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REPORT
EN
2015
© Brian A Jackson / Shutterstock
FIVE PERCENT
RENEWABLE
ENERGY
INVESTMENTS IN
A TWO DEGREES
WORLD
An illustrative case of allocating five
percent of Norway’s sovereign wealth
fund into infrastructure for renewable
electricity worldwide.
Written by Lars Erik Mangset and Stefano Esposito
We would like to thank the following contributors and reviewers (any errors that remain are the sole
responsibility of the two authors):
Kristian Petrick (Consultant and IEA-RETD Operating Agent)
Jan Schelling (Statkraft)
Tabaré Arroyo Curras (Advisor on Energy Economics, WWF International)
Hugo Lucas Porta (Adjunct Professor, Faculty of Environmental Studies, York University)
William Blyth (Associate Fellow Chatham House, Honorary Research Fellow, Imperial College London,
Director at Oxford Energy Associates).
Santiago Lorenzo Alonso (WWF’s Global Climate and Energy Initiative)
Stephan Singer (WWF International)
Matthias Kopp (WWF Germany)
Ester Rønsen (Student at the University of Oslo)
And a special thanks to Svensk PostkodStiftelsen, for the unconditional financial contribution to our work on
sustainable finance.
Contact persons:
Lars Erik Mangset, Senior advisor, sustainable finance, +47 93 20 94 94 [email protected]
Stefano Esposito, Advisor, sustainable finance, +47 94 43 81 64 [email protected]
WWF-Norway: +47 22 03 65 00
Graphic design: Stefano Esposito (report), Lene Jensen (front/last page)
Front cover photo:
© Brian A Jackson / Shutterstock
Published in November 2015
by WWF-World Wide Fund For Nature (Formerly World Wildlife Fund)
Oslo, Norway
Any reproduction in full or in part must mention the title and
credit the above-mentioned publisher as the copyright owner.
© 2015 WWF All rights reserved
WWF is one of the world’s largest and most experienced
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and promoting the reduction of pollution and wasteful consumption.
Five percent renewable energy investments in a 2 degrees world
CONTENTS
CONTENTS ............................................................................................................................................... 2
FOREWORD ............................................................................................................................................. 3
INTRODUCTION ....................................................................................................................................... 4
METHODOLOGY ...................................................................................................................................... 7
#1 Forecast of the future market value of the investor ..................................................................... 7
#2 Allocating investments to different technologies for renewable electricity generation............... 8
#3 Estimation of electricity generation associated with the investment ........................................... 9
#4 The effect of replacing a mix of electricity from fossil energy sources with renewable energy . 11
MODELLING RESULT.............................................................................................................................. 13
5 percent investment by the GPFG ................................................................................................... 13
5 percent investment by UNPRI’s signatories................................................................................... 15
5 percent investment by CERES’s International Network on Climate Risk ....................................... 17
DISCUSSION........................................................................................................................................... 19
Technical discussion on the model ................................................................................................... 19
What is the role of investments to be able to stay below 2-degrees global warming? ................... 21
REFERENCES .......................................................................................................................................... 23
2
Five percent renewable energy investments in a 2 degrees world
FOREWORD
Our planet faces a massive challenge. Scientists are now certain that human activity is changing the global climate.
Production and consumption of fossil fuels in all sectors of modern economy is the largest single source of global
greenhouse gas emissions.
The consequences are already affecting people’s lives and all natural ecosystems. In order to hinder further
catastrophic consequences, it is necessary to contain global warming within 1.5 - 2 degrees. To do so, the world
urgently needs to shift from an energy system based on polluting fossil fuels, to a world powered by clean renewable
energy.
To build low-carbon and resilient societies we require a new approach to finance, which has the power to change
the way investments shape our economies and promote some sectors instead of others. To achieve the necessary
changes, global investments must shift away from companies and projects that are causing the problem, and over
to renewable energy infrastructure, such as wind and solar power plants. These technologies are increasingly
becoming cost-competitive, and there is a growing need for investments. However, many countries struggle to
mobilise the necessary finance to achieve this change. Sovereign wealth funds and other public financial institutions
can play a key role in expanding access to capital and reducing financing costs, as underlined in the UN’s New
Climate Economy Report (2014).
Norway’s sovereign wealth fund – the «GPFG» - is the world’s largest fund of its kind, owning 1,3 percent of the
world’s listed companies. WWF is advocating a mandate for the fund to invest up to five percent of its value directly
in renewable energy and related infrastructure. In this report, WWF asks the question: what would happen if the
GPFG would adopt such a mandate? The illustrative results show that by gradually allocating five percent of the
GPFG´s capital holding, the fund has a huge potential to finance new renewable power plants that will generate
clean electricity for many decades and, at the same time, avert a large quantity of greenhouse gas emissions.
Considering its size, the GPFG can be a key driving force in the ongoing transformation of the world’s energy
markets, in which renewable energy will need to take over the dominating role fossil fuels have today, as many
analyses show (IEA 2014, Bloomberg 2013). When a huge and trustworthy institution like the GPFG changes its
priorities, one can expect significant ripple effects in the wider realm of finance. This would also contribute to
develop and facilitate the creation of market structures, which are necessary to build more sustainable energy
system and markets.
Humankind is on the eve of another industrial revolution. The energy sector is at the core of it and opportunities
will rise for investors to be at the forefront of this change. Early movers will be able to better position themselves
for this new economy. There is no doubt that uncertainties exist, but being conservative will not help in avoiding
risks (Mercer, 2015). Sustained and sustainable investments, together with new business practices, are necessary
to build the energy system of the future. Norway has a unique possibility to affect this development in a positive
way by changing the investment strategy of the GPFG. This report illustrates the potential climate benefit of doing
so.
