Business Energy

Renewable energy outperforms Fossil fuels in investment returns though the investment is still low

The Centre for Climate Finance at Imperial College Business School published a report comparing the fossil fuel sector investments and the renewables industry. The report, dubbed Clean Energy Investing: Global Comparison of Investment Returns, indicated that listed green energy portfolios outdid the listed fossil fuels assets.

“Our research demonstrates that all over the world, renewable power has outperformed fossil fuels. It’s been the same story for more than a decade, yet total investment is still lagging. National regulators, particularly in the United States, must get to work on the reforms needed to level the playing field for clean energy investors,” said Dr. Charles Donovan, Executive Director of Centre for Climate Finance and Investment at Imperial College Business School.

Over the last decade, green power generated seven times more returns than fossil fuels. The report highlighted renewables returned 422.7% while fossil fuels yielded 59%. As more countries set their zero-emission targets for 2050, renewable energy is gaining popularity. Besides, investors and the public are aware of the negative impacts of fossil fuels and are shifting to cleaner energy.

Climate risk has seen investments shy away from supporting fossil fuels both in physical and policy terms. The physical angle is the investors’ awareness that global warming is a global menace, and if they don’t ditch fossil fuels, they are part of the climate problem. With government policies introducing carbon taxes to greenhouse emitters, investors favor renewables for the lesser risk/return profile.

“This report points to clear financial benefits from investing in clean energy transitions, an important step towards mobilizing higher levels of investment from the capital markets. But much more still needs to be done to link sources of sustainable finance with the areas of greatest need, especially in emerging markets and developing economies,” said Tim Gould, Head of Division for Energy Supply Outlooks and Investment Energy Agency.

The International Renewable Energy Agency (IRENA) has warned that the green power sector needs to be readjusted to meet the Paris Agreement goals. Global shift to low carbon alternatives is crucial to meeting zero-carbon levels by 2050. This includes both investment boost and changing the existing investment patterns.

In the March World Energy Transitions Outlook: 1.5C Pathway report, IRENA notes we need about $131 trillion by 2050 in green power investment. The investments would cover renewable energy technologies, carbon capture robotics, other low carbon options, and supporting the transition from fossil fuels to cleaner energy. The report also highlighted a growing number of investors and financial markets are diverting capital from fossil fuel to cleaner energy technologies.