FINANCING

THE ENERGY
TRANSITION

Energy Transition Outlook 2021

DNV Financing the Energy Transition

Ditlev Engel

CEO, Energy Systems

DNV

FOREWORD
Some 400 gigatons of carbon dioxide: that’s how much carbon the UN’s
Intergovernmental Panel on Climate Change (IPCC) forecasts the world has
left to spend1, in order to stand a likely chance (67%) of limiting global
warming to the 1.5ºC ambition set under the Paris Agreement. The world is
burning through this carbon budget, and the earth is burning as a result
– from extreme heat events to unprecedented forest fires. Emissions must
fall by around half by 2030 for a 1.5ºC future, but we forecast they will fall by
just 9%. We find that the world will exhaust the 1.5ºC budget already in 2029.

In terms of capital, energy spending sits at USD 4.5
trillion or 3.2% of GDP, with three quarters of this allocated
to unabated fossil fuels. If the world were to maintain
today’s level of spending in GDP terms, this would clearly
be enough to realize a clean energy future. A Paris-compliant
transition is affordable, but it will require a massive
redirection of capital.
1  AR6 Climate Change 2021: The Physical Science Basis, IPCC
2
Keeping to the 1.5ºC carbon budget is possible, but the
world must transition much faster to a deeply decarbonized
energy system. This will require technology and behavioural
revolutions, innovation, forward-thinking polices, and
huge investment. As the Covid-19 pandemic has taught
us, if people understand the scale and urgency of the
challenge, then huge change is possible.

“The dire effects the climate crisis will have
on people’s lives, on societies, and on the
environment compels us to spend carbon
and capital much more wisely.”
Crucially, a clean energy transition will happen: the question
is whether the world will prioritize the upfront investment
needed for an accelerated transition. This relies on a change
in mindset: to recognize the carbon budget is finite and to
place it at the centre of decision-making, and to act urgently
to reduce energy demand, scale up clean energy, scale
down fossil fuels, and to capture any remaining emissions.
It will require full energy system thinking to determine how
much to spend, when, and on what – for both carbon and
for capital.
These questions must be put to leaders at COP26, to
ensure governments don’t just deal in long-term climate
commitments, but also in short-term climate action. Targets
must be grounded with a credible baseline for emissions and
translated into action next year, and for each year following.
For the financial markets, we need to encourage increased
flow of capital into clean-energy projects, but also discourage
capital flow into unabated fossil fuels. Capital must flow
into projects with the most potential to reduce emissions,
whether this is renewables and electrification in developed
markets that are moving ahead at full speed, or for projects
that are finding it harder to attract capital: in emerging
markets, for technologies with less mature value chains,
or for projects aimed at energy efficiency or reducing
emissions intensity.
The scale of the challenge is unprecedented, but there are
precedents for solutions. Offshore wind in the UK is one
such example, where the government “overpaying” for
electricity gave life to the sector and enabled it to scale.
The UK is now the world’s largest offshore wind market. In
Denmark, the government “overpaid” for now seemingly
inefficient old wind turbines, but kickstarted an industry.
In both cases, subsidies are now gone, and private investors
have no problem stepping in to fund these projects.
2  24 million jobs to open up in the green economy, ILO
Foreword
“We should remember that it is carbon that
is the enemy. Any actions that reduce carbon
emissions are welcome, so long as they do
not lock in greater emissions in the long term.”
The world cannot afford not to realize a Paris-compliant
transition, in terms of the human and environmental impact,
but also in the huge financial costs of climate change.
For example, the World Health Organization estimates
that between 2030 and 2050, climate change will cause
approximately 250,000 additional deaths globally each
year and cost health systems USD 2–4 billion each year.
But it’s not all averting disaster. So long as steps are taken
to ensure a just transition, there are also significant
opportunities to advance the Sustainable Development
Goals. The International Labour Organization (ILO)
estimates that a shift to a greener economy by 2030 could
result in the net creation of 18m jobs globally. 2 Indeed,
the Biden-Harris Administration has made well-paid jobs
a tenet of its proposed infrastructure plan, and the EU’s
recent Fit for 55 package includes a Social Climate Fund
to mobilize capital for a socially fair transition.
Ahead of COP26, and at the start of the decade where the
pace of the transition will be set, I urge everyone to think
full energy systems and to spend carbon and capital more
wisely. To transition faster to a deeply decarbonized energy
system, leaders from government, industry, and finance
need to step up to be climate leaders: it is on all of us
to act urgently and decisively.
At DNV, we are 12,000 colleagues globally pursuing our
purpose to safeguard life, property and the environment.
If we can help you and your organization in tackling the
energy transition, so we can all do our part to deliver on
the Paris Agreement – what we call ‘deep decarbonization’
– please don’t hesitate to contact us.
3
DNV Financing the Energy Transition

CONTENTS

Foreword 2 4 The transition needs to be just 51

Executive Summary 6
4.1 Unjust transition is a major risk 52
1 Combining finance and forecast 10 4.2 Maximizing co-benefits can accelerate
the transition 53
1.1 The view from the finance community
4.3 Climate resilience essential
and energy leaders 12
for a just transition 54
1.2 Grounded in our best estimate
of a single likely future 12 5 Takeaways for stakeholder groups 57
1.3 Paris Agreement sets the standard 15
5.1 Sources of finance 58
2 A Paris-compliant transition is affordable 17 5.2 Recipients of finance 60
2.1 Not on track to meet the Paris Agreement 18 6 The next five years 63
2.2 Required transition is affordable
6.1 Floating offshore wind 64
in terms of GDP 18
6.2 Developments in solar photovoltaic 65
2.3 The world cannot afford to miss
6.3 Pipelines for low-carbon gases 65
the Paris targets 20
6.4 Meshed HVDC grids 66
2.4 A massive redirection of capital is needed 20
6.5 New battery technology 66
3 Need to accelerate the energy transition 23 6.6 EVs and grid integration 67
6.7 Green hydrogen production 68
3.1 Driving climate urgency 24
6.8 Carbon capture and storage 68
3.2 Translating urgency into action 29
3.3 Creating certainty, reducing risk 34 Project team 71
3.4 Ensuring capital flows to where Suite of ETO reports 72
it has most impact 41

4
Contents

5
DNV Financing the Energy Transition
EXECUTIVE SUMMARY
The world needs to make this a decade of deep
decarbonization, overcoming the urgent and complex
challenge of transitioning to a clean-energy system. The
scale and pace required is framed by the Paris Agreement
– limiting global warming to well below 2ºC, striving towards
a limit of 1.5ºC above pre-industrial temperatures by the end
of the century – but it starts with the decisions made today.
DNV’s Energy Transition Outlook (ETO) provides our
forecast of the world’s energy systems out to 2050,
covering all aspects of the extensive and rapid changes
that are already underway. The transition is characterized
by a substantial shift to electrification generated by
renewables, and a decline in fossil fuels, but our forecast
of the most likely future is also one with global
temperatures set to rise by 2.3ºC.
The world needs to transition faster to a deeply decarbonized
energy system, substantially reducing emissions year on
year, on a path to realize the Paris Agreement targets.
This will require a change in mindset, technology and
behavioural revolutions, innovation, forward-thinking
polices, and huge investment.
Crucially, we find that a Paris-compliant transition is
affordable: the world has the financial capacity to accelerate
the transition. This will require massive mobilization and
a redirection of capital from fossil fuels into clean energy,
while balancing the need to maintain an affordable, reliable
supply of energy during the transition.
In this report, we combine our independent energy
forecast to 2050 with views from a diverse set of leaders
in the energy and finance sectors. We focus on the
financial opportunities and challenges for financiers,
energy companies, and policymakers in ensuring an
affordable, accelerated, and just transition.
6
An affordable transition
A Paris-compliant energy transition is affordable. We forecast
that the percentage of world gross domestic product (GDP)
that will be spent on energy diminishes from 3.2% in 2019
to 1.6% in 2050 (see Figure 2.2). If the current fraction of GDP
devoted to energy expenditures were to remain constant,
the surplus funds to spend on clean energy would grow by
around USD 2trn each year, reaching close to USD 63trn
by 2050 – clearly more than enough to finance a transition
compliant with the Paris Agreement.
While it is affordable in GDP terms, the question remains
whether the world will prioritize the additional upfront
investment needed for an accelerated transition to mitigate
the hugely damaging and costly implications of climate
change. Many would argue we can’t afford not to. As
Daniel Wong, Global Co-Head, Macquarie Capital, puts it:
“If something becomes of increasing importance, which
clearly climate change is, then the priorities become
reordered and we will afford it.”
The transition we forecast
The world is transitioning to a more sustainable way of living,
as economies start to wean themselves off fossil fuels. In
2019, 80% of the world’s energy was supplied by fossil fuels
and 20% by non-fossil fuels. By 2050, we predict an equal
mix of fossil and non-fossil sources of primary energy supply
(see Figure 3.1).
The varying fortunes of fossil fuels within the energy mix are
reflected in the decisions of the finance community. New coal
projects are already a no-go investment for many, and the
emissions intensity of oil and gas operations is becoming an
increasingly significant factor in financial decisions. Nevertheless,
to meet the level of oil demand we forecast in our most likely
future, investment in oil production will continue throughout our
forecast period, even in a declining market. Natural gas demand
will remain relatively stable, but the big change will come in how it
is increasingly traded between regions as liquefied natural gas.

Against the backdrop of plateauing energy demand – largely
due to greater energy efficiency – electricity demand will
more than double by 2050, most notably in transport and
buildings. By then, 69% of electricity will come from wind
and solar PV, compared with 8% in 2019 (the reference year
for this report). By mid-century, the total installed capacity
of variable renewables will top 17,500 gigawatts (GW), rising
from approximately 1,200 GW today.
This clearly presents great opportunities but also significant
challenges for the finance sector to play its role in funding
many of these projects. This prospect will be increasingly
compelling as advances in solar modules and wind turbine
technology continue to lower the levelized cost of energy
(LCOE), making them the most economical source of
generation – as is already the case in many regions.
Hard-to-abate sectors face different challenges. Emissions
from heavy industry and aviation are expected to increase
over the next 15 years. Potential solutions such as electrification
and hydrogen for some manufacturing processes, plus
hydrogen (and derived synthetic fuels) and biofuels for
aviation, are at earlier stages in their development and
are likely to require government intervention – incentive
schemes, innovation funding, and mandates – to accelerate
decarbonization of these sectors.
Some 400 gigatons of carbon dioxide: that’s how
much carbon the UN’s Intergovernmental Panel on
Climate Change (IPCC) forecasts the world has left
to spend3, in order to stand a likely chance (67%) of
limiting global warming to the 1.5ºC ambition set
under the Paris Agreement.
Emissions must fall by around half by 2030 for a 1.5ºC future,
but we forecast they will fall by just 9%. We find that the
world will exhaust the 1.5ºC budget already in 2029.
3  AR6 Climate Change 2021: The Physical Science Basis, IPCC
Executive Summary
Accelerating the transition
A clean energy transition will happen; the challenge is how
fast it can be achieved. It is a question first of mindset and
urgency, enabled by policy, technology, and financing.
Spurred by societal and government pressure to transition
faster, recognition of the need for speed is spreading
through energy value chains and financial markets. Urgency
is being driven by net-zero targets and by environmental,
social and governance (ESG) requirements as a first step
in accountability. Shareholder engagement is playing a role,
as is fear of stranded assets – as financial markets bring
forward to today the risk in fossil fuels.
Urgency needs to translate into action, however.
This will require conditions that deliver the right returns
and reduce risk for capital to flow. Business opportunities
are key to this, with solar PV and wind increasingly the
most economical option for new power generation.
The challenge now lies in scaling up the volume of
renewable energy projects.
Standards and taxonomies can provide clear direction for
energy investment, while an effective carbon price will be
essential not only to support clean-energy projects, but
also to disincentivize fossil fuels and the status quo.
To facilitate capital investment in clean-energy projects,
long-term stability in policies and markets and line-of-
sight are among the most important factors. These can
be strengthened by business models and long-term
agreements, the regulatory environment, government
support, partnerships, and technological innovation.
The market’s maturity is also essential, with risk reduced by
greater certainty of demand, and a range of business models
and approaches that lead investors to finance projects
throughout their lifecycle, including early-stage investment.
7
DNV Financing the Energy Transition
We see a great divergence in our transition forecast:
renewables in power supply and electrification are
moving ahead at full speed, while the decarbonization
of other sectors is lagging. Signs are that there is capital
in abundance looking for green energy projects – and
renewables projects such as wind and solar in developed
markets have little issue attracting capital, particularly
once they have already reached the operation stage.
However, as energy systems around the world transition to
incorporating increasing volumes of variable generation
from renewables, financiers should be aware of the likely
shifts in energy market design.
The view from emerging economies is that financing is
not as readily available to the projects that need it. This
has also been the case for technologies with less mature
value chains, such as hydrogen and carbon capture and
storage (CCS). Others focusing on energy-efficiency
initiatives or reducing emissions intensity of fossil energy
projects also face challenges to access financing, despite
these projects having significant potential to reduce
emissions. This raises the question of what is needed
for capital to flow into projects with the most potential
to reduce emissions.
A just transition
The climate crisis affects us all, and it will take all of us
pulling together to mitigate its impact. Financing a just
and equitable transition will be important for a successful
transition. This is highlighted by the Nationally Determined
Contributions (NDCs) at the heart of the Paris Agreement.
NDCs embody each country’s efforts to reduce national
emissions and adapt to climate change impacts. Together,
these climate actions determine whether the world
achieves the long-term goals of the Paris Agreement.
4  Nationally Determined Contributions, UN Climate Change
8
It is understood that the peaking of emissions will take
longer for emerging economies, and that emission
reductions are undertaken on the basis of equity, and
in the context of sustainable development and efforts to
eradicate poverty, which are critical development
priorities for many emerging economies.4
For governments, enabling a just transition is a prerequisite
for achieving policy targets; transition initiatives will fail
without sustained support from a majority of voters.
For the finance community, the capacity of companies to
achieve a just transition – both environmental and social
– is increasingly among the criteria considered by investors.
For energy companies themselves, particularly utilities
and others who directly serve the public, a just transition
is about also ensuring the benefits for consumers and
bringing all parts of society along. This offers opportunities
as long as the right business model can be found.
A just transition seeks to navigate competing priorities in
the transition, to find solutions that provide co-benefits to
the Sustainable Development Goals (SDGs). This includes
economic development and employment, energy access,
clean oceans, and alleviating air pollution, all of which can
benefit greatly from an accelerated transition.
The world is aligning behind actions to limit global
warming, to avert the worst effects of the climate crisis.
However, mitigation alone will not stop the impact on
people and societies. Adaptation and resilience must be
built into systems and infrastructure to moderate the
harm done by climate change.
Executive Summary

9
1
COMBINING
FINANCE AND
FORECAST

1.1 The view from the finance community and energy leaders 12
1.2 Grounded in our best estimate of a single likely future 12
1.3 Paris Agreement sets the standard 15
DNV Financing the Energy Transition
1 COMBINING FINANCE AND FORECAST
In this report on Financing the Energy Transition, we explore the opportunities
and challenges facing the finance community in supporting an affordable,
accelerated and just transition.
We also review the implications of our ETO forecasts for
key stakeholders in several industries that DNV advises
and assists across generation and production, transmission
and distribution, and end use, focusing particularly on
financial aspects.
This publication is one in a suite of Energy Transition
Outlook (ETO) reports. We also provide a main Outlook
report and companion Executive Summary document
with our full forecast of the world’s energy system,
including full analysis of the sensitivities related to our
energy-system modelling. We complement this with
qualitative and sector specific insights in this report on
financing the energy transition, and in our dedicated
report for the maritime industry.
1.1 The view from the
finance community and
energy leaders
We thank the following leaders for the time and insights
they provided to this research through in-depth interviews:
— Bert-Jaap Dijkstra, Group Treasurer & Investor
Relations, SBM Offshore
— Andrew Dillon, CEO, Energy Networks Australia
— Matthew Kestenbaum, Director, EQT Partners
— Sean Kidney, Co-Founder and CEO,
Climate Bonds Initiative
— Javier Manzanares, Deputy Executive Director, Green
Climate Fund
— Keith Martin, Co-Head of Projects, US,
Norton Rose Fulbright
12
— Caroline le Meaux, Global Head of ESG Research,
Engagement, and Voting, Amundi
— Grace Park-Bradbury, General Manager, West,
BlocPower
— Jan-Willem Ruisbroek, Head of Global Infrastructure
Investment Strategy, APG
— Karen Reif, Vice President, Renewables & Energy
Solutions, PSE&G
— Hilde Røed, Senior Vice President Climate &
Sustainability, Equinor
— Daniel Wong, Global Co-Head, Macquarie Capital
— Yongping Zhai, former Chief of the Energy Sector
Group, Asian Development Bank
— Barbara Zuiderwijk, Founder and Member of the Board
and Jérôme Guillet, Managing Director, Green Giraffe
We thank all others in the finance community who contributed
insights to the report.
1.2 Grounded in our
best estimate of a single
likely future
DNV’s Energy Transition Outlook provides our independent
forecast of what we consider to be the best estimate for
the future of energy demand and supply, as the energy
transition unfolds to 2050. We forecast a single likely
future of the world’s energy system through to mid-century,
not a range of scenarios. In this report, we combine our
forecast with the views expressed by leaders from the
finance community and energy companies in the transition,
and DNV’s experience of providing assurance and advice
to those sectors.
 Combining Finance and Forecast CHAPTER 1

Our approach

Our best estimate A single forecast Long-term dynamics

not the future we want not scenarios not short-term imbalances

Energy forecast
to 2050

Continued development Main policy trends included Behavioural changes

of proven technology caution on untested some assumptions made
not uncertain breakthroughs commitments

13
DNV Financing the Energy Transition

1.2.1 Outlook divided into 10 regions
Our ETO Model divides the world into 10 geographical
regions. They are chosen based on geographical
location, resource richness, extent of economic
development, and energy characteristics. Each region’s
input and results are the sum of all countries within it.
Typically, weighted averages are used: countries with the
largest populations, energy use, and so on, are assigned
more weight when calculating averages for relevant
parameters. Prominent characteristics of certain countries
— nuclear dominance in France, for example — are
averaged over the entire region.