Santiago Lorenzo Alonso
Head of Green Finance for WWF’s Global Climate and Energy Initiative.
3
Five percent renewable energy investments in a 2 degrees world
INTRODUCTION
It is widely acknowledged that to achieve global sustainable development, we must transform our energy system
from one which is heavily reliant on fossil fuels, to one which uses clean and safe renewable energy sources like
wind, sun and water. However, neither today’s government policies nor current investment levels appear strong
enough to drive this transition at the scale and speed that is necessary to limit global warming. To have a 50 percent
chance of limiting global warming to 2 degrees Celsius, the concentration of greenhouse gases (GHGs) should
remain below 450 ppm (IEA, 2014a; IEA, 2014b).
One key action to drive this energy transition in the right direction is to increase the direct financing of
infrastructure for renewable energy (OECD, 2015a). While such investments have experienced relative high growth
rates in the past decades (UNEP, 2015), the world needs further and sustained growth of financial resources to have
a chance to reach the internationally agreed climate stabilisation goal (IEA, 2015b).
The shift from fossil to renewable energy will not only contribute to ensuring a more climate-friendly future, but it
also presents merits from a pure business case perspective. In fact, clean energy sources, solar and wind in
particular, are becoming cheaper and more cost competitive vis-à-vis the incumbent fossil-based alternatives
(BNEF, 2015b). An historical milestone was reached in 2013, when new capacity for renewable electricity
generation surpassed that of fossil electricity (BNEF, 2015a) – with forecasts suggesting that this trend will only
intensify in the coming years (IEA, 2015a; BNEF, 2015b).
The focus of our report is the potential for institutional investors to increase their investments directly into
renewable energy, and the associated societal and climatic benefits if they do so.
Institutional investors represent sovereign wealth funds, insurance companies, investment and pension funds,
which together held about 83 trillion USD in assets in the OECD alone in 2012 (Kaminker et al. 2013; IEA, 2014b).
Such financial institutions appear particularly well suited to invest directly into renewable energy infrastructure
considering their long-term investment horizon, and that energy projects could meet their needs by delivering lowrisk, predictable returns (UNEP, 2015; IEA, 2014. Ceres, 2014. OECD, 2013). However, latest figures on pension
funds show that they invest on average less than 1 percent of their total capital holdings directly into infrastructure
projects, with an even smaller percentage of this going to green infrastructure (OECD, 2013). CERES, a coalition of
investors, has called for institutional investors to commit 5 percent of their holdings to clean energy investments
(CERES, 2014).
Similarly to the proposal made by CERES, WWF-Norway has advocated that Norway’s Government Pension Fund
Global (GPFG), the world’s largest sovereign wealth fund, should get a new investment mandate that allows the
fund to invest up to 5 percent of its holdings directly in renewable energy infrastructure. Such a mandate would be
similar to the existing one that allows the fund to invest into real estate.
With such a backdrop, this report presents a model that aims at illustrating what would be the theoretical impact
if the GPFG were to invest 5 percent of its total holdings directly in renewable energy infrastructure, in terms of
renewable electricity capacity, generation, and associated emission averted if the clean energy substitutes fossilbased electricity generation. In this report, we outline our methodological approach used to make these illustrative
calculations taking the GPFG as a main case study, but also testing the model for two large coalitions of investors.
In particular, in our modelling approach we seek to respond to the following three high-level questions:
4
Five percent renewable energy investments in a 2 degrees world
1.
Assuming that investments increase linearly in the period 2016-2020 – what is the annual volume of
financing if the GPFG reaches a 5 percent allocation of its market value directly into renewable energy projects
by the end of 2020?
2.
Theoretically, how much electricity generated by renewable sources can be associated with the investments
volumes from the GPFG alone?
3.
Assuming that this new renewable electricity fully replaces electricity from a mix of coal, oil and gas – what
is the quantity of averted emissions of greenhouse gas?
In the methodology chapter, we outline the modelling steps to respond to these problem statements. Then, in the
result chapter, we repeat the same modelling approach for two other groups of investors:

The first group includes all investors who have signed the UN Principles for Responsible Investment
(UNPRI)1, representing about USD 45 trillion in assets in 2014.

The second group includes the Investor Network on Climate Risk (INCR), launched and managed by
CERES, representing over 100 institutional investors and more than $13 trillion in assets. 2
It is important to note that the aim of this study is to provide an estimate of the potential theoretical effects of
investing in renewable energy projects, and not to present a realistic investment case. In fact, we assume for
instance that renewable energy projects are financed with equity capital only, from one or more investors. This
suggests that our calculations may inherently underestimate how much added capacity a certain amount of equity
capital may provide in terms of new infrastructure projects. We furthermore do not take any position as for the
additionality aspects, i.e. the factors that actually drive new renewable energy capacity expansions, such as
favourable policy frameworks and mitigation measures regarding political risk factors.
Finally, the model is also freely available online at the following link: http://recalc.wwf.no/. Thanks to this tool,
any interested user can create his/her own case study, change default parameters, background data, and more.
1
http://www.unpri.org/signatories/signatories/
2
http://www.ceres.org/investor-network/incr In this report, we will refer to this group as «CERES», and not INCR, for the
sake of clarity.
5
Wind turbines funnel wind from the Columbia River Gorge, Washington-Oregon border, USA.
© National Geographic Stock / Mark Thiessen / WWF
Five percent renewable energy investments in a 2 degrees world
METHODOLOGY
#1 Forecast of the future market value of the investor
In order to estimate the amount of money that the investor would invest in new renewable energy projects
worldwide, it is first necessary to determine the future market value of the fund and, on this basis, to calculate how
much money needs to be invested to achieve a 5 percent target by 2020. The values in USD are then expressed in
USD2011 to be in line with other data used in the model. For our main case study, we have obtained a forecast of
the market value of the GPFG from 2016-2020 from the Norwegian Ministry of Finance (MOF) (MOF, 2014) as a
basis for further calculations.
