Challenges related to financing the rapid implementation of energy transformation technologies

Over the past few years, there has been much optimism expressed about the pace of the energy transition, new technologies and net zero carbon emissions targets. The Inflation Reduction Act (IRA) and the Infrastructure Investment and Jobs Act (IIJA) were passed by Congress and signed into law providing trillions of dollars in grants, loans and tax incentives to support investments in clean energy technologies such as electric vehicle (EV) charging ) fueling stations, carbon capture and storage (CCS), hydrogen and other clean forms of energy and related infrastructure.

Additional revenues and private sector investment in the energy transition have generated positive confidence about the future. It was also accompanied by regulatory actions, which served as a stick for the investment carrot.

The development and implementation of new technologies is crucial to the success of the energy transition, including renewable energy sources, electric vehicles and electric vehicle charging stations, carbon capture and storage, hydrogen, biofuels for methane detection, energy storage and advanced nuclear technology, to name just a few several.

Tremendous progress is being made in all of these areas, as is huge investment from the public and private sectors. At the same time, public policies are being developed in the U.S. as well as in Canada, Europe and Asia to advance transformation goals through lower carbon/net zero commitments, emissions caps, trade restrictions and public financing of technology.

According to the International Energy Agency (IEA), massive capital investments are needed to achieve these public policy and social goals. Global investment in clean energy technologies must reach $4.5 trillion by the early 2030s if the 2050 net zero target set out in the Paris Agreement is to be met. be achieved.

Over the past few years, the United States has passed and passed four landmark budget bills – the IRA, IIJA, the American Rescue Plan and the CHIPS Act – all passed by Congress and signed into law by President Joe Biden, providing $1.6 trillion in grants, loans and tax incentives to support investment in the climate and energy transition, infrastructure and computer chips. This has sparked massive action by the US government to provide programs and processes to provide funding to companies, universities and communities that qualify for grants, loans and tax incentives, and will have a profound impact on US energy, infrastructure and manufacturing.

However, soon after they passed, reality hit the enormous task of actually administering these programs, acquiring the staff to manage them, developing the metrics used to determine the winners, creating mechanisms for distributing them, and putting in place procedures to monitor them and ensure that the funds are properly used .

Much of the $393.7 billion in energy IRA funds is distributed through the Department of Energy (DOE) and its Loan Program Office (LPO). The DOE had never played a banker role before, so it had to hire staff to manage these programs. It was a long process. It also had to work with the U.S. Treasury to develop guidelines for issuing these funds.

So far, of the above-mentioned $1.6 trillion, only $125 billion has been spent, and another $89 billion has been announced.

Perhaps the most important timeline for the Biden administration is November 5 – Election Day. For now, Americans are completely unaware of the programs initiated under the IRA, IIJA, the CHIPS Act and the American Rescue Plan. The benefits of these plans are not being seen by voters across the country, which is frustrating for the administration.

The administration is now working overtime to extract this money to influence voters across states and satisfy core constituencies like the environmental community. He also fears that if Biden is not re-elected, Donald Trump, who often refers to Biden’s “new green scam,” will work with the administration (or potentially with the Republican Senate) to thwart some funding sources focused on the energy transition.

Meanwhile, new technologies are being developed and introduced to solve the energy transition problem. Some of them will receive federal funds and tax breaks, while others will use private sector financing sources.

For example, private equity deals in renewable energy reached a record $7.5 billion in 2023. PE funds are also increasingly being allocated to technologies that address issues such as methane emissions and detection, battery storage, distributed generation and network resilience.