Spending shift 'should be front-loaded to expand renewables fast': DNV's Engel

Investment in green power production should be front-loaded in order to gear up the global build-out of renewables more rapidly to meet Paris climate action targets, as the sector and the financial industry hammers out how to “most wisely” use up the world’s remaining emissions budget, according Ditlev Engel, chief executive of energy systems at DNV.

“Something that maybe is a bit odd for someone like us to say is that obviously the mind-set is key also from a financing perspective, because many of the investments need to be front-loaded when we talk about scaling renewables as once you have built it out, then the O& M [operations and maintenance] costs are significantly lower,” Engel said in an exclusive interview.

“So, this shift in thinking of how we define the capital is also a very important point as well in the overall planning of the transition.”

But to halve greenhouse gas emissions this decade to keep global heating within 1.5°C of pre-industrial levels, current policies must be improved dramatically, otherwise only a 9%-decline can be reached, and the world would use up its remaining emissions budget for the 1.5°C-scenario already in 2029, the report warned.

To speed up the energy transition, technology is not the problem, but policy, Engel argues. “In this sense we are very technology optimistic. We see that technology can do a lot, but the problem [is] to get it scaled fast enough, and have a regular framework that can make it happen,” he said.

“Here the [issue for] financing industry at the moment as we see it, it is not the lack of funds, but it is a question of having enough of good projects, so the permitting and the [regulatory] framework are the ones we need to work on if this is going to happen.”

DNV at its one-hour event today will discuss such issues with experts including Hilde Roed, senior vice president climate & sustainability at Norwegian oil & gas major Equinor, Helena Anderson, co-founder and chief operating officer at Ikigai Capital, and Daniel Wong, global co-head at Macquarie Capital and chair of the Green Investment Group.

Amid the real danger of the 1.5°C window of opportunity to close fast, the world needs to look closely at how much emissions it can permit and in what time, Engel stressed.

“We need to understand … what we have left to spend, and how do we spend it most wisely. I think that is the approach that needs to be taken. So, everything you can electrify or decarbonise immediately, you should scale up.”

The flip side of that approach is that, particularly in the energy sector, a discussion is also needed on which assets need to be switched off and what financial consequences that has.

“Important in the transition is that we need to separate between what we need to scale up - more wind, more solar, etc. - and what we need to scale down. But what we need to scale down also needs to be financed.”

In that context, Engel also warned of an increasing risk of stranded assets. Not only should no more coal-fired power plants be built in the world, but some recently built fossil power plants will soon be obsolete, he cautioned.

“We all know that if want to make the switch and cut emissions, a lot of fairly new assets will be in danger from the simple fact that they need to be switched off in order to reduce emissions. And that cost needs to be picked up by somebody.”

Despite risks such as the danger of stranded assets, and the enormous costs expected for a successful energy transition, Engel ahead of the COP26 conference that will take place in Glasgow, UK, from October 31 to November 12, urged for faster action.

“At the end of the day, we have time against us.”