Map and key of outlook regions

North America (NAM) North East Eurasia (NEE)

Canada and the United States Russia and neighbouring countries including all
North
Latin America:
America Canada
(LAM ) and the US. former Soviet
North East Union
Eurasia: states
Russia except
and the Baltics.
neighbouring countries,
Includes Mongolia and North Korea
AllLatin
nations from Mexico
America: to the
All nations fromsouthern tipthe
Mexico to ofsouthern
South tip including all former Soviet Union states except the Baltics.
America,
of Southand including
America, the Caribbean
and including the Caribbean.
Greater China (CHN)
Includes Mongolia and North Korea.
The People’s Republic of China and Taiwan
Europe (EUR
Europe: )
All European countries including the Baltics. Excludes Greater China: Mainland China, Taiwan, Hong Kong and Macau.
AllRussia,
European countries including the Baltics. Excludes Indian Subcontinent (IND)
all former Soviet Union republics, and Turkey. Indian Subcontinent: India, Pakistan, Bangladesh, Sri Lanka,
Russia, all former Soviet Union republics, and Turkey India, Pakistan, Bangladesh, Sri Lanka, Afghanistan,
Sub-Saharan Africa: All African countries except Algeria, Afghanistan,
Nepal, Nepal,
Bhutan, Bhutan and the Maldives.
Maldives
Sub-Saharan Africa (SSA)
Egypt, Libya, Morocco, and Tunisia. South
OECDEast Asia:(OPA
Pacific From) Myanmar to Papua New Guinea. Includes
All Africa countries except Algeria, Egypt, Libya,
Middle East
Morocco and and North Africa: From Morocco to Iran.
Tunisia Stretches
many from
smaller Myanmar
island tothe
states in Papua New
Indian andGuinea.
Pacific Oceans.
Includes Turkey and the Arabian Peninsula. Includes
OECD manyJapan,
Pacific: smaller island of
Republic states in(‘South
Korea the Pacific
Korea’),
Middle East and North Africa (MEA) Ocean. Indonesia is the largest country
Stretching from Morocco to Iran. Includes Turkey and Australia and New Zealand.
the Arabian Peninsula South East Asia (SEA)
Japan, Republic of Korea (‘South Korea’), Australia
and New Zealand
14

1.2.2 Measuring energy in our outlook
In this Outlook, we use joules as the main unit for energy,
or rather exajoules (EJ) for large quantities associated
with national or global production.
Forecasts for final energy demand and primary energy
supply form a substantial part of this Outlook. Final energy
demand includes just the energy consumed at the point
Measuring energy in your outlook
1 exajoule
is roughly
24 million 278 terawatt 1 day
tonnes of oil hours (TWh) of the world’s
equivalent (MToe) of energy current total final
energy demand
1.3 Paris Agreement
sets the standard
The Paris Agreement has, since 2015, set the stage for
decarbonization ambitions globally. The Agreement sets
out that the world should seek to limit global warming to well
below 2°C and to pursue efforts to limit global warming to
1.5°C. It is an international agreement that almost all
countries have signed. More than the global commitments
mentioned, the Agreement brings a level of accountability
down to the national level, requiring signatory states to meet
Combining Finance and Forecast CHAPTER 1
of end use, excluding energy demand to produce other
energy carriers, such as producing electricity or hydrogen
from natural gas. When comparing them, it should be borne
in mind that primary energy demand is higher than final
energy demand. This is because energy is lost in the system
between the point of supply and the point of consumption,
much of it caused by electricity generation, transmission
losses, and thermal inefficiencies.
2 years 2 minutes 1 year
of energy consumed worth of solar of heat used by
by the New York energy falling on Germany’s
metropolitan area’s Australia steel sector
transport sector
‘Nationally Determined Contributions’ (NDCs) in emissions
reductions, and to report regularly on their progress.
At the industry level, many energy companies have already
expressed their support for the goals of the Paris Agreement,
and the industry will be increasingly affected by national
policies adopted to meet NDCs.
Throughout this report, we measure the pace and depth
of decarbonization efforts against compliance with Paris
Agreement targets. That is, if we say something will not
happen quickly enough, or will not have a deep enough
impact, this is because it will not lead to compliance with
the Paris Agreement.
15
16
2
A PARIS-COMPLIANT
TRANSITION IS
AFFORDABLE

2.1 Not on track to meet the Paris Agreement 18

2.2 Required transition is affordable in terms of GDP 18
2.3 The world cannot afford to miss the Paris targets 20
2.4 A massive redirection of capital is needed 20

17
DNV Financing the Energy Transition
2 A PARIS-COMPLIANT TRANSITION IS AFFORDABLE
2.1 Not on track to meet
the Paris Agreement
The world is decarbonizing at pace and with increasing
urgency, but must decarbonize more deeply to meet the
Paris Agreement goals.
DNV’s Energy Transition Outlook forecasts that by 2029,
the world will exhaust the carbon budget for the Paris
Agreement’s 1.5°C limit on global warming, and the 2°C
limit by 2053 (Figure 2.1). Our forecasts point to warming
of 2.3°C above pre-industrial levels by the end of the
century. Emissions must fall by around half by 2030 for
a 1.5ºC future, but we forecast they will fall by just 9%.
Deeply decarbonizing the world’s energy system will
require greater renewable power generation and
electrification, the scaling of technologies to remove
the carbon from combusting fossil fuels, and energy-
efficiency gains across many sectors.
It will require a change in mindset, technology and
behavioural revolutions, and forward-thinking policies.
Crucially, it will require massive investment to deploy
clean-energy technologies at scale, and measures, from
policy to partnership, to ensure investment flows to
where it can have the most impact on emissions.
18
2.2 Required transition is
affordable in terms of GDP
A Paris-compliant energy transition is affordable. DNV’s
Energy Transition Outlook forecasts that world energy
expenditure is set to stay fairly consistent to 2050, but
as economies grow, the share of world GDP devoted
to energy expenditure will halve from 3.2% now to 1.6%
by mid-century (Figure 2.2).
If the current fraction of GDP devoted to energy
expenditures were to remain constant, the surplus funds
to spend on clean energy would grow by around USD 2
trillion (trn) each year, reaching USD 63trn by 2050 –
enough to pay for a transition compliant with the Paris
Agreement.
“In terms of the way we experience the energy transition
at the business level, we see endless amounts of practical
evidence that it is affordable, and there's lots of reason to
be optimistic,” says Daniel Wong, Global Co-Head,
Macquarie Capital.
“Huge amounts of capital are starting to decide
which side of history they want to be on.”
Daniel Wong, Global Co-Head, Macquarie Capital.
 A Paris-compliant transition is affordable CHAPTER 2

FIGURE 2.1

Carbon emissions and carbon budget

Units: GTCO2/yr

Sources of emission:
Energy-related only
Energy-related and
industrial processes
Total including
AFOLU

FIGURE 2.2

World energy expenditure as a fraction of world GDP

Units: Percentages

Grid
Non-fossil
energy
Fossil energy

19
DNV Financing the Energy Transition
2.3 The world cannot afford
to miss the Paris targets
The world can’t afford not to realize a Paris-compliant
transition if we are to avert the worst effects of the climate
crisis on people’s lives and societies, the environment
and ecosystems, and the huge financial cost.
“It’s going to become affordable because the concept of
affordability – and this is getting a little bit philosophical – is
embedded within. If something becomes of increasing
importance, which clearly climate change is, then the priorities
become reordered and we will afford it,” says Wong.
Almost all countries have committed to the Paris Agreement
targets, and many major economies are setting long-
term net-zero targets. The challenge now lies in realizing
ambitions. For the finance community, and for energy
companies, that means directing capital to where it is
needed, in the short term to technologies ready to be
deployed at scale, such as wind and solar, but also to
innovative technologies requiring significant research,
development, demonstration and piloting in order to scale.
When considering affordability, it is also worth asking
what the cost will be in terms of climate impacts and
adaption measures under the 2.3ºC warming we forecast,
versus the cost of mitigation to limit warming to 1.5ºC.
Indications are that maintaining the percentage of GDP
dedicated to energy today (3.2%) would be a good
investment when the cost of climate impacts are
considered, with projections that even 2ºC warming
could reduce world GDP by 11%.5
5  World economy set to lose up to 18% GDP from climate change if no action taken, reveals Swiss Re Institute's stress-test analysis, Swiss Re
20 6  Net Zero by 2050, IEA
2.4 A massive redirection
of capital is needed
“A Paris Agreement-compliant transition is achievable,
but it won't happen by itself or by accident. A massive
redirection of capital is needed in all sectors and across
economic sectors,” says Hilde Røed, Senior Vice President
Climate & Sustainability, Equinor.
Fossil energy expenditure represented 76% of world
energy expenditure in 2019. We forecast that this share
will decline to 42% in 2050. By mid-century, non-fossil
energy expenditure will account for 31%, and grid for
27%, of the total (see Figure 2.3).
Expenditure will be increasingly directed towards non-fossil
energy, with growth close to threefold from USD 0.49trn in
2019 to USD 1.45trn in mid-century. Alongside, grid costs
to facilitate the energy transition will become a significant
share of world energy expenditure, almost doubling from
USD 0.57trn per year in 2019 to USD 1.26trn in 2050.
Oil capital expenditure (capex) will lead the decline in
fossil-fuel expenditure, falling almost seven-fold from
today to mid-century. Gas capex will remain comparatively
steady, but still declines by half to 2050. Oil operating
expenditure (opex) will fall by around 30% to 2050 while
gas opex will remain stable throughout the forecast period.
Taken together, we forecast that clean-energy expenditure
will increase by around 70% between 2019 and 2030 to
USD 1.9trn. This is just under half the USD 4trn that the IEA
estimates will be needed by 2030 to reach net zero by
mid-century.6 But as we show in terms of GDP, the world
does have capacity to increase its spending beyond our
current forecast.

We forecast that in real terms, fossil fuel expenditure will
be marginally higher in five years’ time than it is today. So
even as capital flows rapidly into clean energy, it is also still
flowing into fossil-fuel projects. This shows that the timing
and scale of the massive redirection of capital is still a
balance between accelerating the shift to clean energy
and maintaining an affordable, reliable supply of energy
during the transition.
“What we hope to see is an orderly transition instead of
people, in their minds, throwing a switch and getting
out of oil, and then seeing a huge spike in oil prices in a
couple of years’ time,” says Bert-Jaap Dijkstra, Group
Treasurer & Investor Relations, SBM Offshore. “This
spike is not exactly what we would hope to see, not even
in the oil industry.”
A massive redirection of capital relies on a change in
mindset: to recognize the carbon budget is finite and to
place it at the centre of decision-making: to act urgently
to reduce energy demand, scale up clean energy, scale
FIGURE 2.3
World energy expenditure by source
Units: Trillion USD/yr
A Paris-compliant transition is affordable CHAPTER 2
down fossil fuels, and to capture any remaining
emissions. It will require full energy system thinking to
determine how much to spend, when, and on what – for
both carbon and for capital.
This redirection will require significant upfront investment
and supportive polices that are costly at least in the short
term, while accepting to take a financial hit from the
scaling down of unabated fossil fuels assets – not just for
oil and gas companies and utilities, but also for pension
funds and others invested in them, and for consumers
who currently rely on fossil fuels in their daily lives.
This raises the pivotal question of who should pay for
the transition. One perspective is that this is a political
question, another is that everyone will pay: the question
is whether we pay now, or pay later and also to accept
the costs and impacts of failing to secure a Paris-compliant
future. The balance is that everyone should then also benefit
from an accelerated energy transition, making it essential
to ensure a just transition.
Grid
Non-fossil
energy
Fossil energy
21
3
NEED TO
ACCELERATE THE
ENERGY TRANSITION

3.1 Driving climate urgency 24

3.2 Translating urgency into action 29
3.3 Creating certainty, reducing risk 34
3.4 Ensuring capital flows to where it has most impact 41
DNV Financing the Energy Transition
3 NEED TO ACCELERATE THE ENERGY TRANSITION
3.1 Driving climate urgency
A clean energy transition will happen; the challenge is
how quickly. Actionable plans are needed to close the
gap between the emissions reductions being achieved
and those that are needed. It is a question first of mindset
and urgency, enabled by policy, technology, and financing.
“Many of our clients are looking to target a decrease in the
carbon footprint of their own portfolios,” says Caroline le
Meaux, Global Head of ESG Research, Engagement and
Voting, Amundi. “It is not only what we would like them to do,
but also what we need them to do because we are committed
ourselves directly through the commitment of our clients.”
Recognition of the need for urgency is spreading through
energy value chains and financial markets, spurred by societal
FIGURE 3.1
World primary energy supply by source
Units: EJ/yr
24
and government pressure. Long term, we forecast a transition
away from fossil fuels, but they are set to lead world energy
supply for many years to come.
In 2019, 80% of world energy was supplied by fossil fuels
and 20% by non-fossil fuels. By 2050, we predict an equal
mix of these two sources in primary energy supply (Figure
3.1). The outlook is not the same for all fossil fuels. Coal
supply is set to drop by approximately two-thirds, and oil
by some 50%, resulting in these making up 10% and 16%
respectively of the energy mix. Natural gas use persists to
2050 and becomes the largest energy source from 2033.
These shifts within the energy mix are reflected in
financing decisions. New coal projects are already a
no-go investment for many, and the emissions intensity
of oil and gas operations is becoming an increasingly
significant factor in financial decisions.
Wind
Solar
Hydropower
Bioenergy
Geothermal
Nuclear fuels
Natural gas
Oil
Coal
Historical data source: IEA WEB (2020)

World final energy demand remains relatively flat through
to 2050. It has risen by around 22% since 2006, but in the
next 15 years – heading to peak energy demand in the
mid-2030s – increases by only 8%. It will be restrained by
slower growth in productivity and global population, and
continuous increases in energy efficiency, particularly
in transport.
While energy demand plateaus – due largely to
advancements in energy efficiency – electricity demand
more than doubles by 2050 (Figure3.2), most notably in
transport and buildings. By then, 69% of electricity will be
from wind and solar PV, compared with 8% in 2019. The
total installed capacity of variable renewables rises from
approximately 1,200 GW today to more than 17,500 GW
in 2050, presenting both significant challenges and great
opportunities for funding many of these projects. This
prospect will become increasingly compelling as advances
in solar modules and wind-turbine technology continue
to lower the levelized cost of energy (LCOE), making
them the most economical source of generation.
Hard-to-abate sectors are slow to decarbonize. Emissions
from heavy industry and aviation increase over the next
15 years. Potential solutions such as electrification and
using hydrogen for some manufacturing processes,
carbon capture at sources of major emissions, and
FIGURE 3.2
World final energy demand by carrier
Units: EJ/yr
Hydrogen includes synthetic fuels. Historical data source: IEA WEB (2020)
Need to accelerate the energy transition CHAPTER 3
hydrogen and biofuels for aviation, are at earlier stages
in their development. They are likely to require government
intervention – incentive schemes, innovation funding, and
mandates – to accelerate decarbonization of these sectors.
3.1.1 Paris Agreement and net zero are drivers
The Paris Agreement is both a product and enabler of
a change in mindset. Crucially, it is driving urgency for
stakeholders to act, and this is affecting the financial
markets. It has led to the proliferation of net-zero emissions
targets, from Europe to China and the US, and to a realization
of the scale of the challenge. All sectors will need to
decarbonize to meet it, and many technologies will be
needed – working together to deeply decarbonize
energy systems.
“Net-zero commitments are becoming a driver, and are
giving the right signals to global stakeholders,” says
Javier Manzanares, Deputy Executive Director, Green
Climate Fund. “They are also being perceived as the
right example for other players, and as a type of secure
platform for the private sector to jump in.”
Nevertheless, the potential to really drive urgency to the
markets lies in shorter-term actionable plans that translate
net-zero commitments into today’s decision-making.
Electricity
Direct heat
Hydrogen
Bioenergy
Natural gas
Oil
Coal
Other
25
DNV Financing the Energy Transition
“It's quite easy for countries and companies to put out a
2050 commitment. What’s more challenging is setting
and committing to interim ambitions and more concrete
measures,” says Hilde Røed, Senior Vice President Climate
& Sustainability, Equinor. “We need to see even more of
that for the markets to fully believe in it.”
Alongside actionable plans, Yongping Zhai, former Chief of
the Energy Sector Group, Asian Development Bank, points
to the need for an accurate baseline on emissions. “When a
country announces it’s going for carbon neutrality, that’s
great; but the first thing is making sure we know exactly
how much we emit by sector by industry, at different levels
at a given time.”
3.1.2 ESG a first step in accountability
Environmental, social, and governance (ESG) criteria
and metrics are a hot topic in business as forward-
thinking companies promote their sustainability
credentials, and as societal and shareholder pressure
forces others to do the same. The ‘E’ in ESG is bringing
emissions into the spotlight. Companies large and small
now need to account for and communicate their impact
on the environment and, increasingly, the impact from
their supply chains and use of their products.
Jan-Willem Ruisbroek, Head of Global Infrastructure
Investment Strategy, APG, views the impact of ESG
reporting as a first step: “Management teams are
resistant at first, and then get a weak score and feel they
should start doing better. But improving the score
doesn’t happen by filing in the survey; it happens by
taking initiatives so that you can fill in the survey better.”
Gas and electricity network operators have traditionally
been technology-agnostic, according to Andrew Dillon,
CEO, Energy Networks Australia: “The network would say
‘it’s our job to move the electrons or to move the molecules;
it’s not to make judgments one way or another about what's
good, bad, green, brown, or whatever’. The change we’re
seeing is partly linked to ESG, and to the question of how
we are enabling a clean energy future. We have to be far
more active in enabling this trend.”
7  Turmoil and Transformation: The Outlook for the Oil and Gas Industry in 2021, DNV
26 8  Net Zero Asset Managers Initiative
“It was hard at one time to get utilities to buy renewable
energy,” says Keith Martin, Co-Head of Projects, US,
Norton Rose Fulbright. “Now they’re often more likely
to want to buy the project. You have this growth of the
corporate PPA [power purchase agreement] market that is
driven by ESG. I would say it’s probably the single biggest
ESG-related factor for our market because developers
need predictable revenue streams to finance projects.”
ESG can also play a key role in bringing visibility and
accountability to companies’ environmental strategies
and plans. Caroline le Meaux, Global Head of ESG
Research, Engagement, and Voting, Amundi, points to
the need to first get a view of the different issues in each
sector, and then to get company information.
“We need to have the right knowledge of a company’s
emissions trajectory. What will be their target for 2025?
For 2030? If they can't do this, we need to know,” she says.
“As an investor, we need comparability: we need to have
a reporting framework where we can easily find the future
development of the carbon footprint and carbon emissions,
and we need to assess the true picture. Up to last year, it
was more about intention or capacity. Nowadays, we want
to go further. We are looking at how it can be delivered.”
When DNV put the question of common frameworks
to oil and gas professionals7, 85% favoured a common
framework for the industry to define, measure, and
report on emissions. While much of the industry is on
top of reporting scope 1 and 2 emissions, from production
and distribution and the supply chain, scope 3 emissions
from end use are much harder to measure.
“The challenge for the industry is always to set one
standard,” says Ruisbroek. “The way to set certain
industry standards is by teaming up with multiple
like-minded institutions.”
APG is a member of the Net Zero Asset Managers
initiative8, an international group of asset managers
supporting the goal of net-zero greenhouse gas (GHG)
emissions by 2050. As of July 2021, the group has 128
signatories and USD 43trn in assets under management.