1 400
1 200
930
USD billion
1 000
1 176
1 113
1 051
991
800
600
400
200
0
2016
2017
2018
2019
2020
Figure 1 - Forecasted of the GPFGs total market value expressed in USD billions using the exchange rate at 1st January 2014,
and expressed in USD2011 to be in line with other data used in the model (Source MOF 2014).
We assume that the GPFG starts to invest in 2016 in a new asset class focused on renewable energy infrastructure.
For illustrative purposes, we assume that the fund will invest in total 1 percent in 2016, 2 percent in 2017, and so
on, reaching finally 5 percent in 2020. For this modelling period, we assume that investments dedicated to
infrastructure projects are “locked”, that is, once invested in one year, that financing is tied to a specific project
throughout the modelling period. This is shown in Figure 2, where the light green bars represent the annual new
investments in renewable energy projects, while the dark green bars show the cumulative investments. To
determine the future market value of the funds in the other case studies in this report (i.e. funds under UNPRI and
CERES), we assume an arbitrary annual growth rate of 2 percent, starting with the latest known market value.
70
USD billion
60
59
50
40
45
30
32
20
10
20
9
9
14
13
12
11
0
2016
2017
5% mandate (cumulative)
2018
2019
2020
Annual investment needed to reach 5% in 2020
Figure 2 - Cumulative and annual allocations of money from the GPFGs directly into renewable energy. Value expressed in
USD2011 billion using the exchange rate at 1st January 2014 (Source MOF 2014).
The model simplifies by assuming that the investor would cover 100 percent of the capital need in a project. This is
however not common in practice, since usually several investors pool equity capital together, and projects will have
a certain amount of debt capital. This implies that our model does not include a potential catalysing effect where
one investor may unlock investment and credit from other institutions.
7
Five percent renewable energy investments in a 2 degrees world
#2 Allocating investments to different technologies for
renewable electricity generation
This study takes into account the main renewable energy technologies as classified by the International Energy
Agency (IEA), namely hydropower, bioenergy, geothermal, wind, solar PV, concentrated solar power (CSP) and
marine. The annual investment from the GPFG (Figure 2) is allocated to these different technologies in accordance
with their share of the world’s annual added electrical capacity. The renewable energy mix is defined in the IEA’s
World Energy Outlook 2014 (IEA 2014), where different climate scenarios are presented. Based on data available,
we rely on the IEA’s central scenario, called “New Policy Scenario” (NPS), in which currently discussed policies are
adopted, for the period 2016-2019. For the year 2020, we rely on the 450 scenario (450S). Table 1 shows how
investments are distributed every year among the different technologies, according to the electricity mix. This
implies that the larger part of investments will go to wind power, followed by hydropower and solar PV. These three
technologies will attract over 90 percent of annual investment.
Table 1 - The distribution of annual investment to different renewable energy generation technologies following the relative share
of added capacity in renewable power, as provided by the IEA (2014).
Annual investment by GPFG ($ bn)
Technologies in the energy mix
Hydro
Bioenergy
Wind
Geothermal
Solar PV
CSP (concentrated solar pow er)
Marine
2016
9,3
Share
29 %
6%
34 %
1%
29 %
1%
0%
$ bn
2,7
0,5
3,2
0,1
2,7
0,1
0,0
2017
10,5
Share
29 %
6%
34 %
1%
29 %
1%
0%
$ bn
3,0
0,6
3,6
0,1
3,0
0,1
0,0
2018
11,7
Share
29 %
6%
34 %
1%
29 %
1%
0%
$ bn
3,4
0,7
4,0
0,1
3,4
0,1
0,0
Arrays of solar PV panels on the Eigg off Scotland's west coast, UK.
© Global Warming Images / WWF-Canon
8
2019
13,0
Share
29 %
6%
34 %
1%
29 %
1%
0%
$ bn
3,8
0,7
4,5
0,1
3,8
0,2
0,0
2020
14,3
Share
24 %
5%
41 %
1%
29 %
1%
0%
$ bn
3,5
0,7
5,8
0,1
4,1
0,2
0,0
Five percent renewable energy investments in a 2 degrees world
#3 Estimation of electricity generation associated with the
investment
Once we have estimated the amount of money invested every year, we need to find out how many power plants can
be financed, and how much electricity they typically will produce. To do so we rely on three variables, all provided
by the data available from IPCC (2014):

Overnight capital cost (in USD/kW): it is the capital cost, excluding financing cost for construction. In
other words, it indicates the cost of building a power plant overnight as if there is no cost of capital during
its construction (i.e. capital discount rate equals zero). It includes the bare plant cost and the owner's costs
(land, cooling infrastructure, administration, site works, switchyards, project management, licences, etc.).
It excludes costs associated with financing, escalation due to increased material and labour costs, and
inflation. For this reason, while overnight cost is useful to compare the economic feasibility of building
various plants, it is not an actual estimate of construction cost. In particular, it does not take into account
any unforeseen costs and transaction costs which emerge during the construction stage. IPCC provides a
minimum, median and maximum value for overnight cost, in USD2010: this report is based on the median
value, converted for consistency in this study to USD2011.

Capacity utilization/full load hours (in hours): it expresses, for each technology, the number of hours
that a generator would spend at full load if it always operated at that level. There are 8 760 hours in a
normal year: for instance, a hydropower plant has average full load hours of 4 850 (55%).
IPCC provides minimum and maximum values, and this report relies on the average value.

