Jonathan Coppel | Head of Investments at the International Energy Agency

2022-12-05
The Zenergy Podcast interviews global climate leaders with prior guests, including the founders of some of the world's largest renewable energy and electric vehicle companies, including founders of SoftBank Energy, Azure Power, Ola Electric, and SunEdison. These conversations share industry developments, highlight clean tech investment opportunities, and shed light on how young professionals can increase their chances of employment in this fastly growing sector. We also discuss the energy transition across key emerging markets like India and explore partnership opportunities for US companies.

Transcript


00:02 Introduction
Are you looking to become a leader in clean energy and an expert in cleantech? Do you hope to get noticed in the crowd as you pursue a career in this fastly growing industry, you are in the right place. Join Karan Takhar as he invites clean energy leaders to share industry development, highlight cleantech investment opportunities and shed light on how you can increase their chances of employment in this high-growth sector. We will also discuss the energy transition across key emerging markets like India and explore partnership opportunities for the US private and public sectors, after all. This is the energy podcast.

00:51 Karan Takhar
Thank you, Mr. Coppel, sincerely for taking the time. I've been really looking forward to speaking with you, and it's great to run into you and connect with you at the Global Clean Energy Action Forum in Pittsburgh and for listeners who may be unfamiliar with your work and also, What the International Energy Agency is Can you provide a brief introduction of the IEA and what you're role at the firm?

01:23 Jonathan Coppel
Sure. It's a great privilege to participate in this podcast. Mr. Takhar, we met each other, as you mentioned, in Pittsburgh, and we had a very interesting conversation on the youth voice. In these climate talks and also climate negotiations. The International Energy Agency is an agency that was established in the early 1970s. It came in the wake of the first oil crisis supply from the Middle East was drastically reduced, and this led to the very high energy prices and also raised awareness and the call for action to be better prepared for disruptions to, you know, critical supplies such as oil. It also acted as a body that provided greater information and transparency on oil market developments, but also other energy market developments. It is an Intergovernmental Agency for our main stakeholders, our governments. But the IEA, over the past 50 years, has certainly transformed itself quite radically in this period since the early 1970s. Today, the issues that confront energy markets though obviously the current energy crisis. During which is not just impacting on oil markets. It's impacting on all energy markets. So it is perhaps more clearly the most significant oil crisis that we've had on truly global crisis that we've had, But of course, the issues are about climate change, the role that the combustion of traditional fuels contributes to climate change and the need to transition their energy systems to renewable sources or clean sources of energy, and this is very much front and center of the work of the IEA. It features in many of our publications. Obviously, most recently in, the World Energy Outlook, which came out a few weeks ago it, sets out scenarios for the future, including how underpowered policies we would see climate change bearing on the global energy system. If those policies were the only policies to be implemented, but it also sets forth a road map on how one can achieve a climate goal. So chose the 1 1/2 degree warming target that got greater currency during the COP Paris Agreement back in 2005. So traditional focus observing in EU markets still very much there, but a broader scope. We look at all technologies, and we look at all fuels. Current situation model the energy crisis. The Nexus between energy markets and climate change, and the third area and very much, and of all, the role from the rollback in the 1970s energy security issues. They were typically focused on oil markets. Now energy security issues Need to be looking at the implications of the interruption of supply of natural gas, but we're also conscious that as our energy systems transform themselves towards and renewables, there are other critical inputs that, if they were to be disrupted, could be an issue for energy security now here I have in mind some of the critical components that go into wind turbines that go into Electric vehicle batteries Cobalt, for example, within some of these products are actually more concentrated in their supply than traditional fuels, so we're very conscious that we are prepared for the consequences that could arise from a disruption of supply and how to minimize that risk going forward. We don't want to be in a situation where we replace one source of any gene security with another source of energy insecurity. Now the second part of your question related to the role that I play at the International Energy Agency. So I'm the head of the energy investment unit. This is a unit that's a little different from other parts of the IEA, which typically follow energy flows. The Energy Investment unit follows capital flows, and we do this across all fuels and across all geographies; that allows us to build up, from the bottom, a picture of the overall developments and trends in energy investment, and this allows us to look at questions in terms of the speed at which we're changing our energies. System to be able to accept a greater proportion of renewable energy and then also allow a face down in those areas of the energy system that rely on traditional fuels. So we get a sense of how far are we on track to meeting some of these climate goals and to understand the nature of those capital flows. Are they evenly distributed? Do they tend to be concentrated in particular geographic areas, and what types of renewables are gaining prominence in terms of scale of investments? All these sorts of questions are part of the units, roles, and responsibilities, and then the other side of it is looking at the financing side of that investment. What is the access to finance? What are the costs of accessing finance for renewable energy? That's what part of the financing side, we also look at the broad ecosystem of ESG investing and other initiatives that seek to improve the grid credentials. If you like of investing in renewable energy technologies and there's some of the roles that the energy Investment Unit is involved with.

