Last Updated: October 27, 2022
The International Energy Agency said Thursday it believes global energy emissions will peak in 2025 as surging prices due to the Russian invasion of Ukraine propel investment in renewables.
Only last year the IEA said there was “no clear peak in sight” in energy emissions, but the new higher investment in wind and solar is setting up demand for all fossil fuels to peak or plateau, leading to a drop in emissions.
“The global energy crisis triggered by Russia’s invasion of Ukraine is causing profound and long-lasting changes that have the potential to hasten the transition to a more sustainable and secure energy system,” the IEA said as it released its latest annual World Energy Outlook report.
Based on the latest measures and policies announced by governments in the face of soaring energy prices, the IEA forecasts global clean energy investment to rise by more than 50 percent from today’s levels to $2 trillion per year by 2030.
Those measures will propel sustained gains in renewables and nuclear power.
“As a result, a high point for global emissions is reached in 2025,” the IEA said.
Global energy-related CO2 emissions are then set to fall back slowly from a high point of 37 billion tonnes per year to 32 billion tonnes by 2050, it added.
The Paris-based organisation, which advises energy-consuming nations, said that its forecast sees demand for all types of fossil fuels peaking or hitting a plateau.
Coal use, which has seen a temporary bump higher, will drop back in the next few years as more renewables come online.
Natural gas hits a plateau at the end of the decade, instead of the previous forecast of a steady rise.
Oil demand levels off in the mid-2030s and then gradually declines towards mid-century due to uptake of electric vehicles, instead of the earlier estimate of a steady increase.
Overall, the share of fossil fuels in the global energy mix in the IEA’s stated policies scenario falls from around 80 percent to just above 60 percent by 2050.
Energy markets ‘changed’
“Energy markets and policies have changed as a result of Russia’s invasion of Ukraine, not just for the time being, but for decades to come,” said IEA Executive Director Fatih Birol in a statement as the report was released.
But that will still leave the world on track for a rise in global temperatures of around 2.5 degrees Celsius by the end of the century, which would likely trigger severe climate change impacts.
The IEA also has a scenario to arrive at zero net emissions in 2050, which is seen as necessary to hit the 1.5C warming target enshrined in the Paris climate pact.
That would require clean energy investments to rise to $4 trillion per year by 2030, instead of the current forecast of $2 trillion.
“The IEA, with all its expertise and authority is clear: clean energy investments must triple by 2030, and gas is a dead end,” said Laurence Tubiana, head of the European Climate Foundation and France’s former climate ambassador.
“The current European energy crisis clearly proves the dangers of gas: high price, volatility, geopolitical dependence,” she added.
“We are approaching to the end of the golden age of gas,” the IEA’s Birol said at a later news conference.
The IEA’s analyses show “that we are seeing a turning point in the history of energy and this crisis indeed accelerates clean energy transitions,” he added.
However Birol noted that energy security, not climate change, is “the biggest driver for renewable” energy development currently.
Another motivation is that governments want to ensure they have got in on the manufacturing of new renewable energy technologies.
“The three drivers, when they come together, is the reason I am optimistic we are going to see an acceleration of clean energy technologies,” Birol said.
Russia takes $1tn hit
The IEA’s analyses also concluded that this energy crisis has also harmed Russia’s long-term economic outlook.
By reducing natural gas supplies to European nations it has not only pushed them to accelerate their transition to renewables, but reduced the attractivity of gas in security terms while making it expensive for developing markets.
“Russia’s role in the international energy affairs will be diminished, much diminished in terms of oil and gas trade,” said Birol.
“As a result of the decline in oil and gas sales between now and 2030, Russia will lose about $1 trillion in export revenues” according to IEA calculations, he added.
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Asia-Pacific power demand growth to stabilise, energy transition to continue
SECTIONSAsia-Pacific power demand growth to stabilise, energy transition to continueET SpotlightLast Updated: Dec 13, 2022, 03:14 PM IST
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Synopsis
Fitch expects hedging strategies to offer considerable protection against risks associated with the Indian Rupee’s depreciation for their portfolio of Indian renewable infrastructure issuers.
ET Spotlight
Fitch Ratings expects a stable operating environment for the Asia-Pacific (APAC) power and renewables sector in 2023, Fitch Ratings expects a stable operating environment for the , as most of the region will see flat to marginally lower economic growth. The countries will also continue to support the transition to cleaner energy generation, though rigour will vary with each country’s fiscal position.