Faced with the pressure of ESG reporting to financiers,
energy companies are in turn pushing ESG targets to
suppliers. “We've used the carrot-and-stick approach,
so the majority of our contracts in this area have
significant performance incentives associated with
them,” says Karen Reif, Vice President, Renewables &
Energy Solutions, PSE&G, a regulated gas and electric
utility company serving the state of New Jersey, US.
3.1.3 Change requires a “steel hand in a velvet glove”
World CO2 emissions are set to almost halve by 2050,
from around 34 GtCO2 /yr in energy-related emissions in
2019 to around 18.6 GtCO2 /yr by mid-century, according
to our Outlook. However, this masks the fact that they
will not drop below 30 GtCO2 /yr until 2032, remaining
stubbornly high. They will fall just 16% in the next 15 years,
before then dropping by a third in the 15 years to 2050.
To give a sense of the challenge, we forecast emissions
in 2030 will be only 9% less than in 2019 (Figure 3.3). This
contrasts starkly with the halving of emissions by 2030
that would be needed to get on track with the Paris
Agreement’s 1.5°C ambition.
FIGURE 3.3
World energy-related CO2 emissions by fossil fuel
Units: GtCO2/yr
9  Net Zero by 2050, IEA
Need to accelerate the energy transition CHAPTER 3
The IEA says no new fossil-fuel projects can be developed
if the world is to stay within warming of 1.5°C.9 From the
financial side, it is not so simple as to just abandon all
investment in companies involved in fossil energy. The
risk is that this could create two tiers of energy companies:
those that will not touch fossil fuels due to investor pressure,
and those that are under less pressure and will buy up
divested oil and gas assets. This would be a change in
ownership, not an energy transition.
Caroline le Meaux, Global Head of ESG Research,
Engagement, and Voting, Amundi, warns of how
divestment could hold back investment in clean-energy
projects: “We need to make sure that the pressure is a
steel hand in a velvet glove. The big oil and gas companies
have big cash flows and can invest heavily in the green
economy, and you want some pressure on them to do
so. But if you divest from them, or if you create a major
governance problem at their top, they will lose years in
their energy transition.”
Le Meaux points instead to the opportunities as an
equity investor: “You see all the influence we can have
on the issues when it's equity, on the voting side and
through engagement. This could be the key to push
companies toward something more serious
on emissions.”
Non-renewable
waste
Natural gas
Oil
Coal
27
DNV Financing the Energy Transition
DNV research on the outlook for the oil and gas industry
in 202110 shows larger companies committing to emissions
reductions much more than small businesses. This disparity
shows the power of shareholders, government, and public
pressure exerted on international oil and gas companies.
The May 2021 ruling by a court in the Netherlands that
Shell must deepen the company’s planned cuts in carbon
emissions11 has been a wake-up call for many companies
with high emission profiles. The ruling, which Shell says it
will appeal12, also raises questions on how pressure will
filter through to smaller upstream players, and to national
oil companies – particularly those accountable to countries
whose economies depend on oil and gas revenues.
“Hypothetically, we could sell everything we
do in oil and gas to someone else and they
could continue producing it. But then you
haven't really transitioned at all.”
Hilde Røed, Senior Vice President Climate & Sustainability,
Equinor.
Emissions should not simply switch to smaller players or
to companies in regions where there is less pressure to
decarbonize. This is one such example that shows the
need for global, full energy system thinking.
Peak emissions
Our forecast shows that carbon dioxide emissions are
likely to have peaked in 2019. While this seems like good
news for decarbonization, the coronavirus pandemic is
exacting a heavy and tragic toll on lives and livelihoods,
increasing poverty and hunger, and reducing growth
10  Turmoil and Transformation: The Outlook for the Oil and Gas Industry in 2021, DNV
28 11  ‘Shell ordered to deepen carbon cuts in landmark Dutch climate case’, Reuters
“I don't believe that we as a financial institution can only
make the difference by just allocating capital to certain
sectors,” says Jan-Willem Ruisbroek, Head of Global
Infrastructure Investment Strategy, APG. “The energy
transition needs more than that. If you're an equity investor,
you become an owner of the company. You can sit on the
board of directors and make sure that ESG views and
beliefs are captured in the business plan, and incentivize
management to achieve those targets.”
Coal power generation is one such example, where
investors buying into utilities can exert pressure – first
to end new investment in coal, and second to hasten
phasing out of existing coal plants.
3.1.4 Fear of stranded assets
The downturn following the COVID-19 pandemic could
end up being remembered as the crisis that capped the
peak of global oil demand. We forecast that oil demand
peaked in 2019 then fell 13% in 2020. By 2025 we forecast
that oil demand will rise to equal the level in 2019, before
a rapid decline to 2050. Demand for coal has already
peaked. Natural gas demand will stay relatively flat,
peaking in the early 2030s at a level just 4% higher
than today, then declining gradually in the 2040s.
Priorities are shifting as investors reassess risks of financing
oil and gas projects, and this is propelling a shift in capital
away from fossil fuels. The financial markets – through
the effects of the COVID-19 pandemic – have seen what
peak oil demand could look like, and are increasingly
factoring in changing societal sentiment towards a
decarbonized future.
prospects for those who need it most. There is potential
for a much more socially just and sustainable energy
transition that does not cause the harm and disruption
associated with the COVID-19 crisis.
12  ‘Shell confirms decision to appeal court ruling in Netherlands climate case’, Shell
 Need to accelerate the energy transition CHAPTER 3

One feature of the oil and gas industry’s response to the

COVID-19 downturn was the tens of billions (bn) of dollars
of book value that evaporated in asset write-downs.13
Much of this related to projects with high cost – expensive
in operations, emissions, or both – such as TotalEnergies’
Canadian oil sands14 and BP’s ultra-deepwater projects
off Angola.15 The write-downs also start to price in the
risk of stronger climate policies from governments.
Early in 2020, the Financial Times estimated that USD
900bn would be wiped from the value of oil and gas
companies if governments attempted to restrict global
temperature rise to 1.5ºC above pre-industrial levels.16
Financial markets are bringing forward to today the risk
in fossil fuels.
“If you have two companies, then all things
being equal, the more sustainable company
will have the higher value.”
Matthew Kestenbaum, Director, EQT Partners
3.2 Translating
urgency into action
Even if the world has the capacity in GDP terms to increase
its spending on the energy transition, and the urgency
to increase spending is there, this does not mean it will
happen. Putting potential capital to work will require
changes to create conditions that deliver the right returns
and reduce risk.
3.2.1 Business opportunities for renewable generation
Renewable generation, particularly in markets where
renewables are already scaling, tends to make easier
investments than other clean-energy projects. In many
respects, wind and solar are the most attractive for investors
due to their already relatively low LCOE and likely rate of return.
“Banks without exception are asking me:
‘Can I please get a priority position on your
green projects?”

Bert-Jaap Dijkstra, Group Treasurer & Investor Relations,

SBM Offshore
FIGURE 3.4

World grid-connected electricity generation by power station type

Units: PWh/yr

Floating offshore wind

Fixed offshore wind
Onshore wind
Solar PV
Solar plus storage
Hydropower
Bioenergy
Geothermal
Nuclear
Gas-fired
Oil-fired
Coal-fired

Historical data source: IEA WEB (2020), GlobalData (2021)

13  Seven top oil firms downgrade assets by $87bn in nine months, The Guardian 15  BP's stranded Canadian, Angolan assets expose wider industry risks, Reuter
14  Total demonstrates resilience and maintains dividend, Total 16  Lex in depth: the $900bn cost of ‘stranded energy assets, Financial Times 29
DNV Financing the Energy Transition
In many markets, we foresee continued strong interest
in wind and solar projects, both from capital moving
from oil and gas investments, and from institutional
investors with a longer-term view.
“Pension funds like renewables, or at least the generation
part of it, because it is stable. You know you need to put a
lot of money in, but you know you’re going to get it back
over the longer term,” says Barbara Zuiderwijk, Founder
and Member of the Board, Green Giraffe.
We forecast that 87% of power supply will come from
non-fossils in 2050, with a 69% share from solar and wind.
Wind generation is largely onshore, but offshore wind’s
contribution will grow more appreciably closer to
mid-century, reaching about 40% of total wind production.
We anticipate that floating offshore wind will grow to
generate 15% of all offshore wind energy by then.
The ramping up of renewables displaces coal. As total
electricity generation rises significantly, and coal declines,
fossil fuel contributions to the electricity mix drop from
63% today to 13% by 2050.
Renewables such as wind and solar are already cheaper
than fossil fuels for power generation in many cases.
FIGURE 3.5
World grid-connected electricity generation capacity additions
Units: GW/yr
Shows the year of commisioning Historical data source: GlobalData (2021)
30
This trend is set to continue with manufacturers and
developers striving for lower LCOE. In the solar PV
sector, these technology developments include larger
format cells, bifacial modules, and single axis tracking.
In the wind sector, developments include ever-increasing
turbine size (especially offshore), turbine designs specific
to wind condition, and total wind farm control.
“Primarily we invest in renewables because we believe in it.
Of course, it also helps us reaching our climate ambitions,
but the projects need to be viable on their own,” says Hilde
Røed, Senior Vice President Climate & Sustainability, Equinor.
Scaling the volume of renewable energy projects
There is an urgent need to scale wind and solar
generation. The technologies exist and already present
good business opportunities, but obstacles remain.
The risk of a bottleneck with a large amount of capital
chasing relatively few renewable energy projects can
increase the cost and reduce the returns for investors,
while delays in permitting and local opposition are
holding back the number of projects in development.
“We continue to see a tremendous amount of demand
from our investors to put capital to work in the energy
transition. But investors always have a choice, right?”
says Matthew Kestenbaum, Director, EQT Partners.
Floating offshore wind
Fixed offshore wind
Onshore wind
Solar PV
Solar plus storage
Hydropower
Bioenergy
Geothermal
Nuclear
Gas-fired
Oil-fired
Coal-fired

“They can invest money in the energy transition or they
can go and put the money into something else. I'm worried
about the general competition and what that means for the
return outlook for stabilized projects. What if the amount
of capital chasing the industry leads to returns coming
down to a point where the capital dries up?”
Such fierce competition is putting pressure on the
profitability and rates of return for wind investments17,
and could ultimately hold back investment.
“Wind has become incredibly expensive as a result of
the volume of capital chasing those deals,” says
Jan-Willem Ruisbroek, Head of Global Infrastructure
Investment Strategy, APG. “Wind farms are probably the
easiest first step for investors to buy ESG assets, so they
attract a lot of capital and that becomes competitive.”
Complicating the scaling of renewable generation is public
perception and local opposition, particularly to new onshore
wind developments, which has come to the fore in certain
countries such as Germany18, Norway19, and the Netherlands20
– that previously led the transition. People often do not
want energy developments in their back yards. Local
opposition has led to many wind developments, in Europe
FIGURE 3.6
World installed offshore wind capacity
Units: GW
17 Equinor and Orsted see green energy ambitions hit profitability headwinds, Upstream
18  Germans fall out of love with wind power, Financial Times
19  Norway's public backlash against onshore wind threatens sector growth, Reuters
Need to accelerate the energy transition CHAPTER 3
and elsewhere, looking offshore, and even deeper
offshore with floating offshore wind.
We forecast significant scaling of global installed
offshore wind capacity, from 29 GW in 2019 to 1,748 GW
in 2050. Fixed installations will account for practically all
offshore wind capacity by 2026, but we forecast that
floating wind will grow to contribute 264 GW by 2050.
This corresponds to a development of more than 3,000
times the size of Hywind Tampen, the world's largest
floating offshore wind farm, currently under
construction in Norway, or 15,000 turbine units.
Cost is the main issue with floating wind. While bottom-
fixed wind has projects with a LCOE below 50 US dollars
per megawatt hour (USD/MWh), the first floating wind
farms have seen LCOE exceed 200 USD/MWh. Much of this
is due to the small size of the first floating wind farms and
the immaturity of the technology and supply chain. With
the combined experience and eagerness from the players
in the oil and gas, maritime, and offshore wind sectors,
DNV believes technical and cost reduction challenges can
be overcome. In the next five years, we expect significant
technology development in floating wind to reduce cost,
scale production, and increase applicability.
Floating
Fixed
Historical data source: GlobalData (2021)
20 Provinces set to miss wind power targets as opposition to energy plans heats up,
DutchNews.nl 31
DNV Financing the Energy Transition
3.2.2 Standards and taxonomy
Standards and taxonomies have key roles to play,
independently classifying activities that are sustainable
and aligned with climate targets, and those which are
not, providing clear direction for energy investment,
and the basis for incentives, standards, and regulations.
The EU is moving rapidly in this area, as a priority to translate
its net-zero goal into action. The new European Green
Deal 21 aims to transform the EU into a sustainable economy
while accelerating its decarbonization. The deal provides
an unprecedented roadmap for coordinated regional
climate action, but will require policies and technical
details to transform urgency into action.
A key tool for this is Regulation (EU) 2020/852
(Taxonomy)22 on the establishment of a framework to
facilitate sustainable investment (‘the EU taxonomy’).
Adopted in April 2021, it is set to provide common
language for sustainability and force disclosure on the
sustainability of activities.
Sean Kidney, Co-Founder and CEO, Climate Bonds
Initiative, points to the potential for the EU taxonomy to
drive action by investors globally, as a benefit above and
beyond accelerating the transition in Europe: “The
enforcement tool we now have available to us is global
capital. It tends to be located in a few key places – the
US, Europe, and Japan. The EU taxonomy will drive
investors globally and lead to global policing on this
kind of issue. But first we need tougher and rougher
formal policing agreed by the major economies. The
backing of common rules gets everyone in the same
tent, and then it has a global impact.”
The Climate Bonds Initiative itself operates a taxonomy
to guide the types of investment that can be supported
by green climate bonds. Beyond criteria for renewable
generation, and grid and infrastructure, the organization
is currently working on transition criteria, providing
clear guidance for carbon-intensive industries such as
oil and gas. While new oil and gas projects are unlikely
to feature, measures to reduce the intensity of existing
operations may be included – balanced with ensuring
measures do not extend the life of existing assets.
21  ’The European Green Deal’, EU Commission, 11 December 2019
32 22  EU Taxonomy Climate Delegated Act, European Commission
23  New Directions, Complex Choices: The outlook for the oil and gas industry in 2020, DNV
Certifying corporate strategies
One challenge with standards and taxonomies is assessing
compliance with them in terms of corporate strategies,
capex plans, and trajectories, in order to determine whether
they are adequately ambitious for the challenge. Certification
of corporate strategies could play a key role, with certification
leading to preferential access to insurance, dedicated
sustainable finance, and other incentives.
3.2.3 Subsidies and carbon price
To enable the massive redirection of capital required for the
energy transition, policies will need not only to support
clean-energy projects, but also to disincentivize fossil fuels
and the status quo. The oil and gas industry’s view is that
companies will decarbonize only if it makes financial sense.23
In 2020, governments globally provided more than USD
180bn of fossil fuels subsidies, according to IEA estimates.24
It is a prevalent discussion as to whether governments should
continue to underwrite and sign-off on permits for fossil-fuel
projects, let alone provide subsidies. This issue took on even
stronger dimensions in 2020 as governments worldwide
borrowed deeply during the COVID-19 pandemic to support
jobs and industries, including companies involved in fossil-
fuel extraction. Moreover, massive stimulus packages to
kick-start economies post-pandemic could see huge funds
flowing into fossil fuels rather than clean-energy projects.
Tools such as the EU taxonomy could go some way to
addressing this, and there are many examples of other
actions. For example, the European Investment Bank
decided in November 2019 to end lending for all unabated
fossil-fuel projects by the end of 2021. The Biden-Harris
Administration in the US aims to reduce fossil subsidies,
saving the US federal government USD 35bn over the next
10 years, and to raise an additional USD 86bn by reforming
the taxation of foreign fossil fuel income.25
“The fact that most carbon-emitting industries, from
generation through to industrial processes, do not pay
enough or at all for the cost of carbon is a subsidy”, says
Daniel Wong, Global Co-Head, Macquarie Capital. “So, all
roads then lead to, ‘Well, why aren’t we properly pricing
carbon emissions?’ Price it properly, because that's what
will drive a change in behaviour.”
24  Fossil Fuel Subsidies Database, IEA
25 Biden budget proposes repealing raft of tax benefits for fossil fuel producers,
S&P Global Platts

