Guidance Seeks to Mitigate Nature Risks of Energy Transition
UBS AM and Planet Tracker highlight problems faced by investors with the longevity of solar and wind assets, and potential impacts on habitats.
UBS Asset Management (AM) and Planet Tracker have joined their efforts to support investors providing finance for renewable energy solutions and mitigate harms to nature.
In a new report, they provided a guide for industry practitioners on how best to integrate nature when looking at solutions for the energy transition needed to global meet climate goals. The guidance also aims to build better due diligence and metrics on transition-related investments.
UBS AM and Planet Tracker highlighted three foundational tech solutions for the energy transition: solar, wind and bioenergy – with the former two technologies having so far drawn the largest share of investments.
But these key renewable energy sources have an impact on nature, they said – particularly for the scale of growth they all require. According to the US Department of Energy, generating one gigawatt (GW) of solar power requires almost 2.5 million solar panels, while 310 Utility-Scale Wind Turbines are needed for 1GW of wind power.
“When projects are built, people don’t often set out to destroy things, but unintended consequences can result in that,” said John Willis, Head of Research at Planet Tracker. “We’re hoping [the guide] will be a handbook that people can flick through to find various mitigation strategies, and that it can provide valuable pointers on how to minimise nature risks and maximise decarbonisation opportunities.”
Investment risk could arise for investors if natural capital is ignored in energy transition solutions, the report highlighted, noting that while investors recognised the existential threat posed by natural capital degradation, they lacked a roadmap to systematically factor these risks into their decisions.
The report flagged investor face increasing regulatory scrutiny through enhanced disclosure and transparency regimes such as the EU Corporate Sustainability Reporting Directive and deforestation regulation. It also highlighted land use and site management issues risk triggering conflicts with key stakeholders such as government, regulators, and local communities, as has happened in the US and Canada, constraining sector growth.
The International Energy Agency (IEA) recently highlighted that global spending on clean energy technologies and infrastructure was on track to hit US$2 trillion this year, despite rising financing costs hindering new projects – notably in emerging and developing economies, which the IEA said hold huge potential for renewables. In a separate report, the agency warned that countries were already off track to meet the COP28 target of tripling global renewable energy generation capacity by 2030.
Solar energy, however, is poised for significant growth in the coming years, with installed capacity projected to reach 1000GW by 2030. According to research from BloombergNEF, new installations could reach 574GW this year and 627GW in 2025. Solar PV is currently the fastest growing source of renewable energy globally, with generation having gone up by 26% between 2021 and 2022.
“Nature has been an increasingly important topic for our clients,” said Lucy Thomas, Head of Sustainable Investing at UBS AM. “Over the last 18 months or two years, the financial industry has developed a better understanding of the fact that nature and climate are impacted by one another. As investors, we have to think about that.”
In light of nature data gaps, and lack of reliability and comparability – which the Taskforce on Nature-related Financial Disclosures is now looking to address through a nature data facility – Planet Tracker and UBS AM underscored the importance of due diligence and engagement as “critical first steps” for investors. They even went as far as suggesting engagement questions covering the three technologies.
“For the corporates we engage with, the transition journey has gotten very real,” said Thomas. “It’s hard, and squeezing such huge transformation of the energy system into such a short number of years is now showing up with some real challenges and trade-offs.”
Asset longevity concerns
Another issue facing investors in relation to renewables, is end-of-life solutions for wind and solar projects. According to the report, improving technology lifecycle is also key to managing nature-related risk.
An estimated 14,000 wind turbine blades are due to become obsolete by 2027. There is also the risk of blade waste becoming more expensive in some jurisdictions, and regulation ramping up as the issue becomes more prevalent.
Planet Tracker and UBS AM anticipated a growing focus on solar farms specifically, with the majority of existing installed capacity due to reach end-of-life by 2050. Solar farms are also likely to come under increased scrutiny for the management of waste in landfill sites and potential soil and water contamination.
Reusing old solar PV panels may be one of the most impactful solutions, the report suggested, with many decommissioned solar panels still working at around 80% of their original efficiency. Working components could also be extracted for use in remanufactured panels.
According to US renewable energy assets database kWh Analytics, solar projects are facing increasingly frequent and severe extreme weather events. The group highlighted the importance of proactive hail stow programmes, resilient module designs, and comprehensive risk solutions, which it said can all help to ensure the longevity of solar projects.
Natural catastrophes have been a significant contributing factor to renewable project owners’, investors’ and insurers’ growing concerns. Last year, more than 50% of global insured property losses came from North American severe convective storms, kWh’s report stated.
A further key risk to consider for investors in wind and solar assets is potential loss and damage to natural habitats – although last month, investment manager Foresight highlighted agrivoltaic farming’s potential for doubling up on land use, and helping to feed the world’s ever-expanding population while generating sustainable energy.
As mentioned by Planet Tracker and UBS AM, locating solar farms on previously degraded or low-quality grounds – such as contaminated land or brownfield sites – can also improve soil health and local biodiversity, if appropriately managed.
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