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Allianz Climate & Energy Monitor 2017

The Paris Agreement sets an ambitious goal of limiting global average temperature increase to well below 2°C and pursues efforts to limit it to 1.5°C. In order to do that, huge efforts are needed. Both, a complete phase-out of coal-based power and a massive scale-up of renewables by 2050 are required.

In that context, the G20 countries play a key role to trigger the energy transition globally as they consist of the largest global economies and would in general be in a good position to lead.

So how have the investment conditions changed lately in the G20 countries? OECD countries still lead in terms of investment attractiveness but emerging markets are improving rapidly, says the Allianz Climate & Energy Monitor 2017.

Result highlights

OECD countries lead in terms of investment attractiveness but emerging markets are improving rapidly

Germany, UK and France maintain the top 3 positions in the 2017 edition of the Allianz Climate and Energy Monitor. They combine a largely supportive policy environment for renewable energy with a mature market and adequate general investing environment.

China continues to hold its place in this ‘best-performers club’, maintaining rank four in offering an attractive investment environment. With roaring renewable energy markets and a consistent policy push, China installed in 2016 more solar photovoltaic than the rest of the G20 combined.

“This year’s Allianz Climate & Energy Monitor shows that emerging economies increasingly take on a leadership role and are credibly enhancing their renewable energy financing frameworks out of self-interest”, says Simone Ruiz-Vergote, Managing Director at Allianz Climate Solutions. “China, India and South Africa improved their renewable energy attractiveness in 2016. These countries present good prospects for renewable energy investing if policy support and market capacities are maintained.”

As renewables boom, governments need to plan for a new power system

Renewables are now attracting the majority of new power investments and have expanded at approximately 25% annually in the last five years in the G20.

Continuously falling technology costs have supported this strong growth and in some countries renewable energy passed a tipping point, reaching cost-competitiveness with conventional energy sources.

“Even with falling prices, a supportive policy environment is needed to arrive at transparent and reliable legislation”, says Jan Burck from Germanwatch, co-author of the report.

“With the first hurdle take in cost competitiveness, governments now need to adjust the power system and market design to cope with an increasing share of weather-dependent renewables”, says Niklas Höhne, founding partner of the NewClimate Institute and co-author of the Monitor.

Investments in G20 need to roughly double to remain within the Paris Agreement warming limit. India, South Africa and Indonesia are high-need hotspots.

The G20 countries need to roughly double their annual investments to align their power infrastructure with the 2°C pathway set out in the Paris Agreement. India, South Africa and Indonesia emerge as high-need hotspots owing to increasing demand for energy, sheer size of the country and vulnerability of the existing power system to a changing climate.

The absolute investing needs in the G20 stand at USD2012 709 billion per year between 2014 to 2035. For comparison: In 2015, combined investments in all power generation, including fossil fuels, stood at USD over USD 420 bn globally.

Private investors will need to account for majority of renewable energy finance

In spite of the high initial investments involved in renewable energy technologies like wind and solar PV, the low-carbon transition can be achieved at neutral cost, as analyses by the IEA in 2015 and by Allianz in 2014 have shown.

Insurers can make a considerable contribution here, as well-capitalized investors with a long-term investment horizon and suitable expertise in risk management. Viewed from the opposite direction, infrastructure investments are well suited for insurers’ long-term commitments to their life insurance clients.

On the Climate & Energy Monitor‘s methodology

The Monitor assesses the G20 countries’ renewable electricity production, excluding fossil fuels, large hydro and nuclear as well as transportation and storage infrastructure.

The analysis concentrates on two major elements:

  • Attractiveness of various ‘in-country’ circumstances to potential renewable energy investors, including policy variables such as adequacy of climate and renewable energy policies (policy adequacy); reliability of sustained support for renewables; and current market dynamics like the maturity of the renewable energy market (market absorption capacity); and general macroeconomic investment conditions. The investment attractiveness pillar also identifies areas of improvement for facilitating future investments in renewables in G20 countries.
  • General investment needs in the power sector through to 2035 in light of the 2°C climate target, including annual absolute and relative investment requirements for the electricity infrastructure, and the vulnerability of the existing electricity infrastructure to the effects of climate change. This pillar outlines investments needed for scaling-up low-carbon technologies and building climate resilience in the power sector.

Absolute scores for all indicators under each element are normalized for each indicator to derive ratings between the best (100) and the worst (0) scores in the sample. Therefore, any given country is scored in relation to the performance of its fellow G20 countries. Countries are ranked and their scores rated between very low-very high, the ratings being relative to one another.

The NewClimate Institute for Climate Policy and Global Sustainability is a Germany-based research institute generating ideas on climate change and driving their implementation. They do research, policy design and knowledge sharing on raising ambition for action against climate change and supporting sustainable development. Their core expertise lies in the areas of climate policy analysis, climate action tracking, climate finance, carbon markets, and sustainable energy.
Germanwatch is an independent development and environmental organization that advocates for global equity and preservation of livelihood. They concentrate on politics and economies of the "global north" and its worldwide impacts. They work together with members, sponsors and other actors from the civil society to lobby for sustainable development. Based on scientific analyses they inform the public sector, make educational as well as lobby work and demonstrate consumers how to act according their goals.
Allianz Climate Solutions is the Competence Center of Allianz Group for Climate Risks and Renewable Energy. We offer insurance and advisory services on financing issues for renewable energy projects to both external clients and Allianz entities. Furthermore, we work with both private and public sector partners towards improving social resilience to climate change through dedicated insurance approaches.