An effective price on carbon would be the next step. By
effective, we mean properly pricing the damage caused
by emissions, and pricing at a level that makes technologies
to remove carbon from fossil fuels commercially viable,
such as hydrogen and CCS.
Speaking specifically on China’s rollout of a national carbon
trading market, Yongping Zhai, former Chief of the Energy
Sector Group, Asian Development Bank, points to some of
the challenges, and to several delays to the launch of China's
carbon trading system. He cites a lack of reliable baseline
data and also concerns on Chinese competitiveness as a
factor, and that a carbon price may increase the cost of
electricity, therefore undermining competitiveness.
Also recognizing this issue, the EU is considering a ‘CO2
border tax’, which would extend a price on carbon to
imported products. The aim is to prevent stakeholders
from exporting their carbon emissions, such as by
moving production out of the region.26
FIGURE 3.7
Carbon price by region
Units: USD/tCO2
26  EU Green Deal (carbon border adjustment mechanism), EU Commission
27  Microsoft will be carbon negative by 2030, Microsoft
Need to accelerate the energy transition CHAPTER 3
Lifetime emissions
“Global carbon pricing feels inevitable,” says Macquarie
Capital’s Wong. “The debate we should be having is
around allocating responsibilities, which speaks to a
just transition and a discussion about emerging markets
which haven't had a century of high emissions as they
developed their economies.” Wong suggests considering
how much each country has emitted throughout its
history, balanced against measures such as per capita,
to create a carbon budget for each country. This would
provide a form of lifetime emissions allocation.
“A number of countries will have spent theirs already,
and therefore might need to go buy someone else's
allocations, and then this trading kind of works,” says Wong.
“Countries would then need to properly tax emitting
activities or penalize the cost of them so that demand for
those services or goods adjusts accordingly to reflect the
true price.” Some major corporations have started to look
at their historical emissions, setting ambitions not just for
net zero, but for lifetime net zero or lifetime net-negative
emissions. Microsoft targets being carbon negative by
2030. By 2050, it aims to remove from the environment
all carbon the company has emitted either directly or by
electrical consumption since it was founded in 1975.27
EUR
CHN
OPA
NAM
LAM
SEA
IND
SSA
MEA
NEE
33
DNV Financing the Energy Transition
FIGURE 3.8
Energy related emissions per person by region
Units: Tonnes CO2/person
3.3 Creating certainty,
reducing risk
To facilitate capital investment in clean-energy projects,
long-term stability, certainty, and line-of-sight are
among the most important factors. These can be
strengthened by business models and long-term
agreements, the regulatory environment, government
support, partnerships, and technological innovation.
Market maturity is also essential, with risk reduced by
greater certainty of demand, and a range of business
models and approaches that lead investors to finance
projects throughout their lifecycle, including early-
stage investment.
“The uncertainties require wholesale changes not only
in technology but also in the mentality and in the
financing system, in the financing instruments,” says
Yongping Zhai, former Chief of the Energy Sector
Group, Asian Development Bank.
34
NAM
LAM
EUR
SSA
MEA
NEE
CHN
IND
SEA
OPA
World
average
“We have a financing system to support conventional energy
solutions, and conventional solutions in general, but such a
system is not adequate to support a clean energy future.”
Markets will also need to provide scope for sufficient
returns and profits, whether it is ensuring that they are
low-risk if they are low-return, or providing higher
returns if higher-risk. The challenge is to de-risk and
improve the profitability of clean-energy opportunities
that are currently high-risk, low-return, long-term
investments. Or it is developing new ways of financing
that can take on these opportunities.
“Why would the price of electricity be subject to the volatility
of the prices of oil and gas, which are geopolitically driven
and influenced by a lot of other factors?” says Jérôme
Guillet, Managing Director, Green Giraffe. “There’s no
reason for power generators or consumers to bear that
volatility risk. Power can also be produced in a framework
based on fixed long-term prices; its design needs to
ensure such prices are market-driven and competitive,
while production stays sensitive to short-term system
balancing needs.”

3.3.1 Role of government
Governments can play a leading role in facilitating private
sector investment by reducing risk and creating certainty,
principally through policy and regulatory frameworks.
Compliance is also key, with governments needing to be
clear on what is required and to enforce environmental
regulations. Beyond long-term stability, governments
can help to create the right circumstances for markets to
develop quicker, such as through subsidies, particularly
for technologies yet to scale. While the regulations that
work best will differ by country and sector, many share
the need to provide long-term certainty while
accelerating the transition in the shorter term.
Europe’s approach, for example, has been to focus on
net-zero targets, a rising carbon price, and subsidies for
certain technologies, such as wind and solar.
The EU set the example, announcing the biggest ever
financial commitment to climate-friendly projects in July
2020: close to EUR 550bn over the period 2021–202728. In
July 2021, the EU proposed its Fit for 55 package29, which
proposes to extend the EU Emissions Trading Scheme to
sectors such as shipping, road transport, and the built
environment. It also proposes a new Social Climate Fund
to mobilize €144.4 billion to ensure a socially fair transition.
China is committed to net zero by 2060, and is using direct
intervention to get there. It aims to reach peak emissions and
reduce carbon intensity by more than 60% by 2030, such as
through increasing coal-to-gas switching, in the shorter term.
The government targets aim for natural gas to supply 15% of
the energy mix by 2030 compared with 10% in 2019. The
policy approach differs significantly from other countries and
regions. With state-owned companies throughout the value
chain, and a 'command economy' model with strong state
intervention, it can direct rather than incentivize, regulate,
and influence stakeholders and markets to decarbonize.
28  EU makes world's biggest 'green recovery' pledge…, Reuters
29  European Green Deal: Commission proposes transformation of EU economy and society to meet climate ambitions, European Commission
Need to accelerate the energy transition CHAPTER 3
“China is not the same as a country in the middle of the
European continent that can rely on the whole network,”
says Yongping Zhai, former Chief of the Energy Sector
Group, Asian Development Bank, as he highlights the
need to also ensure reliability in government policy.
“In Europe you can say you will phase out nuclear while
knowing there is nuclear next door. In China, you have to
find your own way. I think that China has to develop two
things to go beyond 2030. Nuclear and offshore wind
should be big to reach carbon neutrality.”
The US has relied on a patchwork of policies and
financial incentives at state level in recent years, with
federal support focusing on tax credits to encourage
capital from corporations and the private sector to flow
largely into renewables, but also to CCS. The Biden-
Harris Administration has switched the debate on the US
direct stimulus, such as proposing a USD 2trn infrastructure
plan that would aim to have the US power sector running
entirely on clean electricity by 2035.
“The [US] federal government has a lot of incredible
tools at its disposal,” says Grace Park-Bradbury, General
Manager, West, BlocPower. “Most powerful is its role in
setting a leadership direction for the country, and giving
capital markets an idea of where they can invest and
continue to make money, because of the certainty that
this is going to be an industry that lasts for the next 10
to 30 years.”
“We have ageing infrastructure in the US: highways,
bridges, internet, electric grids, people’s homes. We
have folks that literally burn oil and coal. All of this needs
investment,” says Park-Bradbury. “I put a lot of hope in
Federal legislation. I put a lot of hope in re-levelling the
playing field by taking away some of the structural
advantages that we've historically afforded fossil fuels.”
35
DNV Financing the Energy Transition
In short, full energy system thinking is needed to meet
Paris Agreement targets, and this requires that all
available levers to reduce emissions are pulled urgently,
while the timeline is advanced to scale technologies to
reduce emissions from hard-to-abate sectors.
Investments in solutions such as hydrogen have long
timeframes, so need some predictability in terms of
incentives or regulations, such as roadmaps for the 10
years ahead. This is perhaps even more crucial for the
supply chain – to build up the capacities needed in
offshore wind, for example.
Policy is key not just in setting out the path to decarbonize,
but also in deciding how quickly regions and the world
move down that path. The quicker that governments
incentivize industry to adopt technology, the quicker the
technology progresses along the cost learning curve and
becomes independently financially viable.
Investor appetite
Pre-development
Development
Construction
Developers
IOCs
Venture Capital
Renewable Funds
Infrastructure Funds
Development banks
Commercial Banks
Debt Funds
30  GCF investment supports green energy transition in Chile, Green Climate Fund
36
3.3.2 Fast-track to maturity
Early-stage support and industry involvement is
needed to fast-track projects to the stage where they
are lower risk and fit the profile for widely used financial
mechanisms, such as debt financing. The ambition is to
develop the maturity of markets and investors within
them, so that different financiers have the business
models and risk appetites to come in at each stage
of a project, from concept to completion.
Javier Manzanares, Deputy Executive Director, Green
Climate Fund (GCF), explains the organization’s role in
de-risking investment opportunities in emerging
economies by taking a higher risk than many others in
early-stage project development. He cites the Espejo
de Tarapacá project in Chile30, which combines solar
energy within a pumped storage hydroelectric system
to offer a 24/7 low-carbon electricity energy supply.
Stages of Investment
Commencement of operation
Commencement of operation +1–3 years
Operational phase Decommissioning
or extension of life
Pension Funds
Sovereign Wealth Funds
Debt Capital Market
Investment risk

FIGURE 3.9
World final energy demand by sector
Units: EJ/yr
GCF is participating as an early anchor investor, helping
to reduce project risk and attract investments from
other equity and institutional investors and lenders.
The fund expects that every dollar it invests will help
leverage an additional USD 18 from private investors.
Another GCF example, in Africa, is the provision of
emergency relief funding to clean-energy companies in
the form of concessional loans. The facility aims to help
energy access companies in nine African countries to
remain solvent and be in a position to drive the post-
COVID-19 green recovery, especially in off-grid areas.31
31  Green Climate Fund Annual Results Report 2020
Need to accelerate the energy transition CHAPTER 3
Transport
Buildings
Manufacturing
Non-energy
Other
Historical data source: IEA WEB (2020)
3.3.3 Greater certainty from the demand side
Greater certainty on the demand for technologies and
innovations can reduce risk and increase investment. This
is particularly relevant for supply chains and for companies
involved in technologies yet to scale. Research such as
DNV’s independent forecast of the world’s energy system
helps with this, providing a best estimate for a likely energy
future, as do services such as market advisory and assurance.
37
DNV Financing the Energy Transition
Transport
In 2019, transport energy demand of 125 EJ/yr accounted
for 29% of world total energy demand, by 2050 this will
have dropped to 111 EJ/yr and 24% respectively (Figure
3.9). Significantly, in the mid-2020s, electric vehicles (EVs)
will achieve cost parity with internal combustion engine
vehicles, and this is the major reason for the reduction in
energy demand from transport.
The electrification of road transport has a marked impact
on the broader energy transition, contributing to greater
electrical demand, oil’s decline, and aiding integration of
variable renewables. All of this significantly reduces carbon
emissions and helps combat climate change. The results of
the ETO Model in Figure 3.10 show that two- and three-
wheeler vehicles will transition first (dominated by the
Indian Subcontinent, Greater China, and South East Asia),
followed by passenger and then commercial vehicles.
The EV revolution will require significant investment in
scaling up battery production, adapting vehicle
manufacturing and deploying charging infrastructure.
FIGURE 3.10
World number of road vehicles by type and drivetrain
Units: billion vehicles
Combustion vehicles include ICEs and PHEVs. Electric vehicles include BEVs and FCEVs.
Historical data source: Marklines (2021), IEA EV Outlook (2021), OICA (2016)
38
Buildings
Global energy demand for buildings will grow slowly from
122 EJ in 2019 to 154 EJ/yr by 2050, when it will be a third of
total demand compared with 28% today. This growth is
driven by rising population and standards of living,
particularly where economies are growing rapidly. Given the
urgency in the energy transition there is opportunity for
finance to get more involved in supporting implementation
of energy-efficiency measures in buildings (see Section 3.4.1).
Manufacturing
The manufacturing sector consumed some 131 EJ of
final energy in 2019, 30% of global final energy demand.
Rather than growing in line with population and GDP, we
forecast the manufacturing sector’s share of total energy
demand will remain relatively constant, restrained by
improved efficiency, circular economy trends, and by
electricity displacing coal and gas as energy carriers.
Electricity’s 27% share of manufacturing energy demand
in 2019 is set to grow to 38% in 2050. Electrification of
heat in manufacturing will involve heat pumps for lower
temperature requirements and direct electrical heating
such as arc furnaces for higher temperature applications.
As the sector invests in this equipment there are likely to
be opportunities for the finance sector to support them.
Two and three-wheelers
Electric
Combustion
Commercial
Electric
Combustion
Passenger
Electric
Combustion

Partnerships
Beyond forecasts, there are more active measures that
energy companies and investors can take to get greater
certainty from the demand side.
Agreements between producers and consumers are one
example, whether a corporate PPA agreement for
renewable electricity generation and consumption, or
joint investment in industrial clusters for hydrogen and
CCS. Wider consortia or partnerships that involve
producers, distributors and customers can also be a form
of de-risking.
Matthew Kestenbaum, Director, EQT Partners, mentions
the role company strategies play in creating certainty:
“It’s pretty clear that lithium-ion is going to be the
technology that will drive vehicle electrification. The
costs are there, and you look at the announcements from
the big auto manufacturers. It’s then a question of what
type of grid infrastructure needs to be built up to support
the electrification.”
The same for government agencies. Directions to buy
green energy for government buildings, or decisions to
use fuels such as biogas or hydrogen for public transport
networks and vehicles, can create certainty of demand to
support early-stage investment.
Kestenbaum points to fleet-based applications such as
school buses in the US as something of a case study for
vehicle-to-grid services, as there are many of them and
their utilization is not so high. The idea is that with the
electrification of school busses, the market would seek to
make their electrification more economic, and this could
in turn lead to investment and development of vehicle-to-
grid services. It is just one example of how the decisions
of large consumers can lead to investment and innovation.
3.3.4 Optimizing finance mechanisms
and developing new business models
To reduce risk and drive capital into clean energy,
governments and markets worldwide have developed
business models and financial instruments.
Need to accelerate the energy transition CHAPTER 3
Some, such as corporate PPAs, are proliferating, led by
the big-tech companies prioritizing sustainability, and
now influencing many others. Other mechanisms are led
by governments or grounded in regulations. Our aim
here is to consider just some instruments that are having
the greatest impact on financing the energy transition.
Feed-in tariffs (FiTs)
FiTs have been instrumental in the scaling of solar and
wind generation, helping to increase certainty in project
revenue. They boosted the initial uptake of these
technologies, allowing scale and innovation to bring
down the cost, making them independently financially
viable. In much of Europe, FiTs have been phased out and
are increasingly being replaced by other instruments.
These other instruments still aim to create certainty
through long-term pricing, but also to make the pricing
competitive and bring it closer to the market.
Contracts for difference (CfDs)
CfDs incentivize investment in renewable energy by
giving developers direct protection from fluctuations in
wholesale prices. Like FiTs, they are – in the regions where
they are used to fund clean energy projects – government
instruments to provide long-term prices and certainty to
developers. Crucially, they are competitive, with developers
bidding in auctions on the basis of price, volume, and
other conditions.
One notable challenge that can come if CfD auctions are
technology-agnostic is that the most mature technology
is likely to win. This could prevent more novel technologies,
which are needed in the transition, from gaining support.
One such example is floating offshore wind.
“I think government policy needs to be selective, noting
that different technologies have a different LCOE. You
can't have solar competing with a brand-new floating
wind technology,” says Daniel Wong, Global Co-Head,
Macquarie Capital. “If you want floating wind to turn up
eventually, you can have a very high CfD for a very small
volume. The feedback loop is so powerful and so fast for
these modular, renewable technologies that it's worth it.”
39
DNV Financing the Energy Transition
Corporate power purchase agreements (PPAs)
There is an increasing trend for variable renewables
projects to be developed on the basis of corporate PPAs,
sharing risk to mitigate the variability of revenue streams
when trading on fluctuating power markets. New corporate
PPAs were arranged with a record 23.7 GW of clean energy
capacity in 202032, almost 10% of the global volume of
renewables installed that year. The potential is even greater.
We estimate that more than 50% of electricity demand
comes from industry and services, the corporate sectors.
Due to the complex risk landscape for renewable energy
prices, there is a strong trend away from fixed pricing
towards more market-based structures. Many corporate
buyers seek innovative pricing structures that give them
more possibilities for hedging – such as the collar which
sets maximum and minimum price guarantees, providing
higher contract settlement certainty for the buyer and
protection for the seller.
Also on the rise are cross-border PPAs – in which electricity
is generated and consumed in different market zones.
One such solution to support this is DNV’s Instatrust33,
a global digital marketplace connecting corporations
committed to buying clean energy with suppliers of wind
and solar energy.
Tax equity
Tax equity is the main federal incentive in the US to drive
investments into clean-energy projects. It enables companies
to invest with predicable returns on the basis of tax credits.
This has been successful in the longer term, lowering the
LCOE for renewables and enabling the industry to achieve
economies of scale in the US, despite a history of shorter-
term expirations and extensions introducing
policy uncertainty.
The two main forms of tax credits for renewables — the
Investment Tax Credit (ITC) for solar and the Production
Tax Credit (PTC) for wind – accounted for USD 17–18
billion in investment in 202034.
32 Corporate Clean Energy Buying Grew 18% in 2020, Despite Mountain of
40 Adversity, BloombergNEF
33  Instatrust, DNV
34  Partnership flips, Norton Rose Fulbright
Tax equity supplies around 65% of the capital for a typical
wind farm in the US and around 35% for a typical solar
project. ENGIE’s record tax deal in April 2020 for 2 GW
of renewables assets shows the scale of some deals.35
Alongside, the 45Q tax credit provides CCS operators
with credits for each tCO2 stored or utilized for
CO2-enhanced oil recovery, and could help build the
commercial case for scaling CCS in the US.
There is debate over the equity and efficacy of such a
system, in which corporations with significant tax liability
– typically major investment banks – are needed in order
to efficiently monetize tax credits. “When you have a tax
credit as opposed to a point-of-sale rebate, it favours the
wealthy, or folks who have the cushion to wait until tax
time,” says Grace Park-Bradbury, General Manager, West,
BlocPower. Further, tax equity investment is complicated,
limiting the number of active investors, thus reducing the
volume and increasing the cost of capital available for
renewable energy projects in the now-mature US market.
Green bonds
The Climate Bonds Initiative estimates that more than USD
1.2trn in green bonds has been issued to date, with over
USD 200bn issued just in the first half of 2021.36 But more
than the amount of capital, Sean Kidney, Co-Founder and
CEO, Climate Bonds Initiative, says the main aim is to have
capital going to the right places, and not to the wrong ones.
“Investors really like the protocols, reporting, and the
organization of standards by someone else, and they have
to do lots of due diligence because they don't understand
the environment,” says Kidney, explaining the role of green
bonds in supporting investors.
“Private capital is just sitting there – vast reserves in zero
and negative interest rate bonds. Even if interest rates go
up, it's not going to be enough to pay our pensions, so we
need more yield. From a capital point of view, the transition
is an incredible opportunity,” says Kidney.
35 DNV provides support as technical expert for ENGIE North America’s record-
setting Tax Equity deal, DNV
36  Climate Bonds Initiative
 Need to accelerate the energy transition CHAPTER 3