We forecast most of the APAC region to see electricity demand growth in 2023; however, the growth is likely to be marginally lower YOY due to muted economic growth and lower but still elevated commodity prices. The region will continue to electrify to support rising power consumption over the medium term. India saw high temperatures and, hence, strong electricity demand in 2022. This is likely to result in a further lower power demand growth rate in 2023. On the other hand, Fitch expects the demand growth rate in China to pick up as the country recovers from Covid-19 pandemic-related lockdowns.
Most APAC countries have set long-term renewable capacity addition targets. We expect a slew of related measures from respective governments in the short term, including support for new technology, such as ‘green’ hydrogen and offshore renewables. However, stretched fiscal positions may cap financial support in 2023. China and India plan to increase renewable power capacity to over half of the total installed capacity by 2025 and 2030, respectively. Indonesia aims to add 41 gigawatts in the next decade, with renewable energy making up the majority of installed capacity for the first time. Vietnam intends to add around 70 gigawatts of capacity in the next decade, with renewables accounting for 36%-39%. We expect continued support from the respective governments in the medium term to achieve these targets.
Fitch-rated Indian-restricted renewable energy portfolios are all operational. Hence, there would not be an impact from a rise in solar module prices. However, we do expect an upward revision in solar tariffs for new projects against the backdrop of higher commodity prices and freight tariffs and for construction to pick up once distribution companies accept the new prices. The tariffs should remain competitive, as fossil-fuel prices will remain elevated, albeit lower than in 2022. Financing options will remain tight, but renewable projects should score relatively better.
Chargeable power tariffs are usually fixed for the long term. An increase in operational costs would eat into margins, though a hike in taxes can usually be passed through as a change in the law. Nevertheless, revenue indexation at coal-fired and geothermal power projects and high operating margins at renewable assets should mitigate the impact of high inflation. We expect better receivable positions at rated Indian renewable energy issuers in 2023, after cash collection deteriorated in the financial year ended March 2022, supported by measures already taken by the government. We believe the government’s planned budgetary support and reform measures will improve the situation further.
ET_Chart.PNG
ET Spotlight
Fitch expects hedging strategies to offer considerable protection against risks associated with the Indian Rupee’s depreciation for their portfolio of Indian renewable infrastructure issuers. The Rupee has depreciated by about 10% year-to-date against the five-year annual depreciation of 1.8% up until end-December 2021. Coupon payments for eight of the 11 transactions are fully hedged. Adani Green Energy Limited’s two restricted groups roll over coupon hedges annually. JSW Hydro Energy Limited hedges its coupon payments up to at-the-money-forward and then has exposure. The scheduled amortisation payments, mandatory cash sweeps, and bullet or balloon payments are substantially hedged. The cash exposure of bullet or balloon payments will only begin to materialise from 2024, as that is the earliest maturity.
We expect the coal price to fall in 2023 from the peak in 2022. Fuel costs are passed through in power purchase contracts of Fitch-rated thermal projects; however, lower costs will reduce the implications of lower efficiency at our rated projects. On the other hand, the benefit of higher offtake and soaring power-exchange prices at renewable projects in the case of lower thermal power generation should be moderate.
The sector’s primary credit metric – the debt service coverage ratio (DSCR) – stays above the threshold commensurate with current ratings; however, it will be under marginal pressure because of anticipated inflation and currency depreciation. Inflation and higher taxes will lower profit margins, while currency depreciation may require higher debt servicing in local-currency terms. The rating thresholds for power generators vary with technology and off-taker credit quality.
Economic headwinds have dented institutional investors’ appetite for renewable bonds, despite rising awareness of environmental, social and governance issues. The earliest maturities of Fitch’s rated portfolio are in 2024, but the persistently high cost of debt will increase refinancing pressure. More issuers may tap domestic markets or other alternate funding sources, availing call options as and when feasible.
Our outlook on the ratings of issuers in our portfolio has been mostly stable over the past few years. We expect limited rating changes over the next year, with all but one of the issuers on stable outlook, supported by either contractual or regulatory protection from demand risk. All 17 transactions have sufficient liquidity to withstand shocks, and cash collection is improving.
For more details, please check Fitch Ratings’ report ” Asia-Pacific Power and Renewable Projects Outlook 2023 “. It can also be accessed at Fitch’s official website .
Authors:
Rachna Jain, Director, Asia-Pacific Infrastructure & Project Finance, Fitch Ratings
Sajal Kishore, Managing Director, Head of Asia-Pacific Infrastructure and Project Finance, Fitch Ratings
( Originally published on Dec 12, 2022 )
(This article is generated and published by ET Spotlight team. You can get in touch with them on etspotlight@timesinternet.in)
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