Plant lifetime (in years), the number of years a typical power plant will be functioning.
IPCC (2014) provides detailed data for some sub-technologies, such as wind onshore and wind offshore, or solar
rooftop and utility. To align this dataset with the IEA’s industry classification, we calculate the average value for
main technology level by sub cumulating average values of the sub-technologies3. All data used in this study is
outlined in Table 2.
Table 2 – Key input data for every power generation technology (IPCC, 2014)
Technology
Hydropower
Biomass
Wind (onshore and offshore)
Geothermal
Solar PV (utility)
CSP (concentrated solar power.)
Ocean (Marine)
Coal - PC
Gas - Combined cycle
Overnight capital
expenditure
(USD2011/kW)
Full Load Hours
(average, hr)
Plant
lifetime
1 938
3 434
3 315
5 100
3 264
5 202
5 508
2 244
1 122
4 850
5 350
2 950
6 600
1 800
2 850
3 650
5 550
5 550
50
37
25
30
25
20
20
40
30
3
Solar PV rooftop is excluded from this analysis, since it is deemed not a relevant investment area for direct infrastructure
investments by the GPFG and in general for large investors. Only Solar PV utility is included.
9
Five percent renewable energy investments in a 2 degrees world
This study links (i) the amount of money invested annually with (ii) the cost of building power plants with different
power generation technologies, as expressed by overnight cost of capital. Specifically, we match the amount of
capital that can be invested from a 5 percent allocation of the GPFG into renewable energy projects with the average
cost of building 1 kW of electrical capacity, by using equation (1):
(1) 𝐼𝑛𝑠𝑡𝑎𝑙𝑙𝑒𝑑 𝑐𝑎𝑝𝑎𝑐𝑖𝑡𝑦(𝑘𝑊) =
𝐴𝑛𝑛𝑢𝑎𝑙 𝑖𝑛𝑣𝑒𝑠𝑡𝑚𝑒𝑛𝑡
𝑂𝑣𝑒𝑟𝑛𝑖𝑔ℎ𝑡 𝑐𝑜𝑠𝑡
The resulting new installed capacity will be represented by new hydropower plants, solar plants, wind parks,
geothermal facilities, and so on. These plants will generate a given amount of electricity every year, and to estimate
this we apply equation (2):
(2) 𝐴𝑛𝑛𝑢𝑎𝑙 𝑝𝑜𝑤𝑒𝑟 𝑔𝑒𝑛𝑒𝑟𝑎𝑡𝑖𝑜𝑛 = 𝐼𝑛𝑠𝑡𝑎𝑙𝑙𝑒𝑑 𝑐𝑎𝑝𝑎𝑐𝑖𝑡𝑦 ∗ 𝑛𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑓𝑢𝑙𝑙 𝑙𝑜𝑎𝑑 ℎ𝑜𝑢𝑟𝑠 𝑝𝑒𝑟 𝑦𝑒𝑎𝑟
Based on the above, we finally calculate the total electricity generated over the lifetime of the power plant (Figure
3), in order to derive the total electricity generation associated with a 5 percent investment mandate for the GPFG
implemented over the period of 2016-2020 (equation 3):
(3) 𝑇𝑜𝑡𝑎𝑙 𝑙𝑖𝑓𝑒𝑡𝑖𝑚𝑒 𝑝𝑜𝑤𝑒𝑟 𝑔𝑒𝑛𝑒𝑟𝑎𝑡𝑖𝑜𝑛 = 𝐴𝑛𝑛𝑢𝑎𝑙 𝑝𝑜𝑤𝑒𝑟 𝑔𝑒𝑛𝑒𝑟𝑎𝑡𝑖𝑜𝑛 ∗ 𝑙𝑖𝑓𝑒𝑡𝑖𝑚𝑒 𝑖𝑛 𝑦𝑒𝑎𝑟𝑠 𝑓𝑜𝑟 𝑒𝑎𝑐ℎ 𝑡𝑒𝑐ℎ𝑛𝑜𝑙𝑜𝑔𝑦
60
50
50
37
Years
40
25
30
30
25
20
20
CSP
(concentrated
solar power.)
Ocean (Marine)
20
10
0
Hydropower
Biomass
Wind
Geothermal
Solar PV (utility)
Figure 3 - Average lifetime of renewable energy technologies (in years) (IPCC 2014).
10
Five percent renewable energy investments in a 2 degrees world
#4 The effect of replacing a mix of electricity from fossil
energy sources with renewable energy
In order to achieve the goal of limiting the concentration of atmospheric greenhouse gases to 450 ppm by 2050,
renewable electricity generation must replace electricity generated from fossil energy sources. To illustrate the
potential effect on greenhouse gas emissions (measured in carbon dioxide equivalent, CO2 eq. 4) of a 5 percent GPFG
renewable investment mandate we ask the following question: what are the associated theoretically averted GHG
emissions if the electricity generated from the GPFG’s investment would have instead been generated by a mix of
fossil fuels?
IPCC (2014) provides data on how much greenhouse gas emission is produced per 1 kWh of electricity generated
with different technologies, both renewables and fossil-based. Table 3 shows these emission factors for each
technology, based on average life-cycle emission from electricity generation. We use the median values for our
calculation. Using the emission factors, we calculate the theoretically averted emissions if the same amount of
electricity would have been instead generated using a mix of coal, oil and gas, based on the outlined electrical
capacity mix by the IEA in the period 2016-2020. The mix of fossil fuels is calculated by allocating 100 percent of
the power generation from renewable energy to coal, oil and gas, based on their relative share of installed capacity
in the IEA scenario. The lifetime emission produced by fossil fuels is then matched against the lifetime emission
produced by renewable energy, and the difference between these emission levels constitute the amount of averted
emissions.