3.4 Ensuring capital flows “We try to look at deals where we can deploy a larger
amount of capital. One of the examples is in smart cities.

to where it has most impact Putting out the infrastructure, the cables in the ground.
That is capital intensive, and that’s where we like to
invest,” says Jan-Willem Ruisbroek, Head of Global
We see a great divergence in our transition forecast:
Infrastructure Investment Strategy, APG.
renewables in power supply and electrification are
moving ahead at full speed while other sectors’
Another approach is for energy companies, particularly
decarbonization efforts lag.
utilities, to take on financing smaller energy-efficiency
projects, and to package these together for investment
Asset managers, pension funds, and many others in
from banks and other corporate partners. “They're looking
finance say there is abundant capital seeking green
to us to manage that complexity so we can just deliver the
energy projects – and renewables such as wind and
buildings, the number of people affected, the amount of
solar in developed markets have little issue attracting
carbon to go along with their financial returns,” says Grace
capital. However, institutional investors supporting clean-
Park-Bradbury, General Manager, West, BlocPower.
energy projects in emerging markets say that financing is not
as readily available to the projects that need it. This has also
Energy-efficiency measures often pay for themselves
been the case for technologies with less mature value chains,
through subsequent lower energy costs, and business
such as hydrogen and carbon capture and storage (CCS).
models have sprung up particularly from utilities in the
US that offer consumer energy-efficiency solutions with
Others focusing on energy-efficiency initiatives or
no requirement for capital investment.
reducing emissions intensity of fossil energy projects
also face barriers to financing, despite these projects
For utilities whose business models have traditionally been
having significant potential to reduce emissions. This
based on selling more energy to generate more profits, this
raises the question, ‘What is needed for capital to flow
can present an issue of the transition driving down revenues.
into projects with the most potential to reduce emissions?’
In a way, by promoting energy efficiency, utilities are
encouraging customers to use less of their product.
3.4.1 Energy efficiency
Energy efficiency plays a central role in the energy
However, utilities are innovating with new business
transition. We forecast that without any energy-efficiency
models, in essence becoming energy-efficiency providers.
improvements, global energy demand would increase
“We're really excited that we're able to help people take
by 65% by 2050. In contrast, we forecast almost flat
advantage of the cleanest energy, which is the energy
development in energy demand due to factors including
you don't use. It used to be the more we sold, the more
electrification, the rapid increase in EVs, and energy-
we made. With our clean energy future programs, we’ve
efficiency improvements in buildings and manufacturing.
aligned our financial incentives with the state’s environmental
policies,” says Karen Reif, Vice President, Renewables &
In recent years, renewables have helped to meet increasing
Energy Solutions, PSE&G.
energy demand, while fossil fuel use has grown more slowly.
With relatively flat energy demand in the coming decades,
Another approach could be Results-Based Financing,
this is set to change, as renewable energy takes share of
where companies obtain preferential rates from their
the energy mix from fossil fuels (Figure 3.1). While energy-
lenders for showing they have achieved certain levels
efficiency measures can have a huge impact on reducing
of energy and/or CO2 reduction rather than simply
emissions, they are harder to structure in a way that
deploying an energy-efficiency measure.
makes them financeable. Energy companies have found it
tough to source finance from local financial institutions for
energy efficiency.

41
DNV Financing the Energy Transition
Reif points to PSE&G’s investment in advanced metering
technology: “By installing smart meters in the home of
every customer, we will create a real-time network,
connecting the utility with all of its customers, that would
deliver increased communication and reliability, while
also providing a technology platform to deliver all manner
of energy services, including energy efficiency programs.”
3.4.2 Grid and infrastructure
The combination of rising total electricity generation and
the high penetration of variable renewables will require
investment, development, and deployment of grid
infrastructure and flexibility options to efficiently deliver
the robust power systems of the future (Figure 3.11). We
forecast that electricity will meet an increasingly large
share of final demand for energy, and will become the
dominant energy carrier in 2037, with oil in second place.
Our forecast for growth in electricity demand and the
massive expansion in renewable generation signals the need
for a huge increase in the capacity of electricity grids. System
operation will become more complex with new technologies
including high-voltage direct current (HVDC) and hybrid (AC
and DC) grids. It will also face having to operate the network
closer to its thermal limits. In Greater China, the Indian
Subcontinent, and Europe, expansion of grids to cover larger
market areas will move from cross-border interconnection to
multinational supergrids, and extreme- and ultra-high-
voltage systems for long distance transmission.
There will be increased variability in generation profiles from
increasing proportions of wind and solar PV, creating tough
challenges to ensure grids operate reliably and efficiently.
42
Energy storage and other flexibility options will play key
roles in meeting this challenge (Figure 3.12).
Towards the end of the forecast period there will also be
increasing requirements for infrastructure investment and
deployment for the production, distribution, and use of
hydrogen. Hydrogen moves from approximately 1.9% of
the mix of energy carriers in 2040 to 5.0% in 2050, a trend
that we anticipate will continue into the second half of the
century. Four fifths of this hydrogen will be from electrolysis
in 2050, having implications for the power sector as a
flexible-load and seasonal-storage option.
“The focus of all of our members is on managing the
transition to renewable energy,” says Andrew Dillon,
CEO, Energy Networks Australia. “It’s all about the rise
of solar, and then more batteries and other distributed
energy as well. How is that managed in the grid – some of
the huge technical issues, some of the equity issues, and
even the balance between customers and some of the
regulatory frameworks?”.
For Dillon, a low regulated rate of return is the biggest
issue holding back upgrades to the grid and networks in
Australia, which in turn will be needed to make use of
significant renewable generation capacity coming online.
“Some of the real returns on equity in Australia have
become ridiculously low by world standards, making
day-to-day investment in regulated assets far more
challenging for our members. That leads to less
willingness and capacity to invest in new technologies,
in new abilities to facilitate the transition,” says Dillon.
 Need to accelerate the energy transition CHAPTER 3

FIGURE 3.11

Total grid cost by region

Units: Trillion USD/yr

NAM
LAM
EUR
SSA
MEA
NEE
CHN
IND
SEA
OPA

FIGURE 3.12

World utility scale energy storage capacity

Units: TWh

Long duration
Li-ion battery
Pumped hydro

Historical data source: GlobalData (2021, US DOE (2021)

43
DNV Financing the Energy Transition
3.4.3 Emerging economies:
decoupling economic growth and emissions
“We have a planetary crisis. It's one atmosphere.
Unfortunately, it doesn't work to cut emissions back in
one country and allow emissions to go crazy in another.
We have to have a global approach, and the logical
extension of this is managing on a global scale,” says Sean
Kidney, Co-Founder and CEO, Climate Bonds Initiative.
DNV forecasts that world CO2 emissions will fall by 9%
between 2019 and 2030, and decline by almost half from
2019 levels by 2050. However, this masks significant regional
variations (Figure 3.13). Greater China emitted 30% (10.2
GtCO2) of the world’s CO2 emissions in 2019, followed by
5.8 GtCO2 from North America and 3.4 GtCO2 from Europe.
Greater China’s emissions will remain flat to 2025 according
to our forecast, before rapidly declining through to 2050.
North America and Europe have already begun to reduce
their CO2 emissions, along with OECD Pacific. These
declines are largely due to falling energy demand, growing
use of renewable energy, natural gas replacing coal in power
generation, and changes to the energy sources used in the
transport sector. Europe will be the second-lowest carbon
emitter after OECD Pacific among our ETO regions by 2050.
FIGURE 3.13
Energy-related CO2 emissions by region
Units: GtCO2/yr
44
Latin America will also see steady reductions in emissions,
starting from a relatively low level. The region’s power
generation sector, for example, is already dominated by
hydropower and we forecast that non-fossil energy
production will be more than 90% by 2050.
South East Asia will see emissions continue to increase
rapidly to peak around 2GtCO2 in 2030 before then
declining at a similar rate. They will be around 30% lower
in 2050 than in 2019.
We forecast that the Indian Subcontinent and Sub-Saharan
Africa will see higher emissions in 2050 than in 2019. Their
trajectory is led by growing populations and the need to
provide a secure, affordable supply of energy as energy
demand grows.
North East Eurasia, and Middle East and North Africa
will remain relatively flat, seeing only modest decreases
by 2050, as natural gas and oil maintain dominant shares
of primary energy demand in these regions and coal use
is marginalized.
Emissions intensity (energy-related CO2 emissions /
energy demand) is set to remain high in the regions and
countries that will supply the world’s oil and gas –
NAM
LAM
EUR
SSA
MEA
NEE
CHN
IND
SEA
OPA

predominantly where the cost of production is lowest or
can be easily scaled up and down. This is linked to domestic
reliance on fossil-fuel jobs and revenues, as well as the
ease and financial benefits (at least in the shorter term) of
continuing to use fossil fuels.
All regions are wrestling with the need to provide an
increasing supply of affordable, reliable energy while also
seeking to decarbonize. Where the picture differs is
developed economies in Europe, North America, and
OECD Pacific, which have decoupled economic growth
and energy demand and emissions. These regions have
continued to see economic growth, while energy
demand has remained flat or fallen over the past 20 years.
In contrast, energy developments in emerging countries
focus on either grid expansion or supply of power, to
meet growing needs for electrification as well as rising
energy demand, increasing emissions along with GDP.
As an example, Sub-Saharan Africa differs from other
regions in that the majority of its primary energy supply
comes from bioenergy (59% in 2019). The region’s energy
use is not as dominated by fossil fuels. Lower renewable-
energy costs create affordable opportunities for
Sub-Saharan Africa.
We forecast that solar PV, onshore wind, and storage
technologies will boom. Supportive policies for buildout
of distributed and domestic resources, e.g. off-grid solar
PV, will enhance energy access. With abundant
renewable energy sources, the region is well suited for
power-system leapfrogging, as seen with other
technologies like mobile telephony and banking.
“Financing systems aren’t in place to support
high-risk, low-return, long-term investments.
For this, we need a new generation of
development bank: a climate bank.”
Yongping Zhai, former Chief of the Energy Sector Group,
Asian Development Bank
Need to accelerate the energy transition CHAPTER 3
Loan conditions and transfer of best practice
Emerging economies are the focus of development banks
and institutional investors, and pension funds also often
have a proportion of their portfolio set aside for investment.
Beyond providing capital, financiers can drive positive
change in the policy and regulatory environment in a
country to increase the viability of green investment.
“Development bank money is supposed to be concessional,
supposedly cheap. Maybe it is in terms of the interest
charged, but development banks impose policy actions
each time they give a loan,” says Yongping Zhai, former
Chief of the Energy Sector Group, Asian Development
Bank. “They encourage governments to undertake reforms
and improve the investment environment in the country to
attract private investors. So, while they provide a little bit of
money, the bigger role is in the policy support to create an
ecosystem that attracts more private sector investment.”
The rationale is that if development banks can get capital
flowing, then private capital will join it. This will in turn free
up the capacity of the development bank to support further
early-stage technologies (that will be needed to reach
carbon neutrality by 2050) and drive deep policy and
regulatory changes. Zhai explains the need for a new
financing system with logic that is different from financing
based on rate of return or based on poverty reduction.
He calls for clear financing logic for addressing climate
change and, even more so, for climate resilience.
Beyond loan conditions to drive policy change, the
international transfer of knowledge and best practice,
and the innovation of international suppliers, can reduce the
cost of clean-energy technologies globally.
“If you're moving into a new market with a certain
technology, just because it's the early stages for that
market, it doesn't mean it's going to be the early stages
for that technology,” says Daniel Wong, Global Co-Head,
Macquarie Capital. “It's going to take the benefit of all of
the gigawatts that have been built everywhere else
around the world.”
45
DNV Financing the Energy Transition
3.4.4 Emissions intensity of oil and gas assets
The pace at which the world reduces the carbon intensity of
fossil fuels will be a significant factor in the energy transition.
Of world energy supply from fossil fuels in 2050, natural gas
will provide almost half (47%), oil 32%, and coal 21%. These
three fossil fuels today account for almost exactly a third
each of global fossil-fuel energy. While the path will be more
complex than one simply replacing the other, that is
ultimately the outcome. Oil’s share falls moderately in this
context. Coal gives way to gas, particularly in China, India
and South East Asia with policies supporting switching from
coal to natural gas to reduce emissions in the shorter term.
Liquefied natural gas (LNG) is set to play a strong role in
natural gas demand, particularly in supplying China and
Asian markets. Supporting this, liquefaction capacity is set
to almost triple over the next decade to more than 1,260
Mt/yr in 2030, up from 460 Mt/yr in 2019. North America
will account for a significant proportion of this growth,
increasing from 70 Mt/yr in 2019 to 525 Mt/yr in 2030.
Investment in LNG infrastructure will increase dramatically
in the mid-2020s to around USD 300bn, with North
America investing more than USD 150bn in both 2024
and 2025 (Figure 3.14).
FIGURE 3.14
World LNG capex and opex
Units: Billion USD/yr
37  An analysis of the upstream industry’s dirty laundry: Whose production has the lowest CO2 intensity?, Rystad Energy
46 38 Old, small and CO2-intense: why Canada's highest-carbon oil sands sites keep pumping, Reuters
Oil and gas industry carbon emissions (CO2 and methane)
25% 75%
From production and distribution  From end-use combustion
Emissions from oil and gas production and distribution
(a quarter of the industry’s GHG emissions – CO2 and
methane), can differ greatly between assets. Rystad
estimates an average CO2 intensity for upstream operations
globally of around 18–19 kgCO2 per barrel of oil equivalent
(boe)37. While most fall within the 10–40 kgCO2 /boe range,
some differ greatly from the average. Canadian oil sands, for
example, have a reported average intensity of more than 65
kgCO2 /boe38 , with the highest emitting fields exceeding 100
kgCO2 /boe. At the other end of the scale, leaders in lower-
intensity oil and gas production are into the single digits.
“We hear a simplistic view that we have to shut down new
greenfield [oil and gas developments]. But if it’s to open a
new greenfield and shut down a non-efficient one, I think
it's a good thing; and then afterwards we open the field for
a new technology,” says Caroline le Meaux, Global Head of
ESG Research, Engagement, and Voting, Amundi.
opex
capex

