Receive our newsletter – data, insights and analysis delivered to you
  1. Business Activities
  2. Electricity
2 March, 2021updated 02 Nov 2021 15:09

SDG focus: Mind the energy gap

The Covid-19 pandemic has emphasised just how important access to clean, reliable energy is on a global scale, which is the theme of the UN's seventh SDG – but what role can FDI play in closing the energy gap?

By Sofia Karadima

togo-solar-power

Solar panel farms such as this one in Togo help to bring consistent and cheap power to hard-to-reach communities in developing countries. (Photo by Pius Utomi Ekpei/AFP via Getty Images)

Investing in sustainable energy and shifting away from traditional sources of power has been a key topic for investors across the world, and the outbreak of Covid-19 has only served to heighten the importance to businesses of backing investments in fields such as affordable and clean energy in a bid to ‘build back better’ and ultimately help to achieve the UN’s seventh Sustainable Development Goal (SDG7), to provide “access to affordable, reliable, sustainable and modern energy for all”.

Mikael Melin, principal specialist at Sustainable Energy for All, an international organisation working in partnership with the UN, says the pandemic has shown that access to energy can save lives, and that countries with large access-to-energy gaps have faced additional challenges when it comes to dealing with the outbreak. Clinics and healthcare facilities cannot operate without reliable energy and citizens cannot dwell in a building over a long period without access to electricity or another source of power that enables them to cook, clean themselves and various other necessities.

Indeed, the UN’s website states that “the pandemic is highlighting the urgent need for affordable and reliable energy – for hospital and health facilities to treat patients, for communities to pump clean water and access vital information, and for out-of-school children to learn remotely”. It adds that “the world continues to advance towards sustainable energy targets, although efforts are not of the scale required to achieve SDG7 by 2030. Some progress has been made in improving energy efficiency and expanding access to electricity.”

There is huge potential for FDI to support sustained progress towards the achievement of SDG7. Michelle T Davies, Eversheds Sutherland

Mapping out the risk

In fact, an analysis done by Investment Monitor shows that some progress has been made and the majority of the countries are facing lower to medium sustainable energy risk. However, the Sustainable Energy Risk index finds that there are still some parts of the world, specifically in Africa, that are facing higher challenges based on household electricity price, access to electricity and share of renewable energy consumption.

Content from our partners
Abu Dhabi: A buoyant, resilient economy with a positive outlook for investors
Boom with a view: Surprise’s success, explained
Transformative power: How Hamburg is leading the way to a green hydrogen future

Ben Garside, principal researcher and head of energy at think tank the International Institute for Environment and Development (IIED), says that overall progress towards universal energy access has likely slowed, and in general sub-Saharan Africa is falling further behind.

“Economic downturn due to Covid-19 across sub-Saharan Africa has already started impacting the fragile ecosystem of off-grid energy service providers due to lack of new customers and the ability to pay by existing customers,” he says. “A relief fund has been established, but there will be significant impacts to public and private energy investments if the downturn continues without major stimulus packages.”

On top of that, the pandemic has negatively affected livelihoods in different and uneven ways, and has heavily impacted women.

Garside explains that recent IIED research in Tanzania found that female farmers using powered irrigation experienced a drop in sales due to falling demand. He adds that women are generally borrowing lower amounts than men to fund their businesses, and that foreign direct investment (FDI) combined with public policy can be better targeted as part of recovery to account for these nuances.

Can FDI be a tool to achieve clean and affordable energy?

“There is huge potential for FDI to support sustained progress towards the achievement of SDG7,” says Michelle T Davies, international head of clean energy and sustainability at law firm Eversheds Sutherland. “Climate change is one of most fundamental and urgent issues of our time and governments and businesses alike are now mobilising to accelerate the energy transition in order to meet their obligations under the Paris Agreement and relevant national environmental, social and corporate governance commitments, which themselves have taken on a new level of importance as a result of popular sentiment against the damage inflicted by more traditional activities on our environment.”

Peter Graystone, who also serves an associate in Eversheds Sutherland’s clean energy and sustainability team, adds that it is incumbent on national legislatures to provide the right environment to further encourage FDI into clean energy infrastructure.

He explains that the challenge will be to ensure that FDI regulatory regimes do not make it unduly complex for overseas investors to fund projects and in due course realise their investments. Other challenges include ensuring that investors continue to see clean energy projects as providing a reliable return on investment over time.

Where should investors look for SDG7 opportunities?

Access to sustainable and affordable energy must form one of the cornerstones of the global economic recovery in order to ensure that communities are able to build back better regardless of where they are, according to Davies.

“Following an initial sharp downturn in activity at the start of the pandemic, global renewable energy development and expansion has proven to be more resilient than initially thought and has bucked the trend seen in other industries of sharp contraction over the past 12 months,” she says. “This has in large part been as a result of businesses’ ability to quickly adapt to the ‘new normal’ and to accelerate development and construction activities following relaxation of the initial lockdowns introduced in the first half of 2020.”

With sustainable energy seen as a key investment for adapting to the new normal, several countries are trying to increase their attractiveness as investment locations in order to receive such projects. However, research by Investment Monitor, based on Monitor Network’s sustainable infrastructure database, finds that the vast majority of sustainable energy projects announced between 2010 and 2021 were concentrated in 15 countries.

The data shows that the top 15 countries have received approximately 65% of the world’s sustainable energy projects in this time period. This highlights that most countries in the world are a long way behind when it comes to attracting such investment. However, this may present an opportunity for investors to not only enter new and unserved markets, but also to promote sustainable and impact investing.

There is a particularly ripe opportunity in countries that don’t have the capability to provide electricity to all of their citizens on a regular or reliable basis. The need for such investment has become all the more urgent during the Covid-19 lockdowns, as the need for electricity for all has been highlighted. Indeed, G20 leaders are being called upon to focus on a post-pandemic energy access reboot based around renewables.

Renewables provide energy in a much more decentralised way, at any scale and in closer proximity to their point of use, therefore meaning fewer losses in transmission. Philippe Delorme, Schneider Electric

“Energy plays such a vital role in the climate crisis, and we need to upgrade each stage of the value chain from generation (with cleaner energy production), to distribution (with more microgrids closer to points of consumption and more access to energy), to usage (with metering and smart technology to empower users with visibility and efficiency),” says Philippe Delorme, executive vice-president, energy management, at French multinational Schneider Electric.

He adds that it is anticipated that renewables will grow their share of the global electricity mix from 6% today to about 40% by 2040. “This shift to renewables will also help people around the world to access energy, whether that be in developed or developing countries,” says Delorme. “Renewables provide energy in a much more decentralised way, at any scale and in closer proximity to their point of use, therefore meaning fewer losses in transmission.”

So it would seem that countries are now faced with an opportunity to really start to progress and build back better by using this moment to invest in sustainable energy – and as a result reset their economies and close energy access gaps. Indeed, it is expected that countries that seize this opportunity and invest in sustainable energy will see the pay off in the form of making their economies more resilient, creating new jobs, and enjoying faster energy development. This can also help to not only meet the SDG7 target, it can go a long way to putting the world on track to hit all of the SDGs by 2030.

This is the seventh in Investment Monitor’s SDG Focus series. The other articles can be found here: 

For more articles on clean energy, visit our sister site Energy Monitor.

Topics in this article: , , ,
NEWSLETTER Sign up Tick the boxes of the newsletters you would like to receive. Data, analysis and deep insights on foreign direct investment delivered to you
I consent to GlobalData UK Limited collecting my details provided via this form in accordance with the Privacy Policy
SUBSCRIBED

THANK YOU