Table 3 – Lifecycle greenhouse gas (GHG) emissions of selected electricity supply technologies (gCO2-eq/(kWh) (IPCC 2014)
Power segment
Coal
Oil (from IPCC 2011)
Gas - Combined Cycle
Nuclear
Hydropower
Biomass (cofiring and dedicated)
Grams CO2eq/kWh
820
840
490
12
24
485
Power segment
Wind (onshore and offshore)
Geothermal
Solar PV (utility)
CSP (concentrated solar power.)
Ocean (Marine)
Grams CO2eq/kWh
12
38
48
27
17
4
CO2 equivalent is a quantity that describes, for a given mixture and amount of greenhouse gas, the amount of CO2 that would
have the same global warming potential when measured over a specified timescale (generally, 100 years).
11
A photo voltaic solar power station near Caravaca, Andalucia, Spain, with wild flowers.
© Global Warming Images / WWF-Canon
Five percent renewable energy investments in a 2 degrees world
MODELLING RESULT
5 percent investment by the GPFG
If the GPFG invests 5 percent of its market value directly in infrastructure for renewable energy by 2020 – what is
the potential volume of new installed electrical capacity and the associated electricity generation output worldwide?
Figure 4 and 5 summarize the main results from this modelling exercise.
In the first figure, the orange bars represent the new electrical capacity that is added every year due to the
investments by the GPFG, while the blue bars sum up these annual contributions. In total, 5 years of investments
will add 21 163 MW of new capacity, which is equivalent to Belgium’s total installed capacity, or ca. 20 nuclear
reactors.
25 000
Belgium total power capacity
20 000
MW
15 000
10 000
10 typical nuclear reactors
5 000
0
2016
2017
2018
2019
New capacity installed annually, MW
Cumulative capacity installed, MW
Belgium, total capacity (2011)
10 avg. nuclear reactors (2015)
2020
Figure 4 – Annual and cumulative new installed electrical capacity (MW) resulting from GPFG investing 5 percent in renewable
energy production (with 2016-2020 being the investment period).
In the second figure, the blue bars represent the annual electricity generation output (TWh) in a lifetime perspective
(see Figure 3) estimated on the basis of the GPFG´s investment volume from 2016-2020. The orange bar
represents, for comparative purposes, Norway’s hydropower generation output as a constant over time, which was
142 TWh in 2012 (SSB 2014). The GPFG’s investment in electricity generation theoretically results in an average
renewable production of 55 TWh each year from 2016-2069, equivalent to 38 percent of Norway’s total
hydropower generation in 2012. The maximum electricity generation can be observed to be 75 TWh in the period
2020-2040.
160
140
120
kWh
100
80
60
40
20
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
2031
2032
2033
2034
2035
2036
2037
2038
2039
2040
2041
2042
2043
2044
2045
2046
2047
2048
2049
2050
2051
2052
2053
2054
2055
2056
2057
2058
2059
2060
2061
2062
2063
2064
2065
2066
2067
2068
2069
0
Figure 5 - Annual, electricity generation output (TWh) resulting from GPFG investing 5 percent in renewable energy production
(with 2016-2020 being the investment period). Blue bars represent the annual electricity output derived from GPFG investment,
while the orange line shows Norway’s total hydropower generation in 2012 (142 TWh) for matters of comparison.
13
Five percent renewable energy investments in a 2 degrees world
Aggregating the electricity generation over the estimated lifetime of the different renewable technologies gives
2959 TWh, which by comparison is almost equivalent to all electricity generated in the 28 countries of the
European Union in 2012 (3 260 TWh), and 21 times Norway’s annual hydropower production in 2012.
4 500
4 000
3 500
TWh
3 000
2 500
2 000
1 500
1 000
500
0
Lifetime power gen. GPFG 2016-2069
Annual power gen. USA (2012)
Annual power gen. EU-28 (2012)
Annual hydropower gen. Norway
(2012)
Figure 6 - Comparison of total lifetime electricity generation from GPFG’s investments in renewables (SSB 2014, Eurostat 2014).
If we calculate the amount of emissions averted by generating the same amount of electricity with renewables,
instead of a mix of fossil fuels, the results show that the world would save 1859 million tonnes (Mt) of CO2
equivalent. The following figure puts this number in perspective by comparing it with annual GHG emissions from
different countries and sectors such as aviation.
1 859
million tonnes CO2 equivalent
2 000
1 800
1 600
1343
1 400
1 200
1 000
800
584
600
729
400
200
53
0
Norway (2012)
UK (2012)
Aviation sector (2010)
Japan (2012)
Theoretical GHG emissions
saving from GPFG in 20162069
Figure 7 - Averted GHG emissions from GPFG, compared with other sources (in million tonnes, Mt CO2 equivalent) (UNFCCC
2014, SSB 2014, Ecofys 2013).
14
Five percent renewable energy investments in a 2 degrees world
5 percent investment by UNPRI’s signatories
What would happen if other funds would commit to invest 5 percent of their holdings directly into renewable
energy, similar to that of the GPFG as modelled in this study? We decided to apply the same model to a large
number of institutional investors, namely those who signed the United Nations-supported Principles for
Responsible Investment (UNPRI5). The goal of these principles is to support signatories to incorporate
environmental, social, and corporate governance (ESG) issues into their investment decision making and
ownership practices. Hence, UNPRI signatories is a population of investors relevant for the consideration of which
investors that may pioneer in scaling up renewable energy investments.
In 2014, there were 1318 institutions signing the principles: 284 asset owners, 851 investment managers and 183
professional service partners, all together managing about 45 trillion and representing roughly half the total assets
controlled by institutional investors worldwide (83 trillion). The signatories of the UNPRI as such is 50 times the
size of the GPFG.
