Clean energy innovation points the way to net zero: But what about the underlying infrastructure?

It’s hard not to be optimistic about the pipeline of innovation that will accelerate the clean energy revolution. The more comfortable we get with EVs, solar-powered homes, and myriad other solutions, the more progress we make on decarbonization.

We must, however, urgently address one of the biggest barriers on the horizon: infrastructure. We need to take a macro view, composing a concrete plan for how infrastructure is designed, funded and implemented over time.

Infrastructure is the foundation on which the entire clean energy ecosystem will be built – grids, transmission lines, charging stations, batteries and much more. Its proliferation, however, will stall without urgent and coordinated efforts by public and private players with the capital, vision, and patience needed to achieve meaningful scale.

Let’s face it: Infrastructure has never been the most exciting asset on the block. Financially speaking, it is often thought to offer a lot in the way of risk and little in the way of near-term returns. But history tells us that transformational progress can be made when all critical stakeholders share the cost of laying the crucial groundwork for innovation.

There are precedents for this kind of collaboration. Consider the US government agency DARPA’s role, for instance, in developing GPS or autonomous vehicles; or the National Institutes of Health’s role in helping fund most new drugs eventually approved by the FDA. The internet wouldn’t be here without public-private collaboration.

When it comes to clean energy, there is considerable work to do on building out the nuts and bolts of critical green infrastructure.

Take the electric car, for example. Demand has been steadily rising as automakers boost availability and capability while addressing concerns about range, cost and charging. Electrified vehicles will represent about 15% of global auto sales in 2023, nearly equaling the combined sales of General Motors, Ford, and Stellantis worldwide. AlixPartners expects global EV market share to exceed 50% by 2035.

Those tens of millions of EVs will not directly emit greenhouse gasses, but fossil fuels often power the electric grids charging their batteries. This means installing more vehicle chargers is only one piece of a highly complex and costly puzzle. The power that goes to the chargers will eventually need to be overhauled.

The auto industry isn’t alone. The limitations of chemistry and physics force us to rely on fossil fuels as a major ingredient in decarbonization efforts. The fact is renewables, as promising as they are, have low conversion rates and are still frequently intermittent. Fossil fuels bridge the performance gap. Replacing fossil fuels remains a herculean task that will require an array of stakeholders to come to the table, enacting policies and committing investment to an infrastructure development and build-out plan that transcends borders and spans decades.

The International Energy Agency estimates $1.7 trillion was invested in clean energy efforts in 2023, much of it spent in China. This is a sizable number, to be sure, exceeding fossil fuel investments over the same period by more than 50% and equaling the annual GDP of Australia. This includes infrastructure investments, such as grid and storage improvements.

However, infrastructure investment is insufficient, highly concentrated in China, and spread among myriad priorities. Bloomberg NEF estimates less than 20% of the $1.4 billion spent in 2022 was invested in decarbonizing power grids, for instance. It said that investments must immediately triple to meet a 2025 net-zero CO2 goal.

As noted, certain technologies have a strong track record for attracting investments and government backing. For instance, nearly $500 billion was spent on electrified transport, helped by instruments like the US Inflation Reduction Act and new initiatives in Europe and Asia.

Where will the money come from to build the infrastructure that serves as the foundation for the entire clean-energy infrastructure? The answer will require looking past one-size-fits-all solutions or short-term fixes. We must focus on infrastructure’s promise of reliable cash flow, decades of steady revenue, a hedge amid high interest rates and a shelter against volatility.

Brookfield, a Canadian private capital group, raised a record-sized $28 billion for a new fund under its Infrastructure Partners arm. This follows a trend where other asset managers have allocated similarly large pools of capital to fund the world’s infrastructure needs. But these needs are many, from airports to roads, pipelines to shipping lanes. How much is devoted to clean energy infrastructure is hard to determine.

So how do we begin to address this challenge? First, government and private parties need to broaden our scope of what we consider urgent priorities needing immediate attention. Education and dialogue are crucial to shifting the collective mindset.

Secondly, we need to understand that the customer is at the centre of the equation. Incentives help but are not adequate substitutes for a truly market-based approach. You cannot subsidize your way to scale.

Additionally, we must ensure all viable solutions are included in clean-energy investment schemes, including hydrogen, fuel cells and other solutions that reach beyond the most talked-about renewable sources. Green hydrogen, for instance, enhances the utilization of renewables.

Finally, as stated above, public-private partnerships like those with the US Department of Energy are critical to the actual completion of critical required infrastructure. An important step was taken recently by the Biden administration, committing more than $30 billion from the Infrastructure Law and Inflation Reduction Act to invest in electric grid infrastructure, the largest commitment of its kind to date.

These critical steps are needed to demonstrate that infrastructure beyond energy generation is a viable and attractive asset class. It is true that if you build it, returns will come - realize that building the future takes a village and the benefits don’t all show up overnight.