Debt for climate and green power

South Africa’s Deputy Finance Minister David Masondo floated an interesting idea recently. He suggested investors forgive some $10 billion of the country’s sovereign debt in exchange for the country’s national power utility, Eskom Holdings, going greener. “High levels of indebtedness can hold up what is urgently needed — an acceleration of the energy transition,” Masondo said last month. Such a deal in South Africa would create “a blueprint for other transitioning middle-income, coal-dependent economies,” Bloomberg News reported him saying. 

There are concerns about the repercussions of such a debt-for-climate plan, which he insisted does not imply a haircut for creditors. The concept was suggested by International Monetary Fund Managing Director Kristalina Georgieva earlier this year. It will likely be a topic of discussion at the COP26 climate meeting in Glasgow, in the UK.

The unwillingness or inability of the developed countries to provide the $100 billion promised to the developing countries annually from 2020 will also be a part of the conference chatter, even as there are attempts to ratchet up that overall number. News reports quoted Patricia Espinosa, executive secretary at the United Nations Framework Convention on Climate Change, as saying that discussion on a higher target post-2025 should be initiated at the COP26 gathering. 

India’s climate targets are not conditional, but its negotiating position has been that finance and technology must be made available to developing countries in the true spirit of common but differentiated responsibility.

Energy is at the centre of another global debate ahead of winter. Higher oil, gas and coal prices — a result of both demand and supply factors — are disrupting power supply in some regions. The ripple effects are being seen in the rising price of goods and services. The optimistic view is that such price spikes will accelerate the transition to cleaner energy sources like solar and wind power. The price of the materials used in solar panels, wind turbines and batteries, however, is also heading up. 

The key indicators of the energy and mobility transition remain robust for now, as seen below. But a lot more activity is needed to avoid the most serious outcomes of a warming planet and the extreme weather that accompanies it.

Electric vehicles: As many as 5.6 million electric vehicles are projected to be sold this year, according to the latest update from BloombergNEF, an 80 per cent jump from last year’s 3.1 million. Cheaper batteries, better economics, more models and expanded charging infrastructure  are driving this growth of electric passenger cars. China and Europe will continue to lead sales.  In the two- and three-wheeler segment, almost half of all sales last year were of the electric variety. Sales of electric vehicles in India are just starting to pick up pace. Tata Motors crossed the 10,000 EV sales mark last month.

Solar and wind: Solar installations are set to cross 200 gigawatts this year, based on BNEF’s more optimistic estimates. The three largest markets would be China, the US and India. New wind installations — including offshore wind — will be less than half of solar, at 88 gigawatts. They will also be lower than last year’s 97 gigawatts.

Corporate purchases: The procurement of renewable energy by corporations around the world may hit a new record this year, with 21 gigawatts of deals already signed by August. Corporate procurement contracts signed last year totalled 25 gigawatts. This market has been setting new records each year. The leading buyers of clean power include companies like Microsoft, Amazon and TotalEnergies. Over 300 companies are committed to getting 100 per cent of their power from renewables under the RE100 initiative. India’s Ultratech Cement joined this list last month.

Net-zero emissions: The number of countries and companies committed to net-zero emissions continues to increase. In Asia, Malaysia and Sri Lanka are the latest entrants to the group of countries aspiring to nullify their net impact on the environment in a few decades. Similar announcements are likely ahead of COP26, and at the meeting itself. India has not indicated any intention of joining this club yet, and has instead flagged issues of “climate justice” and sustainable lifestyles. Environment Minister Bhupender Yadav said last month: “The world needs rapid, sustained and deep emission cuts in this decade rather than distant targets.”

Oil and gas decarbonisation: Five firms led the investment in low carbon assets in the first half of the year — TotalEnergies, Equinor, BP, Shell and Repsol. They poured funds into solar, wind, hydrogen and carbon capture technologies. In India, Bharat Petroleum announced a $13.5-billion investment plan last month focusing on petrochemicals, natural gas, electric mobility, consumer retailing as well as renewables and biofuels.  

The writer is editor – global policy for BloombergNEF. vgombar@bloomberg.net