Peeking into 2021: Green bonds to reach US$500 billion per year, solar on track to outrank oil and gas

It is not like 2021 would need to shine to stand out – compared to its predecessor, a lack of disaster would satisfy most. Nonetheless, management consultancy firm PricewaterhouseCoopers (PWC) gives reason to set the bar high, especially in the renewable energy sector. In its economic outlook for this year, the analysts believe global gross domestic product (GDP) will mostly rebound.

With the United States expected to sign back up to the Paris Accord, renewable energy companies are on track to record another successful year. The European Union and China are expected to continue on their trajectories of successive decarbonization, while in Europe, member states will hand in their national plans for a shift to greener economies before May. Subsequently, the bloc will make 0.5% of the Eurozone GDP available, to speed up the realization of its plans, and support this effort with grants worth 5% of Eurozone GDP over five years — that is, €65 billion and €650 billion, respectively.

On top of that comes China's 14th five-year-plan, scheduled for publication later this month, which is expected to include ambitious renewable energy plans. A more coordinated global push, PWC says, might also come on the back of the COP26 meeting, which is scheduled to be held in Glasgow, Scotland, later this year.

With targets repeatedly being revised upwards, the cost for infrastructure investment similarly increases. PWC believes that global green bond issuance will step up to foot the bill. Though at present green bonds account for less than 5% of global fixed income, 2021 will likely see this type of financing breaking the $500 billion per year barrier. Green bonds are a type of debt financing instrument aimed to match investors seeking decarbonization projects with borrowers who want to finance them. The proceeds must be used for projects linked to the funding instrument's relevant aim, such as decarbonization and renewable energy projects.

In October 2020, BloombergNEF tracked $200 billion worth of green bonds issued – a 12% increase from the previous year, which saw an end of year sum of $270 billion. The half trillion-dollar outlook becomes even more impressive compared to the cumulative sum of green bonds issued since 2007, when the debt financing instrument first appeared: it reached $1 trillion in September 2020.

An outstanding EU Green Bond Standard will further drive this trend, the analysts say, as standardization of such financial operations will increase investor appetite. It is not just strictly green bonds that will define the conditions under which cash can change hands. The consultancy believes that 57% of the total European mutual fund assets could be held in funds that consider Environmental, Social, and Governance (ESG) criteria by 2025.

All the contractual ambitions combined with the cash that will be made available is likely to bear fruit, PWC says. Significantly solar PV will grow at a rapid pace in the EU, India, and China. The current trajectory will see solar overtake natural gas in 2023 and coal in 2024, to outrank them as the biggest electricity provider.

Additionally, oil prices have deteriorated during the crisis, as lockdown regulations worldwide saw a reduction in car usage. At least for the first six months of this year, costs per barrel of crude oil aren't expected to climb above the $60 mark, thus not reaching its pre-crisis level. Although it should be noted that while this outlook is reason enough for long faces in the board rooms of oil majors, it is also not shockingly low. Since 2014, the price per barrel has fluctuated around that level.