07:13 Karan Takhar
Amazing thank you so much for expanding on that, and I have so many questions, but I'd love to hear your perspective on you mentioned how The IEA was started during a time where you know there was conflict and there's really tight oil supply which caused a global energy crisis which were Similarly, you know witnessing today I was reading the IEA World Energy Outlook, which for the first time ever it predicts that based on today's prevailing policy settings, global demand for every fossil fuel will exhibit a peak or plateau. For example, with coal use falling back in the next few years, natural gas reaching a plateau. By then, the decade and oil demand leveling off in the mid twenty 30s. I'd love to hear your perspective on what you feel are driving these expected demand impacts. Is it primarily because investors not foreseeing long-term returns in these energy sources?

08:23 Jonathan Coppel
I think there are at least two broad factors that drive this development. The first relates to policies that are deliberately put in place to leverage and accelerate the pace of transition towards renewable energy systems. So here we have in mind, for example, the Inflation Reduction Act. This is a very large fiscal contribution to support the uptake of renewable energy technologies but also to support the development and testing of some of the more innovative technologies that it's yet to reach market that have good prospects. For reaching market, so a very substantial contribution there, but we see similar policies playing a role in other markets. In Europe, the Fit 55 program is one that supports the deployment of renewable energy technologies, also in India. There is a very substantial uplift in solar PV power generation. This has been given support, added support through the policies that have been put in place, and we see similar things in Japan in, China, and in other regions across the world. So policies are providing some of the support that is needed to have the confidence and provide the impetus to invest in these new sources of clean energy. That's one of the driving factors. The second driving factor, I would argue, are the market fundamentals. We've seen a very rapid increase in natural gas prices in particular, but it's affected other fossil fuels, including oil and coal, and these have come off some of their earlier peaks, but they still remain at a high level, even putting those aside, some of the costs now associated with well tested renewable technologies like solar and wind. Our competitive evaded these traditional fossil fuels even before the price increases that we've seen in the first half of this year. Now we have seen also price pressures in some of the costs of building the renewable energy supplies in solar, for example, also in wind. Some of those critical inputs have experienced quite rapid increases in prices, and that acts to dilute the impact of each dollar of capital expenditure but the degree to which this has occurred is less so than it has been for fossil fuel-based sources or power generation, for example, and I think there's also a greater recognition of some of the benefits that can be had from Renewable energy in terms of additional jobs, there are more jobs now in renewable energy than there are in the traditional fuels Sector and with the growth that is needed to support that transition to meet climate goals. For example, there are prospects there that also make it an interesting strategy in terms of developing some of the industries that support this energy transition. Now, one thing that we're observing, which is a bit of a caveat. For this, is that these forces are particularly dominant in some of the advanced economies, including China, and that's where we're seeing the bulk of the investment in emerging market and developing economies. Some of those It's basically being stuck at close to the levels that we saw back in 2015 when the Paris Agreement was signed, so there's still very much a need to mobilize those sources of finance to support that global effort to mitigate carbon emissions.

12:08 Karan Takhar
Understood a vote to hear your perspective on another statistic that was reflected in the World Energy Outlook, which expressed that the policies, many of which you mentioned The Inflation Reduction Act, among others, will help propel global clean energy investment or are expected to help propel. Investment to around USD two trillion a year by 2030, which is a rise of more than 50% from today, as stated. In the outlook, However, the outlook also stated that to reach net zero emissions by 2050, these investment levels are not necessarily sufficient, and instead of two trillion to, get to 4 trillion by 2030, highlighting the need to attract new investors. Until space, can you provide some insight into these numbers, particularly focusing on what you feel will help propel more investments into the space to ultimately get to those Let's your investment levels?

13:16 Jonathan Coppel
Sure, and maybe the point too. Make here is to kick off from the last part of your question, which is really to get an understanding of why we see this difference in the level of clean energy investment in different markets. So you've mentioned at the beginning of the role that policies played and that they're very important, but we still see this large gap between many of the emerging market and developing economies with the advanced economies, and here one of the biggest obstacles to deployment relates to the cost of financing, clean energy investments, or, more broadly speaking financed investments and this relates to both risks and also perceived risks of investing in particular markets and in particular projects in work we've done at the IEA, we've estimated that the cost of capital for a renewable energy project in an emerging market economy can be between two and three times higher than it is in a typical advanced economy, and that's very significant because the capital expenditure costs for solar and wind, for example, are relatively significant in the overall costs. So once the facility is built, the actual operating costs are relatively modest, and so a larger cost of capital can act as a significant break on those sorts of investments now, why is it that the cost of capital is tired and in some cases, there's many more times than two to three times higher than an imbalanced economy, and here we're really needs to get a deep understanding of some of the risks that are associated with the project. So there are traditional macroeconomic risks associated with foreign exchange. Movements, the ability to, if it's a foreign investment, repatriate and transfer currency without restrictions, that can lead to risks of capital losses. But there are a whole bundle of risks associated with the project itself, or those technology risk. There are risks associated with liquidity, and they get to issues associated with contracting issues, too, to assure a guaranteed level of demand. There are regulatory risks in terms of getting access to land permitting times. Whatever the risks are, they will manifest themselves in terms of a risk premium, and they can add up to make that cost of capital higher from one market and from one project type to another project, but we've done some calculations just to illustrate how significant those higher costs of capital can be and if you take, for example, a scenario where one were to assume, for instance, that the cost of capital was 200 basis points lower than it actually is to four percentage points. In a net zero emission scenario, that could translate into lowering overall financing costs to reach net zero emissions globally by the order of 15 trillion. So that's a very significant sum of money. It's a very significant potential gain that can be realized by making unfocused policy changes and sometimes regulatory changes that still meet their intended goals but do so in a way that limits those risks and then acts to put downward pressure on the cost of capital. So there's a lot of work to be done in this particular field. It's certainly one of the most prospective areas for mobilizing additional capital in clean energy transitions.

