunity, especially as stakeholders prioritize sustainability.
Investors have tools to evaluate the risk-return profiles of energy transition opportunities, but quantifying the impact of these investments remains challenging. To address this, a new Impact Return Metric has been introduced, allowing for a comparative analysis of energy transition investments based on CO2 equivalent (CO2-eq) avoided per dollar invested. This metric reveals that transportation investments often have a higher impact return than renewables, particularly in regions with clean electricity grids. This insight is crucial for investors aiming to achieve meaningful carbon reduction outcomes.
Over the past decade, a majority of investments in the energy transition have been directed towards grid decarbonization, primarily through renewable energy sources. This has led to a significant reduction in the carbon intensity of electricity grids in developed markets, enabling broader electrification initiatives. Electrifying transport has emerged as a key beneficiary of this trend, with BNEF identifying it as the largest investment sector within the energy transition landscape.
The impact of electrifying transport is closely tied to grid emissions. In countries with cleaner grids, investments in electric vehicles (EVs) can result in substantial carbon reduction impacts. However, in regions with higher grid emissions, the benefits of such investments are diminished. As grids continue to decarbonize, the impact return from electrifying transport is expected to increase, making it a more attractive investment avenue.
The newly introduced Impact Return Metric offers a quantitative framework for assessing the CO2-eq avoided per dollar invested, allowing for comparisons between transport and renewable energy investments across different geographies. Analysis shows that in countries with low grid emissions, the impact return for electrified transportation can be significantly higher than for new wind investments. On the other hand, in countries with higher grid emissions, investing in wind power can yield a greater impact return compared to transport investments. Considering grid emissions is crucial when evaluating the impact return of electrification initiatives.
The impact return of transport investments can vary widely depending on the characteristics of vehicles and their use cases. Factors such as utilization rates, operating speeds, idling times, and load capacities significantly influence potential returns. Applications like baggage tractors and terminal tractors demonstrate high impact returns due to their utilization rates and operational characteristics. On the other hand, less efficient applications like school buses have lower impact returns due to their high upfront costs and limited operational use. To maximize impact returns, investors should focus on applications with advantageous duty cycle characteristics, particularly in regions with low grid emissions.
The transport sector offers substantial opportunities for impact at scale in the energy transition. By leveraging the insights provided by the Impact Return Metric and understanding the nuances of different transport applications, investors can strategically position themselves to capitalize on the evolving landscape of sustainable energy investments.