And hurricanes are just one of the increasingly frequent natural disasters hitting our economy. The future will bring higher insurance premiums, more spending on damage prevention, and more spending on recovery from the increased frequency and impact of natural disasters. This sounds expensive, and it is.
At the same time energy needs are growing rapidly. After years of 0% to 2% annual growth, electricity demand is now expected to increase at a much sharper rate. It takes years to add new power sources to our electricity grid, so the projected 15% – 20% expansion in electricity demand from online streaming, bitcoin mining and AI are likely to lead to much higher electricity prices in the near term. Large tech firms are already securing their energy sources to lock in low, stable electricity prices with investments in large portfolios of renewable energy and more recently, nuclear power. Both types of energy are much cheaper than fossil fuels, so the tilt towards low-carbon investments makes economic sense.
Thus, for two reasons – climate risk and energy needs – it is reasonable to project a construction boom in the coming years for the infrastructure of where we live and work, and for the energy we use. Current estimates are that annual spending of more than $3 trillion per year is needed through 2050. For context, the 2023 spending level was $1.8 trillion; we’re looking at at 2X increase, with some clear winners: Wall Street (financing); Construction (rebuilding infrastructure and energy projects); Consultants (to package up the projects); and Leaders (companies who secure their low-cost energy resources first). As US Treasury Secretary Janet Yellen says, “[Climate finance is] the single greatest economic opportunity of the twenty-first century.”
“[Climate finance is] the single greatest economic opportunity of the twenty-first century”
Here are two examples of how this all comes together.
Local storage and solar:
Consider a local utility trying to add generation power to the grid, scrambling to meet the rising demand. Their electricity rate forecast will show steeply rising costs. Entrepreneurs can make a compelling, cheaper, and more stable price offer to electricity users by putting together portfolios of solar and storage, imitating what big tech is doing today. Their offering helps smaller users secure some measure of stable, cheaper power.
Big power projects:
Large companies in all industries don’t want to take the risk of rapidly rising electricity prices either, and they will imitate big tech by directly building portfolios of contracts for renewable energy, nuclear power and storage. Often companies don’t want to own this type of asset, so expect a rise in middleman type of services that build and hold the portfolios and then offer large companies long-term price stability.
There has been no mention of any policy change, or “I can see the future if only… “ Instead, this blog post has described a sizable economic opportunity that is already here and profitable for some huge sectors of our economy. Nothing was said about who wins the U.S. presidential race. We are facing a well-defined future of enormous change, regardless of who gets elected. The new president will find it tough to turn off the money machine, CEOs and financiers will line up against that. It’s All About the Money Now.
This conclusion might sound a bit naive in the face of the heated rhetoric of the presidential campaign, but consider this: The dominant economic opportunity for the next several decades will tilt investment spending to cleantech and decarbonization. Because of its size, other macroeconomic policy decisions will be evaluated in light of how they help or hinder climate financing. Dramatic macroeconomic policy changes create uncertainty, the enemy of low interest rates, reliable plans and cost-effective construction projects. So expect vigorous pushback from CEOS and financiers. We’re now very deep into climate financing, there is no turning off the money machine.
Here at GLYNT.AI we are on the frontlines of helping businesses prepare their sustainability data – the granular water, waste, energy and emissions data needed to form cost-effective projects, get them financed and track results. In the past few years, climate and sustainability reporting requirements around the globe have set the standards. Now investors are leading the charge for transparent, accurate and audited sustainability data. Companies with investor-grade data will get to the low-cost power projects first. They’ll get financing first. They will secure their future first. It’s All About Money—and Data—Now.