In our case study, we analyse what would be the effect on added renewable energy capacity and averted emissions
if all UNPRI’s signatories would follow exactly the same investment pattern as the GPFG (i.e. starting to invest
directly into renewable energy infrastructure in 2015 and reach 5 percent of their market value by 2020). While we
acknowledge that this would be a very optimistic achievement, we underline that this exercise is useful to make a
comparison with the previous simulation. The model can then be used in further exercises to test different time
periods and a longer time horizon. For this reason, we developed a free web-based calculator that can be used to
easily use our model with other investment cases.
Figure 8 summarizes the main results from this modelling exercise. The green bars represent the annual electricity
generation output (TWh) in a lifetime perspective estimated on the basis of the UNPRI’s investment volume from
2016-2020, assuming an arbitrary growth rate of the UNPRI fond around global inflation levels of 2 percent
annually. The orange line represents, for comparative purposes, EU-28’s power generation output, which was 3
260 TWh in 2012 (IEA 2014). The UNPRI’s investment in electricity generation theoretically results in an average
renewable energy production of 2 267 TWh per year from 2016-2069, equivalent to 70 percent of EU’s annual
power generation in 2012. The maximum electricity generation can be observed to be 3 101 TWh in the period
2020-2040.
3 500
3 000
TWh
2 500
2 000
1 500
1 000
500
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
2031
2032
2033
2034
2035
2036
2037
2038
2039
2040
2041
2042
2043
2044
2045
2046
2047
2048
2049
2050
2051
2052
2053
2054
2055
2056
2057
2058
2059
2060
2061
2062
2063
2064
2065
2066
2067
2068
2069
0
Figure 8 – The green bars represent the annual electricity generation (TWh) resulting from all UNPRI’s signatories investing 5
percent in renewable energy production (with 2016-2020 being the investment period, and the plants producing electricity until
their end of life). The orange line shows EU-28’s total power generation (3260 TWh) in 2012 for matters of comparison.
5
http://www.unpri.org/
15
Five percent renewable energy investments in a 2 degrees world
Aggregating the electricity generation over the estimated lifetime of the different renewable technologies gives 122
427 TWh, which by comparison is 5 times the total electricity generated in the world in 2012 (22 721 TWh), and
24 times China’s annual power production in 2012.
140 000
122 427
120 000
TWh
100 000
80 000
60 000
40 000
22 721
20 000
2 267
5 024
4 260
Annual power gen. China
(2012)
Annual power gen. USA
(2012)
0
Lifetime power gen. UNPRI
2016-2069
Annual power gen. UNPRI
2016-2069
Annual power gen. World
(2012)
Figure 9 - Comparison of total lifetime electricity generation from GPFG’s investments in renewables (IEA 2014).
In terms of new capacity installed, this means that, in total, 5 years of investments will add 874 000 MW of new
capacity.
If we calculate the amount of emissions averted by generating the same amount of electricity with renewables,
instead of a mix of fossil fuels, the results show that the world would save 76 944 Mt CO2 eq., equal to 2 times the
world’s annual (2011) GHG emissions and 7 times China’s annual GHG emissions. The following figure puts this
number in perspective.
90 000
80 000
76 944
Mt CO2 equivalent
70 000
60 000
45 914
50 000
40 000
30 000
20 000
10 260
10 000
6 135
4 263
0
Theoretical GHG emissions
saving from UNPRI in 20162069
World GHG emissions (2011) China GHG emissions (2011)
USA GHG emissions (2011) EU-28 GHG emissions (2011)
Figure 10 - Averted GHG emissions from GPFG, compared with other sources (in million tonnes CO2 equivalent) (IEA 2014).
16
Five percent renewable energy investments in a 2 degrees world
5 percent investment by CERES’s International Network on
Climate Risk
Our third case encompasses the Investor Network on Climate Risk (INCR), launched and managed by CERES,
representing over 100 institutional investors and more than $13 trillion in assets.
In the simulation, we analyse what would be the effect on added capacity and emissions if all signatories would
follow exactly the same investment pattern as the GPFG (i.e. starting to invest directly into renewable energy
infrastructure in 2015 and reach 5 percent of their market value by 2020). Similar to the case of the UNPRI
investors, we apply a 2 percent growth rate to the total market value of the signatories ($13 trillion)
Figure 11 summarizes the main results from this modelling exercise. The green bars represent the annual electricity
generation output (TWh) in a lifetime perspective, estimated on the INCR’s investment volume from 2016-2020.
The orange line represents, for comparative purposes, EU-28’s power generation output, which was 3 260 TWh in
2012 (IEA 2014). The investment in electricity generation theoretically results in an average renewable production
of 655 TWh per year from 2016-2069, equivalent to 20 percent of EU’s annual power generation in 2012. The
maximum electricity generation can be observed to be 896 TWh in the period 2020-2040.
3 500
3 000
TWh
2 500
2 000
1 500
1 000
500
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
2031
2032
2033
2034
2035
2036
2037
2038
2039
2040
2041
2042
2043
2044
2045
2046
2047
2048
2049
2050
2051
2052
2053
2054
2055
2056
2057
2058
2059
2060
2061
2062
2063
2064
2065
2066
2067
2068
2069
0
Figure 11 – The green bars represent the annual electricity generation (TWh) resulting from all CERES’s signatories investing 5
percent in renewable energy production (with 2016-2020 being the investment period). The orange line shows EU-28’s total
power generation in 2012 for matters of comparison.
Aggregating the electricity generation over the estimated lifetime of the different renewable technologies gives
35368 TWh, which by comparison is 1,6 times the total electricity generated in the world in 2012 (22 721 TWh),
and 7 times China’s annual power production in 2012.
