Searching for impact

The energy transition has been the largest opportunity within the infrastructure sector over the past decade (~52% of transactions closed¹), and we expect this trend to continue. Bloomberg New Energy Finance (BNEF) estimates that USD 175 trillion of investment is needed by 2050 under their Economic Transition Scenario², with USD ~10 trillion for renewables and USD 76 trillion required for transport. This makes the decarbonization of transport one of the largest investment opportunities within the infrastructure sector over the coming decades.

Investors have a well understood toolkit to assess the relative risk-return of the energy transition opportunity set. However, it is challenging to quantify which investments offer the most impact. In this paper, we present an Impact Return Metric that facilitates a comparison of energy transition opportunities by looking at the CO2 equivalent (CO2-eq) avoided per dollar invested. Our key conclusion is that transportation investments tend to offer a higher Impact Return than renewables where the grid is already clean, and therefore, can be attractive for investors looking to meet their carbon reduction impact outcomes.

Over the past decade, ~65%³ of the investment in the energy transition has been into grid decarbonization, primarily renewables, with a smaller share in storage and grid infrastructure.
This investment resulted in a significant fall in the carbon intensity of the grid (see Figure 1) in many developed markets, facilitating broader electrification programs. A key beneficiary of this electrification strategy is transport, which is now the largest investment sector of the energy transition according to BNEF.³

The steep change in transportation investment from 2015 coincides with the fall in grid emissions intensity, while also benefitting from tailwinds such as the falling cost of technology (batteries have fallen by ~90%⁴ over past decade), policy support, regulation and stakeholder pressure to decarbonize.

The relationship between grid emissions and the Impact Return of the electrification of transport is intuitive. When investing into fleet transition, an investment in an electric vehicle which displaces a diesel vehicle will have a high carbon reduction impact in a country where the grid is clean, whereas if the grid is dirty, the impact will be lower. Therefore, as grids become cleaner over time, the impact return from the electrification of transport will increase.

Figure 1: Grid carbon intensity has been decreasing across EU-27, US and Singapore (gCO2/kWh)

Many investors grapple with where their investment can have the most impact. We present an Impact Return Metric which provides a quantitative assessment of the CO2-eq avoided per dollar invested (CO2/USD).

We have compared transport and renewables across different geographies. Our analysis shows that electrified transportation can have a higher impact return vs. renewables in countries where the grid is already relatively clean (see Figure 2).

For example, in countries with low grid emissions such as Sweden (~10 gCO2 / kWh), the Impact Return for transport can be up to 25x⁵ higher than for new investments in wind, while in Poland (~720 gCO2/ kWh), investing in wind power can deliver 7x higher impact return than transport, illustrating the importance of considering grid emissions when assessing Impact Return for transport.

The continued growth in renewables is essential as an enabler for the decarbonization of the grid and wider electrification programs. As grids further decarbonize, the Impact Return for the electrification of transport will grow against renewables.

Figure 2: Transportation offers higher Impact Returns than renewables where the grid is already clean

The bars reflect the ranges of Impact Return (CO2/USD) of different technologies within transport, solar and wind.1 Kgs of CO2 avoided per dollar invested.

In addition to the grid intensity, the level of impact that can be generated from transport is determined by the characteristics of the vehicle and its use case. In Figure 3, we show the Impact Return across a range of commercial vehicle applications in a country with high grid emissions (Poland) and a low one (UK). The key differences between commercial transport use cases are driven by their duty cycle characteristics, such as the utilization rate, operating speed, idling time and operating load of different vehicles.

For example, baggage tractors and terminal tractors are representative cases of vehicles with the highest impact as the use case involves high utilization, and these vehicles also benefit from high idling time and low operating speed. These characteristics contribute to material energy savings for an electric vehicle vs. an internal combustion vehicle. On the other end of the spectrum is the school bus, which has a lower Impact Return due to the high upfront cost, low distances travelled (i.e., only used to transport children to and from school), and seasonality.

Therefore, to maximize your Impact Return from transport, investors should consider applications with favorable duty cycle characteristics in countries with low grid emissions.

Figure 3: Impact Return can vary largely across transport use cases (Kilograms of Co2 avoided per dollar invested, in UK and Poland)

¹ InfraLogic data, September 2024
² BNEF has modeled multiple scenarios for how the energy transition may unfold over the next three decades. Energy transition scenario relies only on historical efficiency trends and economically competitive, commercially at-scale clean energy technologies, and results in a 27% fall in emission vs. current levels by 2050.
³ BNEF, Energy Transition Investment Trends, January 2024
⁴ Source: Lazard's Levelized Cost of Energy Analysis 16.0, April 2023
⁵ In Sweden, the max for transport application is 9.7kg Co2/USD (baggage tractor) and max for wind is 0.38kg Co2/USD (onshore wind). In Poland, max for transport application is 5.47kg Co2/USD (baggage tractor) and max for wind is 36.2kg Co2/USD (onshore wind).