16:51 Karan Takhar
Understood, and yeah, thankfully, you all launched the Caustic Capital observatory at the Global Clean Energy Action Forum to help figure out ways to drive more investment into these emerging economies. Are there any specific policies that you feel? Would be helpful as it pertains to helping to facilitate more investment into clean energy projects in these emerging markets.

17:20 Jonathan Coppel
But I think one needs to look at this issue on a country-by-country basis, and also, it's quite specific to the technology or of the project type. I think we need to move beyond the generalities and get a deeper understanding of the specific source of risk. What's its likely impact, and to what extent can it be produced? This is really where the cost of capital observatory can come into play.
It's a tool. It's not just a set of data that's very important. It provides transparency on the cost of capital, which is often not there, but we have a methodology that can be used to provide that sort of diagnostic, even taking into consideration the specific circumstances in an individual market given their energy needs, given some of the geographic constraints, for example, that then can translate into a very concrete and specific road map for ways in which those risks can be reduced, and those potential gains that I mentioned can be realized and provide that degree of acceleration that is needed to meet some of these scenarios, such as the net-zero emission scenario, which is a very challenging scenario to achieve that, is 1, which is feasible provided there are changes then that support a lower cost of capital, for example, but also the policy changes and the ability to then be able to mobilize finance from other sources for international sources of finance, maybe through the multilateral development banks, there may be forms of blended finance, more, plenty of bankable projects, but often making that match between the project and the financing of the project is where many of these opportunities sort of start to not be realized because of different perceptions and also the way in which the information flows through So addressing some of those areas of concern is really important to be able to tap that potential gain.

19:27 Karan Takhar
That makes a lot of sense, and thank you so much for your time. My final question is more on the personal slash zooming out of work a little bit level, and as you know, there are a lot of young people who will be listening to this episode, and given that you've achieved so much success in this space, As you reflect back on your career journey, any piece of advice that you give, let's say, like your younger self, maybe in the 20 to 25-year age range as you're, you know, trying to figure out what you want to do.

20:08 Jonathan Coppel
Well, one thing that always comes in front of mind, particularly now that I've recently returned to the International Energy Agency, is the experience I had at the very beginning of my career, which is the move that brought me from Australia to Paris to work at the International Energy Agency with a program for Chinese development as the first year Program at the OECD IEA.
One family organization and I had been initially a graduate in the Commonwealth Treasury the Ministry of Finance in Australia, and I've been working on the economic outlook and doing forecasting and modeling work and I had been selected for this programmer at the OECD slash IEA, and I thought that my role would probably be in the area of this organization that is close to the work that a Treasury Department or Finance department. Those, but it actually meant that I was appointed or assigned to work at the International Energy Agency in the area of modeling, which was sort of the energy outlook, and I thought initially, well, this isn't very satisfactory, I don't have much background here it would be better to be in an area where I had some experience, and the reason that they saw me as a fit for the International Energy Agency is that I've been using some of the software that the IA was using at the time, and so I would be able to make that transition to early quickly, and I still thought before arriving that this was still not really what I wanted, but when I got there, the situation was very different there was so much to learn with the sort of different types of datasets, completely different sorts of issues, different modeling requirements, and skills that are needed, and it was right at the beginning of the awareness of the link between burning fossil fuels and climate change that following the Brundtland report so many years ago, and what I took from that is that often you can have a plan that if that plan takes deviations for reasons that are beyond your control and then try and push back, see it as an option Unity, there will always be things that you will learn there will always be an opportunity to try and steer your career along a broad plan, but I wouldn't try and set the parameters of your career path such that they definitely allow for any of these deviations or interesting branches in a road.
It may well be let you steer off into a completely different direction from what you initially increased, and I think not much has changed speaking to many others that are a generation above me. I hear similar thoughts or stories, So I think there must be something there must be something in there.

22:54 Karan Takhar
Amazing. Thank you so much, Mr. Coppel, for your time really appreciate it.

23:05 Conclusion
Thanks for listening. We hope you enjoyed the episode. Check out the episode description or show notes For more information on our guests. See you next time.


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