40 000
35 368
35 000
30 000
22 721
TWh
25 000
20 000
15 000
10 000
5 024
4 260
3 260
Annual power gen. China
(2012)
Annual power gen. USA (2012)
Annual power gen. EU-28
(2012)
5 000
0
Lifetime power gen. INCR
2016-2069
Annual power gen. World
(2012)
Figure 12 - Comparison of total lifetime electricity generation from INCR-CERES’s investments in renewables (IEA 2014).
17
Five percent renewable energy investments in a 2 degrees world
In terms of new capacity installed, this means that, in total, 5 years of investments will add 252 000 MW of new
capacity.
If we calculate the amount of emissions averted by generating the same amount of electricity with renewables,
instead of a mix of fossil fuels, the results show that the world would save the equivalent of 2 times China’s annual
GHG emissions in 2012 and 4 times USA’s annual GHG emissions. The following figure puts this number in
perspective.
25 000
22 228
Mt CO2 equivalent
20 000
15 000
10 260
10 000
6 135
4 263
5 000
0
Theoretical GHG emissions saving
from INCR in 2016-2069
China GHG emissions (2011)
USA GHG emissions (2011)
EU-28 GHG emissions (2011)
Figure 13 - Averted GHG emissions from INCR-CERES, compared with other sources (in million tonnes) (IEA 2014).
18
Five percent renewable energy investments in a 2 degrees world
DISCUSSION
Technical discussion on the model
The calculations presented in this report are a theoretical exercise to illustrate the effect of investing 5 percent of a
fund’s market value into renewable energy, seeking to estimate the new added power generation capacity, electricity
production and the averted GHG emissions. In this section, we discuss some key issues and limitations related to
this methodology.
Additionality
In the real world, the modelled volume of investment would not alone, nor automatically, lead to the construction
of new renewable energy capacity. The development of projects depends on many different factors such as policies,
regulations, incentive schemes, subsidies, quotas, cost development, needs for associated transmission and
distribution infrastructure, etc. (CPI 2013; OECD, 2015b). Availability of capital is one of the many necessary
factors. The authors are aware that the investment of the GPFG would not act in a vacuum, but in concert with all
other economical, regulatory, technological, social, environmental, and market factors. In this model, however, we
make the assumption that all money invested by the GPFG would fund projects that would not have happened
otherwise. This is a simplistic assumption in line with the goal of the report, which is to show the theoretical
potential, and not make a real-world investment case and a realistic estimation of the added capacity given a certain
investment volume.
Future costs of electricity
The cost of renewable energy has dramatically reduced in the past years, and the trend continues due to factors
such as economies of scale, better financing mechanisms, and technology developments (UNEP 2015, BNEF,
2015b). Some technologies like biomass, hydropower, geothermal and onshore wind are already competitive with
or cheaper than coal, oil and gas-fired power stations, even without financial support and despite falling oil prices
(IRENA, 2014). The price of solar PV module costs fell 75 percent since the end of 2009, and all projections expect
further reductions. BNEF (2015b) expects that solar project costs will fall by 47 percent and wind project costs by
32 percent between now and 2040. Deutsche Bank (2015) has recently forecasted that solar system costs will
decrease 5-15 percent annually over the next 3 years, and that this could result in solar being at grid parity in up to
80 percent of the global markets within few years.
Our model does not take into account this reduction in prices, as it assumes that today’s costs will stay the same.
Conversely, we do not consider decreasing efficiency of the power generators, which usually occurs as power plants
get older.
Considerations on deriving electricity capacity/generation from investment levels
In our analysis, we “convert” money into electricity generation output by using overnight cost of capital, capacity
utilization and average lifetime of the power plants. While this is a straightforward and accepted methodology,
overnight costs of capital do not give a realistic reflection of the construction costs, which would include also for
example financing costs, inflation, costs associated with delays or other unforeseen costs that may arise during the
construction period. However, overnight cost of capital may be useful to compare the economic feasibility of
building various plants at a very high level.
Furthermore, we do not consider financial structures in infrastructure financing, including the presence of
debt/equity ratios and pooled investments. In other words, we make the very simplistic assumption that the
19
Five percent renewable energy investments in a 2 degrees world
investor would cover 100 percent of the capital need in a project. This is however not common in practice, since
usually several investors pool equity capital together, and projects will have a certain amount of debt capital. This
implies that our model does not include a potential catalysing effect where one investor may unlock investment
and credit from other institutions.
© Shutterstock / isak55 / WWF
20
Five percent renewable energy investments in a 2 degrees world
What is the role of investments to be able to stay below 2degrees global warming?
The international community has agreed on the common target of keeping global warming below 2-degrees, and
the concentration of greenhouse gases below 450ppm, in order to avoid the most catastrophic consequences of
climate change. To do so, we need a major transformation of our energy system.
The IEA (2014a) has developed the so-called 450S scenario in which it outlines how the electricity mix should
change in order to keep the GHG emissions within the limit of 450ppm. This scenario is available for the period
2020-2040, and the figure 14 shows the vast changes in the electricity mix which occur under this scenario. This
figure shows that there is an urgent need to reduce the consumption of coal substantially and that renewable energy
needs to become the dominant source of electricity worldwide just 20 years from now. In particular by 2040 the
cumulative reduction of coal in the global electricity mix (-22 percentage points) need to be replaced by an
approximately equivalent increase in the share of renewable power generation (+24 percentage points). In addition
to a shift from fossil to renewables, the IEA clearly underlines the necessity to reduce the consumption of electricity
by applying energy efficiency to all relevant sectors of society (transport, building, industry, etc.).
It’s difficult to imagine how all this this could happen if the financial market, and investors like the Norwegian
Government Pension Fund, do not shift their investments away from fossil fuels and into renewable energy and
energy efficiency.