Oil and gas companies that are leading on low emissions-
intensity operations are focusing on electrifying offshore
platforms and oil and gas assets, reducing flaring and
venting, increasing efforts to detect and stem methane
leaks, and efficiency gains through digitalization of the oil
and gas value chain.39 Many of these measures provide
cost benefits as well as reducing emissions – for example,
by sending gas to market rather than using it to power
assets or flaring. A price on carbon is further making
emissions intensity measures net present value (NPV)
positive in some regions.
In the midstream, operators are reducing emissions
intensity through measures such as reducing flaring and
venting from pipeline infrastructure, and by exploring
alternative shipping fuels to help decarbonize the transport
of oil and gas products by tankers and LNG carriers, as well
as supply ships, rigs, and floating production, storage and
offloading vessels (FPSOs) for offshore production.
“Trying to get favourable financing for projects such as an
FPSO can be challenging sometimes because its fuel unit
is fossil fuels,” says Bert-Jaap Dijkstra, Group Treasurer &
Investor Relations, SBM Offshore.
FIGURE 3.15
Oil and gas industry carbon emissions
Units: GtCO2/yr
*Scope 1 and 2 emissions does not include the oil & gas industry’s scope 1 and 2 emissions related to own combustion of oil and gas. It is also assumed
that the Scope 1 and 2 emissions shown in blue are 15% of the combustion emissions throughout the forecast period, which reflects the current level.
39  Actionable plans to reduce oil and gas emissions DNV
40  Rising to the challenge of a hydrogen economy, DNV
Need to accelerate the energy transition CHAPTER 3
“Why would one put green money into something that is
fossil fuel related? Well, because now it's a lot cleaner than
the previous projects, and it helps to become even cleaner.
That argument is still not easy to sell today.”
Nevertheless, financing is still available for fossil-fuel
projects, but this is increasingly short-term money that is
lower risk from a banking perspective and off the books
of investors in a couple of years.
This goes to the root of the debate on emissions intensity:
the balance between reducing emissions from oil and
gas assets, while making sure not to increase the lifetime
of these assets. The need to repurpose gas infrastructure
for low-carbon gases adds another dimension to this
debate. For example, a clear majority of the energy
industry believe repurposing existing infrastructure
will be needed to scale the hydrogen economy.40
O&G industry
scope 1 and 2
emissions*
Oil combustion
emissions
Natural gas
combustion
emissions
47
DNV Financing the Energy Transition
3.4.5 Hard-to-abate sectors
Around three-quarters of fossil fuel emissions come from
combustion at the point of end use. Hydrogen and CCS
have the potential to remove carbon from natural gas
– before or after combustion – to remove emissions in hard-
to-abate sectors. But as things stand, we do not forecast
that these technologies will scale for another 15 years.
“On low-carbon solutions such as CCS and
hydrogen, it's still very early days; not so
much for the technology, but for the markets.”
Hilde Røed, Senior Vice President Climate
& Sustainability, Equinor.
Nevertheless, ambitions for hydrogen are sky high, and
we see that the energy industry is rising to the challenge of
a hydrogen economy.41 From production to consumption,
the business case for hydrogen is growing and the
hydrogen economy is emerging, but challenges remain
relating to safety, infrastructure, production, and policy.
FIGURE 3.16
World hydrogen energy demand by sector
Units: EJ/yr
Includes maritime and aciation synthetic fuels derived from hydrogen.
41  Rising to the challenge of a hydrogen economy, DNV
48
With CCS, the problem is that the technology will not
move down the cost learning curve unless the industry
significantly increases its roll-out, but we do not foresee
this happening until the costs have come down or a
carbon price exceeds the cost of the technology.
We forecast that hydrogen, including ammonia, and e-fuels
will account for just 5% of global energy demand in 2050.
Alongside, almost 6% of emissions will be captured by CCS.
“There's a big question mark around how CCS is going to
transition into a stable industry with long-term visibility.
The moment you have it, I think you'll see a wall of money
running into it,” says Bert-Jaap Dijkstra, Group Treasurer
& Investor Relations, SBM Offshore.
These technologies have the potential to transform the oil
and gas industry into the decarbonizer of hydrocarbons
and the world’s supplier of CCS. They could transform the
sector so that it is an essential contributor to realizing
climate ambitions, rather than to missing them.
Decarbonized and green gases would have a bright
future following such a transformation, with hydrogen
and CCS complementing renewable electricity, battery
technology, and alternative low-carbon fuels to provide
societies with a secure, affordable supply of clean energy.
Road
Maritime
Aviation
Water heating
Space heating
Cooking
Heat for manufactured
goods production
Heat for iron and steel
production
Heat for construction
and mining
Heat for base materials
productions

FIGURE 3.17
World hydrogen production as energy carrier by source
Units: EJ/yr
Historical data source: IEA Future of Hydrogen (2019)
Green hydrogen production (from electrolysis powered by
renewable energy) is commonly regarded as the ultimate
aim, and will ramp up from 2035 and grow at a much faster
pace than blue hydrogen in the 2040s. The costs of
electrolysers and renewable energy are expected to fall
over the next decade, making green hydrogen more
viable. We forecast a roughly 80/20 split between green
and blue hydrogen in 2050.
The issue from a financing perspective is that hydrogen
and CCS opportunities are long-term, low-return, and
seemingly high-risk. Financiers would not jump at them
without significant government support in terms of
creating certainty and providing more direct support
through subsidies. Without a competitive carbon price
that exceeds the cost of the technology, there is unlikely
to be a hydrogen economy or widescale use of CCS.
However, if hydrogen and CCS become commercially
viable because of a carbon price, we then expect the cost
of the technology to fall as it begins to scale. The key to
this is that someone needs to go first.
42  Is carbon capture too expensive?, IEA
Need to accelerate the energy transition CHAPTER 3
Electrolysis using
offshore wind power
Electrolysis using
onshore wind power
Electrolysis using
solar power
Electrolysis using
grid power
Methane reforming
with carbon capture
In our forecasts, this will be Europe, with net-zero targets
driving the implementation of a higher carbon price, which
is set to reach 80 USD/tCO2 by 2030.
In our ETO model, 80 USD/tCO2 is the price at which we
see CCS start to become a reality in the power sector, for
example. Our sensitivity studies also show that a doubling
of expected carbon prices would significantly increase
the level of emissions abated – from our base forecast of
almost 6% in 2050 up to 13%. Indeed, industrial CCS
projects currently cost in the range of 80-150 USD/tCO242
including transport and storage.
Government energy strategies are helping to create
certainty for these technologies, but it is visibility of the
implementation – of what regulations and support for
these technologies will look like – that will give the
certainty required for capital to flow beyond pilot
projects and small-scale use.
49
4
THE TRANSITION
NEEDS TO
BE JUST

4.1 Unjust transition is a major risk 52

4.2 Maximizing co-benefits can accelerate the transition 53
4.3 Climate resilience essential for a just transition 54
DNV Financing the Energy Transition
4 THE TRANSITION NEEDS TO BE JUST
4.1 Unjust transition
is a major risk
A just transition is an integral part of the Paris Agreement,
and involves balancing sustainability priorities, such as the
Sustainable Development Goals (SDGs), across regions and
sectors. Crucially, it focuses beyond industries and financial
markets to the societies and people affected by them. A just
transition is both a risk and enabler of an accelerated
transition. For governments, enabling a just transition is a
prerequisite for achieving policy targets: transition initiatives
will fail in the absence of sustained support from most of
society. Recognizing this, governments are taking action.
The EU has launched its Just Transition Mechanism as
part of the European Green Deal. The mechanism aims to
mobilize EUR 65–75bn over the period 2021–2027 in the
most affected regions in Europe to alleviate the socio-
economic impact of the transition, particularly to create
and safeguard jobs.
In North America, mechanisms are in place to reduce the cost
to taxpayers and consumers. Canada created a Just Transition
Taskforce in 2018, and revenue from its CO2 tax will be
recycled and returned to the population (‘People’s payout’) on
a per capita basis. In the US, California’s Emissions Trading
System (ETS) compensates all households with a ‘Climate Credit’
on utility bills, and some ETS revenue goes to a GHG Reduction
Fund for low-carbon technologies and mitigation.
The capacity of companies to achieve a just transition –
environmental and social – is increasingly among criteria
considered by investors. This includes looking at the
43  The Just Transition Mechanism: making sure no one is left behind, European Commission
52
dialogue a company has with stakeholders such as trade
unions and local communities, its track record of successful
transformations, and behaviours such as paying taxes that
are linked to license to operate. That is, when applying
frameworks for sustainable investment, financiers calculate
the abatement of emissions, but also the benefits to
societies and people from climate interventions. This,
from a risk perspective, is a form of future-proofing.
Specifically, if government subsidies are involved in a
project, there are likely to be expectations for the project to
deliver jobs and long-term infrastructure. This includes
getting the supply chain to work in many cases using
domestic companies, labour, and equipment.
For energy companies, particularly utilities and others directly
43
serving the public, a just transition is also about ensuring benefits
for consumers and bringing all parts of society along. This
offers opportunities if the right business model can be found.
“To finance a clean energy revolution, it has to be led with low
and moderate income. Specifically in the US it needs to be led by
those who have previously been left behind and who have dealt
with generations of structural racism and disinvestment. That’s
critical for both short- and long-term success,” says Grace
Park-Bradbury, General Manager, West, BlocPower.
“A transition that is not fair would be a major
risk. We can't afford for the transition to be
slower, because of social negative pushback.”
Caroline le Meaux, Global Head of ESG Research,
Engagement, and Voting, Amundi

Park-Bradbury mentions the critical mass of conviction at the
grassroots for a transition to clean energy and an urgency to
address racism and climate injustice in the US. Initiatives to
tap into this and share the benefits of the transition are
gaining significant traction in the US, from energy-efficiency
gains to renewable generation to benefit local communities.
The growing US community solar and storage market is
another example. This non-traditional business model is
seen as a valuable path toward lowering barriers to entry
for affordable solar energy, especially for the 50 million
(m) US households with low-to-moderate incomes.44
Taken together with weatherproofing incentives, such
as rebates for energy efficiency, this can create significant
energy savings for consumers.
4.2 Maximizing co-benefits
can accelerate the transition
Much is made of competing interests in the energy transition:
whether it is the energy trilemma of providing clean,
affordable, and reliable energy; the balance between return
on investment and reduction in emissions; or emerging
economies having the right to the economic benefits of fossil
fuels versus the need to accelerate the transition globally. A
just transition seeks to navigate these priorities, and to find
solutions that provide co-benefits to the SDGs. This includes
economic development and employment, energy access,
clean oceans, and alleviating air pollution, all of which can
benefit greatly from an accelerated transition. For all of
these challenges, the pairing of potential solutions with
incentives for energy efficiency can yield significant benefits.
Workforce
The International Labour Organization (ILO) estimates
that a shift to a greener economy by 2030 could result in
the net creation of 18m jobs globally.45 This is the result of
24 million jobs created, while six million are lost. This
shows the significant employment and economic
benefits of the energy transition, but also the risk of lost
jobs. Reskilling and redeploying the workforce is a key
focus of oil and gas companies, and of governments in oil
44  U.S. Community Solar and Storage Market, DNV
45  24 million jobs to open up in the green economy, ILO
46  Northern Lights show the way to seaborne CCS solutions, DNV
The transition needs to be just CHAPTER 4
and gas producing countries. There are synergies to be
found in switching from oil and gas to offshore wind,
CCS, and hydrogen, for example, which could reduce
the impact of abrupt changes on the workforce, while
offering a competitive edge in certain fields. One example
in Norway would be people switching from working on
oil and gas exploration to the Northern Lights project –
the world’s first open-source transport and storage
infrastructure to deliver carbon storage as a service.46
The Biden-Harris Administration has made well-paid jobs a
tenet of its proposed infrastructure plan.47 More broadly,
the Administration touts the economic benefits of a clean
energy future and climate-resilient infrastructure, and targets
40% of the benefits going to disadvantaged communities.48
Health
The World Health Organization estimates that between
2030 and 2050, climate change will cause approximately
250,000 additional deaths globally per year. The direct
damage costs to health are estimated to be between
USD 2–4bn per year by 2030. These costs are rarely
accounted for in energy modelling – including our own.
With air pollution arguably the most recognized danger to
health from emissions, the pursuit of clean air is already
mounting worldwide. This is exemplified by China’s Action
Plan for Winning the Blue Sky War and efforts to cap coal use,
and India’s National Clean Air programme with emission-
control standards on coal-power plants. These  initiatives,
and others such as reducing flaring, provide significant
co-benefits in reducing emissions and air pollution.
A just transition takes a wider perspective on these issues,
looking at the cost to the health system of asthma for example,
and comparing the cost of treatment over a person’s lifetime
with the cost of taking measures to reduce either the incidence
or effects of asthma. This could be as simple as replacing
polluting cooking equipment with an induction stove. Such
measures could win on cost, without even considering the
health benefits for people and the co-benefit of reducing
emissions. The key is to find business models to fund these
types of changes, without passing significant costs on to the
consumer. Otherwise, it will still be disadvantaged people
who pay, whether it is a health or financial cost.
47 Inside Biden’s Plan To Create Over 10 Million Well-Paying Jobs With His Clean
Energy Initiative, Forbes 53
48  FACT SHEET: The American Jobs Plan, The White House
DNV Financing the Energy Transition

Mobility More broadly, it should be everyone that can access

It should not only be those living in higher-income
neighbourhoods who are able to benefit from cleaner air
from higher EV adoption rates. To address this, governments,
utilities, and finance institutes are seeking to support the
funding of EV and charging infrastructure access for all.
There will of course still be a range of EV adoption rates
locally and internationally, as illustrated in Figure 4.1 below.
These will be impacted by disposable income, government
policies, and the level of grid infrastructure development.
Any new technology will follow a process of those who can
afford being the early adopters, and thus funding the
scaling and lowering of its cost. However, it will be important
to support equitable access for technologies such as EVs,
which have a significant impact on the energy transition
and the health and wellbeing of people in industrial and
densely-populated areas. An example of this at the local
level is where a utility such as PSE&G supports the grid
infrastructure needed to place chargers throughout
their service territories, helping to ensure universal
access to charging stations. Internationally, DNV has
worked with institutes such as the World Bank and the
Asian Development Bank to evaluate and plan for the
infrastructure requirements to support the EV revolution
in developing nations.
the financial, environmental, and resilience benefits of
distributed energy resources. We predict that by 2050
there will be more than 250 TWh of generation from
off-grid solar PV – mostly in Sub-Saharan Africa and the
Indian Subcontinent – helping more remote populations
benefit from clean, affordable energy.
4.3 Climate resilience
essential for a just transition
Mitigation alone will not stop the impact of global
warming on people and societies. Adaptation and
resilience must be built into systems and infrastructure
to moderate harm from the climate crisis. This becomes
more critical as the cost of natural disasters keeps rising.
“It isn’t only about net zero; it’s also about
climate resilience.”
Javier Manzanares, Deputy Executive Director,
Green Climate Fund

FIGURE 4.1

Market share of electric passenger vehicle sales by region

Units: Percentages

NAM
LAM
EUR
SSA
MEA
NEE
CHN
IND
SEA
OPA
World

Electric vehicles include BEVs and FCEVs. Historical data source: Marklines (2021), IEA EV Outlook (2021)

54

Climate resilience is a just transition issue. The average
carbon dioxide emissions per person in Sub-Saharan Africa
is approximately a 20th of the level in North America, yet
developing countries and poorer communities are most
vulnerable to the climate crisis, and face the most challenges
in developing and financing infrastructure and building
capacities to absorb the impact.
Sean Kidney, Co-founder and CEO, Climate Bonds
Initiative, points to education and boosting equality as a
route to resilience, referencing specifically the role of
education for women: “In Bangladesh, in the last 20 years,
two-thirds of all deaths related to climate incidents are
women because they've been ill educated, unable to get
information stuck at home. When women get educated,
they also get involved in the economy and boost equality,
and this reduces fragility and increases climate resilience.”
Resilience is also an issue for energy systems; they need
to be flexible and efficient to accommodate huge growth
in renewable energy, but also need to be resilient to the
effects of global warming, such as extreme temperatures
causing energy demand spikes or impacting the reliable
operation of power plants. Technological innovation has
a role to play in adapting to changing conditions, and in
the transfer of these technologies to where they are
needed most in emerging economies.
The UN Environment Programme estimates annual
adaptation costs in developing countries to be USD
70bn now, USD 140–300bn in 2030, and USD
280–500bn in 2050.49 Policy will go some way to
addressing the issue, such as the integration of adaption
and resilience in NDCs under the Paris Agreement, and
internationally through initiatives such as ‘debt for
climate’ swaps – which aim to switch sovereign debt
payments owed internationally into domestic funding for
green investments. But much of the issue has to do with
unlocking the support of the financial markets.
The Green Climate Fund (GCF) has allocated half of its
total portfolio to adaptation50, targeting four outcomes:
supporting transformational country planning, catalysing
49  Step up climate change adaptation or face serious human and economic damage – UN report, UN Environment Programme
50  GCF commits to support climate resilient transformation at Climate Adaptation Summit , Green Climate fund
51  Vision and Mission, Coalition for Climate Resilient Investment
The transition needs to be just CHAPTER 4
climate innovation, mobilizing public and private investment
at scale, and the development of knowledge creation
and sharing about climate solutions.
Javier Manzanares, Deputy Executive Director, GCF,
explains that even though it is the world’s largest climate
fund, the demand for financing from the market is much
larger than the capacity of GCF to provide support.
“How can we make sure that the GCF is equipped, from our
financial capacity, to do more? We are obviously grateful to
governments for having contributed to the GCF on a large
scale, but it’s not yet enough to meet the climate needs of
developing countries,” says Manzanares. “The GCF is
ready to scale up its action, either with more pledges from
the sources that we have right now [governments and
public entities], or by finding other sources.” The obvious
other sources are the private sector and the financial
community, but this will require financial innovations.
Questions remain about how to drive and enable private
capital to help finance adaptation priorities, and how to
build the business case for adaptation.
“Climate adaptation is even more complicated than climate
mitigation because with mitigation you can assume that you
generate some return in some cases. With resilience, how
do you measure it?" says Yongping Zhai, former Chief of the
Energy Sector Group, Asian Development Bank, as he raises
the need for a change in financing logic to address the effects
of the climate crisis.
The Coalition for Climate Resilient Investment (CCRI),
which brings together the global finance industry with
governments and public institutions, emphasizes the
need for a systemic shift in the way infrastructure
projects are financed in order to build resilience to
climate change51. The partnership focuses on developing
three tools to do so: an investment prioritization tool
for national decision-making; a pricing model for the
interpretation of climate data in cash flow modelling
practices; and a taxonomy for the development of
resilience bonds.
55
5
TAKEAWAYS
FOR STAKEHOLDER
GROUPS

5.1 Sources of finance 58

5.2 Recipients of finance 60

57
DNV Financing the Energy Transition
5 TAKEAWAYS FOR STAKEHOLDER GROUPS
5.1 Sources of finance
Financiers
Our outlook’s most significant takeaway for financiers and
investors is the huge investment required for a successful
transition. There will be substantial opportunities for
investment in new electricity generation, most notably
solar PV (often combined with storage) and wind; new
and upgraded power and gas networks; and, in energy
efficiency and new energy use applications.
We recognize that abundant capital is available, and that
power-sector investment decisions will continue to be made
relative to returns achievable elsewhere. In this regard,
investment in renewable energy projects remains attractive
for many investors. Equity investors are seeing attractive
openings while debt financing is proving more expensive
in some higher risk sectors. We foresee continued strong
interest in onshore wind and solar PV projects, both from
capital moving from oil and gas investments, and from
institutional investors with a longer-term view.
It is this longer-term perspective of our ETO model’s results
that we encourage the finance community to take away.
Even with a longer-term view, investors will need to consider
aspects such as increased uncertainty in power-plant
revenue streams, largely due to renewables increasingly
becoming subsidy-free, but also because of the greater
volatility in power prices that all generators will experience.
For investment in variable renewables, the uncertainty in
the revenue stream is compounded by the impact of ‘price
cannibalization’.52 One mitigating measure in which we are
seeing increasing interest is corporate PPAs, which can
provide greater certainty to all parties.
52  Renewable cannibalisation: Why full merchant risk will become increasingly challenging, ICIS
58 53  Special Report: Global Warming of 1.5ºC, IPCC
In a declining oil market and relatively flat demand for gas,
priorities are shifting as investors reassess the risks of
stranded assets when financing oil and gas projects. The
financial markets – through the effects of the COVID-19
pandemic – have seen what peak oil demand could look
like, and are increasingly factoring in changing sentiment
in society towards a decarbonized future.
The ETO also flags the opportunity to invest in newer
technologies, such as charging infrastructure and new
vehicle manufacturers in the EV sector, or CCS or hydrogen
production from electrolysis to address hard-to-abate
sectors. These newer technologies will require closer
scrutiny of their development profile and potential project
risks. They also have greater dependence on government
incentives and regulations, and therefore investors will
need to remain agile to respond to shifting markets.
Governments/regulators
Governments and regulators play a vital role in the
energy transition, driving change and enabling a fair
marketplace. The substantial shifts in the energy systems
of those regions with supportive governments, and the
sensitivity of our ETO results to carbon price assumptions
(see main ETO report), illustrate the impact that
governments have on the energy transition. It is therefore
essential that governments take away that our forecast of
the most likely future is one in which the global temperature
rises by 2.3ºC above pre-industrial temperatures by the
end of the century. This is well above the target of 1.5ºC,
which results in 'climate-related risks to health, livelihoods,
food security, water supply, human security, and economic
growth'53 and significant detrimental impacts on many
ecosystems. Policymakers and society will need to
consider whether this is acceptable, or if greater efforts
should be made to transition faster.