16 %
22 %
3%
1%
13 %
35 %
51 %
27 %
18 %
12 %
2020
2040
Nuclear
Res
Coal
Oil
Gas
Figure 14 – How the electricity mix changes in the IEA’s 450S scenario, 2020-2040. (IEA, 2014a)
Assuming that there will be a regulatory and technological enabling environment to foster to radical shift in how
electricity is produced, what are the financing needs to make this shift happen? Following the focus of this report,
we have conducted an investigation of secondary literature sources to assess if there is a practical estimation of the
needed upscaling of renewable energy investment in context of achieving the 450S scenario. We have conducted a
limited literature review, investigating IEA (2012); UNEP (2013); IPCC (2011); BNEF (2013), CPI (2013) and
CERES (2014). From this review, we found little coherence between the different estimates and a general lack of
details around the 2-degree scenario, which could not enable us to conduct a more rigorous comparison of the
different estimations available. In particular, we can highlight the following main challenges: (1) several sources
lack clarity in terms of defining the boundaries of what constitutes the “energy sector”; (2) there is a variability in
terms of whether transmission and distribution is included in determining the overall investment need; (3) little
21
Five percent renewable energy investments in a 2 degrees world
consistency in whether large hydropower is in/excluded (4); lack of data on the distribution of financial investment
from e.g. direct investment, R&D, private equity etc. and, (5) generally that financing needs not necessarily are
investment needs estimates does focus on the investment levels needed to achieve the 450S scenario. Estimates –
which are not directly comparable - of annual investment required in a 2-degree scenario range from USD 210
billion for the nearest period up to 2020, to more than USD 500 billion per year in the period up to 2035. After our
first review, the International Energy Agency published the “Special Report: World Energy Investment Outlook”
(IEA, 2014b) which, for the first time, provided a more complete picture of global energy investment trends and
needs. Although the report provides full details only on the central scenario, it contains enough details on the 450S
to derive all the figures we needed for our study, and we have therefore decided to use those estimates to provide a
context for our results.
The IEA’s report provides an estimate of what are the cumulative investment needs in both power generation –
differentiating between nuclear, fossil fuels and renewables – and for transmission and distribution.
The cumulative investment need in renewable energy power generation for the period 20154-2035 amounts to USD
8.8 trillion, which is equal to a simple yearly average of USD 400 bn. To put this figure in perspective, the latest
estimates (UNEP, 2015) for current investments in clean energy amounts to USD 243,5 billion, with USD 170bn in
utility-scale renewable energy (projects larger than 1MW), also called asset finance, and USD 73,5bn in small
distributed capacity projects financing.
In addition to power generation facilities, the IEA also estimates that the amount of investment required in
transmission and distribution equals USD 72 billion and USD 194 billion per year respectively.
These figures provide a context to the results of our model. On the basis of the yearly average estimate provided by
IEA (2014b), coupled with our estimation of how much a 5 percent allocation to direct renewable energy investment
constitutes for the cases studied in our report, it can be observed that if all UNPRI’s signatories would commit to
such an investment strategy, that would fulfil the required investment need. Further, the GPFG and the CERES
coalition could alone provide respectively for 3 percent and 35 percent of the required investment within the 450S
scenario.
550
500
450
400
350
300
250
200
150
100
50
0
448
2016
2017
GPFG
2018
UNPRI
14
13
12
11
9
CERES
151
145
140
135
129
523
504
485
466
2019
2020
Investment need
Figure 15 – Annual investment required in the IEA’s 450 scenario (purple line) and comparison with annual investments from
GPFG, UNPRI and CERES to achieve a 5 percent target within 2020. In billion USD.
22
Five percent renewable energy investments in a 2 degrees world
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http://www.bloomberg.com/news/articles/2013-04-24/-peak-fossil-fuels-is-closer-than-you-think
Bloomberg (2015a). Fossil fuels just lost the race against renewables.
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Bloomberg New Energy Finance – BNEF (2014). Global trends in clean energy investments.
Bloomberg New Energy Finance - BNEF (2015b). New Energy Outlook.
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Central Intelligence Agency (2014) The World Factbook. Retrieved September 2014.
CERES (2014) Investing in the Clean Trillion: Closing The Clean energy Investment gap. January 2014.
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Ecofys (2013). World GHG emissions flow chart 2010. Available at http://www.ecofys.com/files/files/asnecofys-2013-world-ghg-emissions-flow-chart-2010.pdf
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Carbon Tracker Initiative (2014). Oil and gas majors: fact sheets. http://www.carbontracker.org/wpcontent/uploads/2014/09/CTI-Oil-Gas-Majors-Company-Factsheets-August-2014-FULL.pdf
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Five percent renewable energy investments in a 2 degrees world
OECD (2013). Annual survey of large pension funds and public pension reserve funds. October 2013.
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http://cait2.wri.org
24
FIVE PERCENT RENEWABLE ENERGY INVESTMENTS IN A TWO DEGREES WORLD
FIVE PERCENT RENEWABLE ENERGY
INVESTMENTS IN A TWO DEGREES WORLD
21 GW
new installed capacity, equivalent to
7 000 wind turbines.
1859 MT
lifetime avoided greenhouse gas emissions,
equal to 3 times the
annual emissions of
the aviation sector.
$59 BILLION
55 TWH
5% of the GPFG* invested in
renewable power in 2020.
average electricity
generated every year
in 2016-2069. It can
power 9 million people
in Europe.
www.wwf.no
*The Norwegian Government Pension Fund
Global (GPFG) is world’s largest sovereign
wealth fund, holding more than one percent of
the world’s stocks.
WWF.NO
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