The right incentive schemes and subsidies can help to
accelerate the energy transition. Governments should
use our ETO publications to help guide policy development,
considering how best to enable proven technologies
such as wind, solar PV, smart grids and EVs to be swiftly
deployed at scale, while also investing in R&D of earlier-
stage technologies such as hydrogen electrolysers. Key
to this will be clear consistent policies that provide
confidence for private sector investors.
Electricity market regulators should consider how power
markets should be designed to efficiently integrate large
volumes of variable generation. Dynamic, closer to real-
time market operation should remunerate generators for
providing network services, e.g. for providing reserves to
ensure safe network operation in case of major system
disturbances, and for providing regulation to ensure
networks operate within constraints.
Regulation of the oil and gas industry will increasingly
need to take account of the emissions produced by the
sector, incentivizing further reductions while taking account
of the role that gas can play as a major source of energy
over the coming decades. For example, reducing methane
emissions from oil and gas operations is among the most
cost-effective and impactful actions that governments
can take to achieve global climate goals. There is a major
opportunity for countries looking to develop policies and
regulations in this area to learn from the experience of
jurisdictions that have already adopted methane-specific
regulations in order to design frameworks that are
adapted and tailored to local circumstances.54
Oil companies
The energy transition we forecast clearly has huge
implications for oil and gas companies. We predict oil
demand to equal 2019 levels in 2025, dropping to almost
half by 2050. Gas demand remains relatively flat over the
forecast period partly due to it replacing coal as a lower-
carbon energy source. Irrespective of their demand profiles,
both sectors need to prepare for an energy system that
does not accept the release of carbon emissions.
Although the world will continue to require energy to
enhance standards of living and power the economy, oil
54  Driving Down Methane Leaks from the Oil and Gas Industry
55  The Oil and Gas Industry in Energy Transitions
Takeaways for stakeholder groups CHAPTER 5
and gas companies will need to adapt to play their role in
delivering the decarbonized energy systems of the future.
In this regard, a number of major oil and gas players have
invested in wind and solar PV projects. However, investments
in low-carbon businesses currently represent less than
1% of oil and gas companies’ capital expenditure.55 We
recommend that oil and gas companies should use the
ETO results to help guide their investment strategy. For
those that are putting the energy transition at the heart
of their business, substantially more investment will be
needed for an accelerated transition.
We forecast that hydrogen and CCS will be a catalyst for
deep decarbonization after 2035, removing carbon from
natural gas – before or after combustion – to reach
hard-to-abate sectors. This could transform the oil and
gas industry into the decarbonizer of hydrocarbons, and
the world’s supplier of CCS. It could transform the sector
so that it is an essential contributor to realizing climate
ambitions, rather than to missing them.
Corporate energy buyers
For large corporates and heavy industry, our ETO
highlights the continued need to strive for more energy-
efficient and low-carbon options. As highlighted during
discussions with PSE&G and BlocPower, energy efficiency
is a low-cost, readily available way to reduce carbon
emissions, though its current implementation is far less
than the economics would justify. This presents an
opportunity for corporate energy buyers to re-assess
how they fund energy-efficiency initiatives. For example,
funding through rebates from utilities in North America
can take away the resistance to higher upfront costs and
helps to ensure greater implementation of energy-
efficiency programmes.
Another route for corporate energy buyers to invest in
the energy transition is to fund the deployment of local
generation at their facilities or invest in utility-scale
projects in the neighbouring area. There is also an
increasing trend for them to support the energy transition
by entering into PPAs with prospective wind and solar
projects. This provides businesses with clean power and
the developers with greater certainty on their revenue.
59
DNV Financing the Energy Transition
Major energy consumers will be able to benefit increasingly
from digitalization, enabling energy cost savings through
investment in smarter building management. Investment at
their own facilities needs to be implemented in parallel with
broader smart city initiatives, which is attracting some interest
from the finance sector. Although investors may not typically
fund smaller-scale individual projects there are some, such as
the European pension fund APG, who are supporting the
expansion of smart city infrastructure. APG has set up a EUR
250m investment vehicle to pool pension fund investments in
select smart city infrastructure across Europe, North America,
Australia and other major urban areas in the world.56
Larger energy consumers will increasingly need to pay closer
attention to government policies and regulations regarding
climate-change initiatives. These may present opportunities
for support with investment in energy-efficiency initiatives, but
may also bring penalties for exceeding emissions thresholds.
For example, China’s national Emissions Trading Scheme
(ETS) recently became operational. Carbon dioxide emitting
industries are given 'permits' or 'quotas' for its release, and
these can be traded – effectively putting a price on carbon.
5.2 Recipients of finance
Manufacturers
The installed capacity of solar PV during 2030 will be almost
five times 2019 levels. ETO results such as this present
opportunities and challenges for renewables manufacturers.
There is a huge potential market for their products, with
long-term sustained prospects. However, they will need to
scale-up production and compete for market share. We
expect further consolidation within the industry as the sector
strives to achieve lower LCOE.
As prices of products such as solar modules continue to
drop, transportation becomes a larger percentage of the
cost of the final delivered product. Hence, manufacturers will
increasingly need to assess where they invest in new
production facilities, and to comply with manufacturing
localization requirements.
In new sectors such as floating wind – set to generate 15% of
all offshore wind energy by 2050 – there are some potential
challenges that may impact cost reduction.
56  APG invests €250 million in Smart City Infrastructure Fund, APG
60
While it is encouraging to have so many new floating wind
designs being tested, the risk is that the wide range of concepts
could also be a barrier for the cost reduction needed in the
industry to eventually attract subsidy-free investment.
Manufacturers of electrolysers for the production of
hydrogen face the difficult challenge of making significant
investment in their facilities in an uncertain market with
limited infrastructure in place to enable a hydrogen
economy. Although we predict that approximately 80%
of hydrogen as an energy carrier will be produced by
electrolysis in 2050, the growth of this sector is relatively
modest until after 2030. The repurposing of natural-gas
distribution networks for hydrogen is potentially a partial
exception. Although they still require significant investment
to be repurposed, there is growing confidence that this
can be done successfully with substantial cost savings
over alternatives.
Developers and owners
We encourage energy infrastructure developers and owners
to take away from this report the magnitude of the transition
we predict. In the power sector we estimate an additional
180 GW of wind and 480 GW of solar PV generating capacity
will be installed globally during 2030, respectively three and
five times levels in 2019. In 2050, the combined additional
capacity from both wind and solar PV rises to 880 GW. The
consistent message from those in the investment community
that we have spoken to for this report is that there is abundant
financing available for the right projects, but not always the
right projects to invest in. Developers will need to continue
to work to address the development risks, swiftly adapt to
changing incentive schemes and regulations, and manage
the transition to subsidy-free renewables, to secure low-cost
capital for their projects.
Securing investment in wind and solar projects will also
require developers to continue to strive for lower LCOE.
To achieve this, they will need to remain abreast of the
latest technology developments. In the solar PV sector,
these include advanced silicon doping, cell interconnection,
larger format cells, bifacial modules and single axis tracking,
among others. In the wind sector, relevant technology
developments include ever-increasing turbine size
(especially offshore), wind condition specific turbine
designs, and total wind farm control.

Consideration will also need to be given to how the projects
can be developed to achieve maximum value for their
production rather than simply maximum generation. For
example, we predict a huge increase in the deployment of
solar plus storage projects, reaching a cumulative installed
capacity of over 4,000 GW by 2050.
In contrast, we predict that the additional oil production
capacity added in 2050 will be approximately a quarter of
that added in 2019, while annual gas production additions
will be halved over the same period. Developers of these
facilities will need to give careful consideration to the risk of
stranded assets and what technologies to deploy to help to
progress towards net-zero emissions by 2050 – a pledge that
a number of oil and gas majors have made.
Gas network operators
Although the addition of new gas production facilities
reduces over our forecast to mid-century, gas remains a key
source of energy at a relatively consistent 24% of primary
energy supply for the world. This highlights that gas network
operators will need to sustain sufficient investment in the
operation, maintenance, and replacement of their assets to
continue to ensure safe and reliable supply.
An area of increasing attention in the energy transition is the
potential value of green hydrogen to help to decarbonize
hard-to-abate sectors and as a possible long-term energy-
storage solution. Although our forecast predicts that by
2050 hydrogen will make up less than 5% of the mix of
energy carriers, it could play a more significant role if carbon
prices are higher than we have assumed. Investing in
hydrogen-ready networks is therefore an important
takeaway for gas network operators. Consideration will need
to be given to the purity of supply, and the increased risks of
corrosion and leakage compared with hydrocarbons.
Gas network operators should also take away the potential
requirement for the transportation of CO2 for CCS. Although
we predict the uptake of CCS to increase substantially over
the forecast period compared with its limited use today, it
still only captures less than 6% of emissions by 2050.
Therefore, the potential risk of stranded assets is a key
consideration for gas network operators and investors when
considering new pipelines.
Takeaways for stakeholder groups CHAPTER 5
Electric utilities
The term ‘utility’ is commonly used in North America and
elsewhere to describe private or publicly-owned entities
that are publicly-regulated, own electricity transmission
or distribution infrastructure, and may also generate and
supply energy. Therefore, this section covers the impacts
for some or all of the functions of a generator, TSO, DSO,
supplier, or aggregator. Although many of these organizations
are capable of investing in the energy transition from their
own balance sheets, they are also the recipients of finance.
The major takeaway for this stakeholder group is our consistent
prediction over the last five years of ETO publications that
electricity as an energy carrier is set to see significant growth
over the forecast period – global generation will more than
double from 27 PWh in 2019 to 58 PWh in 2050. Utilities will
need to plan for this demand growth, assessing their options
for investing in generation themselves or working with the
finance community to raise sufficient funds.
This growth will require significant investment in both
generation and the network to efficiently deliver the electricity
to where it is needed. This is illustrated by initiatives such
as New York State’s offshore wind target of 9 GW by 2035,
which DNV estimates will require an investment of USD
8bn to 9bn in grid connection infrastructure alone. Projects
such as this need new grid connection concepts applying
HVDC technology at its technological limits for radial and
meshed connection. To realize this level of infrastructure
deployment requires an international consortium of
developers and investors.
Many of the utilities who are supporting their customers
through the energy transition have a vital role and responsibility
to ensure a just and equitable transition. For example,
regulated US gas and electricity utility PSE&G is expected to
invest USD 166m over six years while helping to build out the
state’s EV charging infrastructure. The utility will not own EV
chargers, but instead will support the infrastructure needed
to place chargers throughout its service territory – “make
ready” as Karen Reif, Vice President, Renewables & Energy
Solutions, PSE&G, puts it. “A key tenet of our program is
providing universal access to charging stations, not just
homes, but also shared and publicly accessible locations
– multi-family buildings, business buildings, government
facilities, publicly accessible parking lots,” she adds.
61
62
6
THE
NEXT FIVE
YEARS

6.1 Floating offshore wind 64

6.2 Developments in solar photovoltaic 65
6.3 Pipelines for low-carbon gases 65
6.4 Meshed HVDC grids 66
6.5 New battery technology 66
6.6 EVs and grid integration 67
6.7 Green hydrogen production 68
6.8 Carbon capture and storage 68
DNV Financing the Energy Transition
6 THE NEXT FIVE YEARS
This section identifies technology trends within the next
five years that will largely determine how the energy
transition unfolds to mid-century – further details are in
our Technology Progress Report.57
The technologies that could deeply decarbonize world
energy are well known. The challenge lies in navigating
how and when to implement these technologies, which
are at different stages of maturity, and in managing how
they interact and rely on one another. Understanding this
will enable industry, governments, and those financing the
transition to effectively prioritize their efforts, to achieve
the emissions reductions required every year up to 2050.
6.1 Floating offshore wind
Floating wind turbines give access to abundant wind
resources over deep water – at least four times as much
ocean surface space compared with bottom-fixed wind.
This increases flexibility in site selection, including the
possibility to target areas with higher wind speed, and
those with lower social and environmental impact. In the
next five years, we expect significant technology
development in floating wind to reduce cost, scale
production, and broaden applicability.
Two European floating wind farms, Hywind Scotland and
WindFloat Atlantic in Portugal, are operating and
showing the technology is technically feasible. Hywind
Scotland, in operation since 2017, has achieved the
highest average capacity factor of all offshore wind farms
in the UK, indicating that floating wind can perform as
well as, or better than, bottom-fixed offshore wind.
Cost is the main issue with floating wind. While bottom-
fixed wind has projects with a levelized cost of energy
57  Technology Progress Report, DNV
64
(LCOE) below 50 USD/MWh, the first floating wind farms
have seen LCOE exceed 200 USD/MWh. This is due
largely to the small sizes of the first floating wind farms
and the immaturity of the technology and supply chain.
New and improved floating wind designs will drive down
cost. This will be achieved through improved fabrication
approaches to facilitate high-volume production, reducing
mass, and optimizing mooring systems – such as synthetic
ropes, load reduction systems, integrated tension monitoring
systems, quick connection systems and shared mooring.
Over the coming years, floating wind will scale both in
turbine size and wind farm size, helping to lower LCOE.
Technology providers will test their solutions with turbines
potentially larger than 20 MW, which could lead to design
modifications beyond increasing the size of the
structure to cope with the added loads.
We predict these improvements will see floating wind
LCOE to drop below 100 USD/MWh by 2025 and under
40 USD/MWh in 2050. These reductions, the industry’s
scale-up, and expansion to new markets will lead to
almost 2 GW of cumulative installed capacity by 2025
and more than 260 GW by mid-century, presenting
opportunities for the finance sector to support its
development and deployment.
DNV believes technical and cost reduction challenges
can be overcome. However, as with most industries, the
real results come from deployment, which is where
policymakers have roles to play. Long-term targets, clear
regulations that do not hinder international cooperation,
and incentives will give the supply chain the predictability
to attract finance, allow for globalization and the
industrialization of the technology, and push floating
wind costs down quickly to competitive levels.

6.2 Developments
in solar photovoltaic
Solar photovoltaic (PV) is the world’s fastest growing
renewable electricity resource. We expect this growth to
continue accelerating in the coming decades, with PV
electricity generation expanding 30-fold from 0.7 PWh
in 2019 to 21 PWh in 2050.
Rapid technology development will continue to underpin
cost and efficiency improvements. Crystalline silicon PV
module technologies – including advanced silicon doping
and cell technologies, cell interconnection, larger format
cells and panels, and bifacial modules – are developing
rapidly. Thin film PV technologies have moved toward
larger format modules to improve compatibility with
racking and single-axis tracking products, and thus reduce
module and system cost. Anticipated developments and
resultant cost learning rates will lead to the world average
solar PV LCOE going from 50 USD/MWh today to 39 USD/
MWh in 2025 and down to 28 USD/MWh in 2050.
These advancements will continue to improve solar’s
competitiveness against traditional generation. In many
locations, investors will see solar PV as an increasingly
attractive option, helping to efficiently meet growing
electricity demand. We anticipate substantial growth in
solar capacity from 744 GW now to some 2,000 GW in
2025 and 12,000 GW by 2050. A significant portion of this
growth will be from combined solar and storage projects,
where the efficient colocation of these technologies and
their ability to better match supply with demand will lead
to more valuable generation. As such, solar plus storage
will account for more than a third of total solar PV capacity
by 2050.
For PV to meet the energy transition’s needs, it will need to
look beyond PV technology and cost improvements. The
value of solar generation must be maintained as installed
capacity increases. This can be accomplished by integrating
storage into the electricity grid or via hybrid solar and
storage systems and through dynamic energy markets that
can respond to low-cost or low-carbon signals to better
match load to local or regional PV generation.
The next five years CHAPTER 6
PV will clearly play a key role in the energy transition, but
integration of complementary technologies, markets,
and regulations can help accelerate our solar future.
6.3 Pipelines for
low-carbon gases
With stakeholder pressure increasing, and many
governments passing net-zero legislation, industry is
accelerating its solutions for decarbonizing production
and consumption of the molecular energy – hydrocarbons
– that the world needs. Pipelines will be critical for
transporting this energy and carrying away CO2
associated with hydrocarbon use. Both these pipeline
solutions may come with safety and financial risks if new
design, construction, and operational considerations are
not considered.
Pipelines are being used in new low-carbon applications
such as hydrogen and biogases, and in assisting deep
decarbonization through carbon capture and storage
(CCS) by transporting CO2 from emission sites to
permanent storage or end-use locations.
Transporting CO2 needs careful consideration of
capacity for new and shifting requirements. Oversizing
the pipeline carries significant risks given that industry
may pursue fuel-switching or technologies that could
significantly reduce demand for CO2 pipeline capacity.
There are also potential issues with CO2 purity. It is
preferable to transport relatively pure CO2 as either a
liquid at about 100 bar, or a gas at about 35 bar, but
collection from different sources can lead to impurities
and challenges with critical pressure, critical temperature,
and phase behaviour. These present challenges for
pipeline and reservoir design.
While CO2 can be considered a waste stream, hydrogen
is a valuable energy carrier and feedstock. The purity
requirements of the end application therefore have a
significant impact on pipeline design parameters.
65
DNV Financing the Energy Transition
While most industrial and domestic applications can
accept 98% purity58, applications such as fuel cells and
semiconductor manufacturing typically require
99.9999%. Also, hydrogen may be more prone to leak
than hydrocarbons in high-strength steels, and in its pure
state has unique corrosion properties – causing
embrittlement of steel. These considerations require
welded joints and the transportation of lower pressure
(below 85 bar) hydrogen using lower-strength steel.
The role of pipelines in a decarbonized future is often not
well understood. As we move through the energy transition,
and both industrial and domestic consumers shift from
methane to hydrogen, older and new systems alike will
need to operate side by side. Building these, and vastly
increasing CCS network capacity, will significantly increase
demand for pipeline expertise. Whether new or repurposed,
a well-designed and maintained pipeline can safely
transport low-carbon gases or carbon dioxide. The main
challenge is the increasing need for pipelines to secure
land-use planning approval and societal acceptance,
particularly onshore.
6.4 Meshed HVDC grids
Meshed and multi-terminal HVDC grids are low-impact,
cost-effective methods for integrating large-scale and
remote renewable energy resources. While HVDC
projects are limited by onshore grid compatibility and
a lack of interregional and international cooperation
models, HVDC grids in Asia have demonstrated their
technical feasibility, and over the next five years we
anticipate application of the technology in other regions
of the world.
The challenges facing deployment of meshed offshore
HVDC grids in the European Union encompass a variety
of different aspects. The PROMOTioN (Progress on
Meshed HVDC Offshore Transmission Networks) project
has identified various necessary prerequisites including
cost-effective and reliable converter technology;
HVDC grid protection systems; compact HVDC switchgear;
and financial frameworks for infrastructure development.
58  Scardino, Andrew J, de Nys, Rocky (2011). Mini review: Biomimetic models and bioinspired surfaces for fouling control. Biofouling 27(1):73-86, January 201
66
The absence of a coordinated deployment plan and a
regulatory framework – as well as missing agreements
between manufacturers, developers, and operators of
the grid – also represent current obstacles to the
deployment of a meshed HVDC offshore grid.
The PROMOTioN project set out to solve these
challenges, with the ultimate aim of unlocking the full
potential of Europe’s offshore resources. PROMOTioN,
led by DNV, has been funded under the EU Horizon 2020
framework programme and involved 34 partners from 11
different European countries, who collaborated intensively
over more than four years between 2016 and 2020.
The envisaged multipurpose, multi-actor, multi-vendor,
multinational, and multi-terminal HVDC grids will not be
planned, designed, and built all at once. Instead, they will
grow in a stepwise, organic fashion. The equipment and
systems require technical, regulatory, and economic
compatibility and interoperability. This should be achieved
through a set of explicit technology and purpose-agnostic
minimum requirements which all actors in the super-grid
development adhere to. This will require far-reaching
coordination on many different levels. Policymakers,
grid planners, and designers will need to collaborate to
determine regulatory agreements, functional requirements,
technical parameters, and project aspects in order to
realize the potential role that meshed HVDC grids can
play in the energy transition. These substantial infrastructure
investments require long-term legal and regulatory stability
to provide the stable and predictable conditions for
financing. Moreover, access to equity for the required
grid investment needs to be facilitated.
6.5 New battery technology
Lithium-ion (Li-ion) batteries have reshaped portable
electronics, enabled EVs, and will be an essential part of
the renewable energy infrastructure. First described in the
1970’s and commercialized by Sony in the early 1990s for
portable electronics, these lightweight and power-dense
batteries have mostly replaced the old alkaline cells that
powered the flashlights and radios of the 20th century.

Manufacturing at scale has quickly reduced cost and
increased the energy density of Li-ion batteries, making
long-lasting portable electronic devices, EVs, and utility-
scale energy storage possible. Further development of
battery technology, scaling up of manufacturing capacity
and deployment of storage facilities will require substantial
investment. This was illustrated last autumn (2020) when
Swedish Li-ion battery maker Northvolt announced that it
had raised USD 600m in equity to invest in capacity
expansion, research and development, and large-scale
recycling. The capital raised included institutional investors,
private investors, and existing shareholders such as Goldman
Sachs, Scania and Volkswagen.59
Beyond commercially available technology, there are also
step-change improvements for Li-ion batteries which are
moving from labs and R&D departments to prototype
stage. These improvements will continue to reduce cost
and increase energy density. Li-ion battery advances will
be fuelled by the massive increase in EV production and a
continuous quest to lower cost and boost range, but there
is a need for long-duration energy capture to fully achieve
the energy transition – this will require alternative battery
technologies such as vanadium redox flow batteries.
In the future, we expect to see Li-metal anode batteries
with solid electrolyte and high-nickel/low-cobalt cathodes
for the performance EV sector, and a lithium ferro
phosphate (LFP) variant for low-cost, lower-range EVs and
stationary applications.
6.6 EVs and grid integration
Transport is a significant contributor to CO2 emissions and
currently accounts for 29% (125 EJ) of global energy demand,
with more than three quarters of that coming from road
transport. By 2050, vehicle numbers on the road will have risen
by some 60%, yet their energy demand will have dropped to
84% of today’s levels because of the EV revolution over this
period. The three major drivers of this revolution are
decarbonization, air pollution control, and cheaper EVs.
59  Northvolt raises $600 million to invest in capacity expansion, R&D and giga-scale recycling, Northvolt
60 Carbon Brief (2019). ‘Factcheck: How electric vehicles help to tackle climate change’ and ICCT (2018) ‘Effects of battery manufacturing on electric vehicle life-cycle
greenhouse gas emissions’
The next five years CHAPTER 6
A typical battery-electric vehicle (BEV) today produces
less than half the CO2 emissions of an average European
passenger car over its lifetime (including manufacturing) .60
To reduce pollution levels, more than 30 cities globally
plan to ban diesel and petrol vehicles by 2025 or 2030.
The cost of battery packs is reducing by 19% for every
doubling of production, resulting in passenger EVs
achieving total cost of ownership parity with internal
combustion engine (ICE) equivalents next year (2022).
The next five years will see a significant increase in EV
sales globally, most notably in Europe, North America,
and China. This trend will continue through the decade
and beyond such that by 2032 50% of new passenger
vehicle sales will be EVs.
Advances in Li-ion battery chemistry, cell design, and
battery management systems, combined with huge
growth in production volumes, have led to cell energy
density going from 150 watt hours per kilogram (Wh/kg)
in 2010 to 300 Wh/kg today, and battery pack costs
dropping from above USD 1,100 per kilowatt hour (USD/
kWh) in 2010 to approximately 140 USD/kWh today. This
combined with highly-specific BEV designs, improvements
in motor efficiency, and the use of heat pumps for controlling
cabin temperature, have led to the latest mass market
passenger BEVs with total cost of ownership almost
equivalent to a comparable ICE model and with ranges
of 350 km or more. Within five years, we expect passenger
vehicle battery costs to be below 90 USD/kWh, average
pack size to be around 100 kWh, and average vehicle
range to be approximately 500 km.
In parallel with financing EV technology development
and scaling production, significant investment is needed
in charging infrastructure. We estimate that just for EV
fast charging (> 50 kW) an investment of the order of USD
150bn will be needed globally over the next decade.
Financing a range of charging infrastructure solutions
needs careful consideration of market and technology
trends. These include uptake of EVs, traffic flow, shifting
driver behaviour, higher-power chargers, smart charging
and vehicle-to-grid, interoperability and, in time, the
advent of autonomous vehicles.
67
DNV Financing the Energy Transition
The huge investments currently being channelled into
EVs and their associated charging infrastructure, the fact
that they are three to four times more efficient than ICE
equivalents, their much lower impact on our planet, and
the flexibility they can provide to aid their integration – as
well as that of renewables – means that EVs are a vital part
of the energy transition. They will ultimately lower the
cost of transport, reduce GHG emissions, improve the air
around us, and improve grid reliability.
6.7 Green hydrogen
production
The hydrogen economy is on the rise, and DNV expects
global demand for hydrogen as an energy carrier to grow
from practically zero in 2019 to 23 EJ/yr in 2050 when it
will make up 5% of the mix of carriers. Uptake will mainly
be in the manufacturing and transport sectors, adding
to the continued non-energy uses of hydrogen such as
fertilizer and industrial feedstock. Although the use of
hydrogen as an energy carrier remains low over the next
five years, it is clearly a technology for investors to watch,
and one that will need funding and support to develop
further. It may become a more significant contributor to
accelerating the energy transition, depending on policy
drivers such as carbon price.
In the coming decade, we see increasing cost
competitiveness for green hydrogen from electrolysis
by improving efficiency and decreasing capex. In areas
with abundant renewable resources and low-priced
electricity, the costs of green hydrogen will drop even
further. DNV is involved in some projects in Latin America
and Africa where we already see the potential for green
hydrogen production costs in the range of 2–3 USD/kg
using solar PV. Hydrogen produced in areas with
inexpensive renewable energy could be converted to a
liquid (ammonia, methanol) or liquid organic hydrogen
carriers (LOHCs), and transported, for example, to
Europe, where inexpensive PV is less abundant. Here
hydrogen carriers can be used directly or could be
converted back to hydrogen.
68
Alkaline Electrolysis (AE) and Proton Exchange
Membrane (PEM) electrolysers are the most developed
hydrogen technologies, but Solid Oxide Electrolysis
(SOE) and Anion Exchange Membrane (AEM) technology
may yet have a future. A role for all four technologies
could be expected in different application areas. SOE
will likely be applied in combination with a stable power
supply, integrated with other processes in ammonia and
synthetic fuel production, and possibly in reverse
operation to convert hydrogen back into electricity.
Successful development of AEM could allow the
technology to join AE and PEM in applications across
many sectors. Here electrolysis plants could be built
onshore either as large centralized plants towards GW
scale, or small and decentralized plants to supply local
demand, in mobility for example. We might also see
electrolysis offshore on (artificial) islands, platforms,
or even integrated into wind turbines. Large wind farm
operators are currently assessing the possibilities of
integrating hydrogen with offshore wind. This introduces
a whole new level of challenges and design concepts
where systems need to be compact, highly reliable in
offshore environments, and even more suitable for
remote operation. In addition, fast-responding
electrolysers like pressurized AE, PEM, and possibly
AEM can offer grid services to assure stable voltage
and frequency levels.
6.8 Carbon capture
and storage
The IPCC and IEA both stress that large-scale
implementation of Carbon Capture and Storage (CCS)
technologies are a necessary part of reaching the Paris
Agreement climate targets. Although CCS has long been
considered an immature and risky distraction from other
'better' decarbonization routes, today we see a renewed
interest in this technology as it becomes an effective tool
for achieving net-negative emissions and transitioning to
a net-zero emission future.

Carbon dioxide capture technologies are mature and
commercially available for large-scale projects in all
industrial sectors. However, in 2020 there were only 26
commercial scale CCS facilities in operation across the
globe capturing just under 40 MtCO2. Capture costs,
not technology, remain the major limitation for CCS
implementation.
Developing transport infrastructure and qualifying
storage sites is key to enabling CCS. In the coming years,
the development of CCS value chains is mainly expected
in Europe, which already has tailored regulations for CO2
storage as well as favourable financial and political
support. We predict that by 2025, CCS will capture
approximately 90 MtCO2 growing to over a billion tonnes
by 2050.
The next five years CHAPTER 6
With the exception of enhanced oil recovery (EOR)
applications, carbon capture and use has a limited effect
in improving the business case of a CO2 capture project,
for this reason, it is not expected to be a major contributor
to cutting CO2 emissions in the short term.
CCS is growing at a faster pace thanks to favourable
conditions. However, the pace is not fast enough for a
Paris-compliant energy future; that will require much
more robust carbon pricing and other incentives at a
global level. With the right support, CCS will be able to
play its required role in aiding the transition to a net-zero
energy system.
69
DNV Financing the Energy Transition

70
 The project team

THE PROJECT TEAM

This report has been prepared by DNV as a cross-

disciplinary exercise between DNV’s Energy Systems
business area and DNV Group.

Energy Transition Outlook 2021

Steering committee
Remi Eriksen, Ditlev Engel, Ulrike Haugen, Trond Hodne,
Liv Hovem
Project director
Sverre Alvik
Modelling responsible
Onur Özgün
Core modelling- and research team
Bent Erik Bakken, Gudmund Bartnes, Thomas Horschig,
Mark Irvine, Anne Louise Koefoed, Erica McConnell,
Mats Rinaldo, Sujeetha Selvakkumaran, Adrien Zambon,
Roel Jouke Zwart

Financing the Energy Transition companion report

Lead authors
Christian Parker, Jeremy Parkes
Core reference group
Ditlev Engel, Lucy Craig, Caroline Kamerbeek
Contributors
Carlos Albero, Katy Briggs, Anurag Chatterjee,
Nicholas Cole, Joyce Dalgarno, Michael Dodd, Ken Elser,
Elizabeth Kaiga, Eelco Kruizinga, James Laybourn,
Yalda Louboutin, Martijn Maandag, Bridget McEwen,
Graeme Pirie, Mitchell Rosenberg, Rob van der Spek,
Wen Qian Zhou

Interviews
We have been greatly assisted by the insights gained
from interviews with leaders from the finance and energy
sectors, as listed on page 12 of this report.

71
DNV Financing the Energy Transition
ENERGY TRANSITION OUTLOOK 2021 REPORTS OVERVIEW
Energy transition outlook
Our main publication details our model-based forecast of
the world’s energy system through to 2050. It gives our
independent view of on the most likely trajectory of the
coming energy transition, and covers:
— The global energy demand for transport, buildings,
and manufacturing
— The changing energy supply mix, energy efficiency,
and expenditures
— Detailed energy outlooks for 10 world regions
— The climate implications of our forecast.
We also provide details on our model and main assumptions
(i.e., population, GDP, technology costs and government
policy). Our 2021 Outlook explores, inter alia, the impact of
COVID-19 and the growing importance of hydrogen as an
energy carrier.
72
Technology progress report
We explore how key energy transition technologies will
develop, compete, and interact in the coming 5 years.
The ten technologies are:
— Energy production: floating wind, solar PV, and waste
to fuel and feedstock
— Energy transport, storage, and distribution:
pipelines for low-carbon gas; meshed HVDC grids,
new battery technology
— Energy conversion and use: novel shipping
technologies, EVs and grid integration, green
hydrogen production, CCS.
We attempt to strike a balance between technical details
and issues of safety, efficiency, cost, and competitiveness.
The interdependencies and linkages between
the technologies are a particular area of focus.

Financing the energy transition
Focuses on the financial opportunities and challenges
for financiers, policymakers, developers, and energy
companies:
— An affordable transition – considering whether a
Paris-compliant transition is affordable, and what may
be needed to mobilize and redirect capital
— Accelerating the transition – examining the role of
financial markets, policy, and regulation, and how to
get capital to flow to where it can have the most impact
on emissions
— Ensuring a just transition – exploring the importance
of balancing sustainable priorities, ensuring
co-benefits, and building climate resilience.
The report combines DNV’s independent energy forecast
to 2050 with views from a diverse set of leaders in the
energy and finance sectors.
Suite of ETO reports
Maritime forecast
The 2021 Maritime Forecast to 2050 offers shipowners
practical advice and solutions as shipping’s carbon
reduction trajectories rapidly head towards zero:
— DNV’s new carbon risk framework allows detailed
assessments of fuel flexibility and Fuel Ready solutions,
the economic robustness of fuel and energy efficiency
strategies, and their impact on vessel design.
— Decarbonization is leading to increased regulatory
requirements, new cargo-owner and consumer
expectations, and more rigorous demands from
investors and institutions.
— Investments in energy and fuel production will be
essential to shipping’s efforts to decarbonize.
This is the grand challenge for the maritime industry.
But by working together as an industry, embracing fuel
flexibility, and consulting with expert partners, shipping
can reach its destination.
73
About DNV

DNV is an independent assurance and risk management provider, operating in more

than 100 countries, with the purpose of safeguarding life, property, and the environment.
As a trusted voice for many of the world’s most successful organizations, we help seize
opportunities and tackle the risks arising from global transformations. We use our broad
experience and deep expertise to advance safety and sustainable performance, set
industry standards, and inspire and invent solutions.

In the energy industry

We provide assurance to the entire energy value chain through our advisory, monitoring,
verification, and certification services. As the world’s leading resource of independent
energy experts and technical advisors, we help industries and governments to navigate
the many complex, interrelated transitions taking place globally and regionally, in the
energy industry. We are committed to realizing the goals of the Paris Agreement, and
support our customers to transition faster to a deeply decarbonized energy system.

dnv.com/eto

Headquarters:
DNV AS
NO-1322 Høvik, Norway
Tel: +47 67 57 99 00
www.dnv.com

The trademarks DNV® and Det Norske Veritas® are the properties of companies
in the Det Norske Veritas group. All rights reserved.