To reach 2050 net-zero targets, investment volume in U.S. and European clean power markets has to be scaled on an annualized basis from now until 2030, said Daniel Sausmikat, partner of origination and execution at InfraRed Capital Partners, during the Canadian Investment Review‘s 2024 Global Investment Conference held in April.

However, progress isn’t going to be uniform and, as the figures currently suggest, North America requires more absolute and relative investment than European countries, as it’s at an earlier stage of its energy transition. Navigating the prevailing market conditions and nuances will be vital for institutional investors to thrive. Apart from market forces, Sausmikat said a major influence over the investment dynamics in both regions are their respective regulatory frameworks, which have been diverging over time.

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“In North America, the approach at the federal level is primarily incentive based; for instance, with tax credits available for the developers and owners of clean power projects. In Europe, the integration of clean power into respective energy markets is achieved by imposing obligations on the various stakeholders, alongside penalties for non-compliance, as well as feed-in-tariffs for renewable projects, the cost of which are being recharged to the electricity system.”

The U.S.’ Inflation Reduction Act and Canada’s clean technology and investment tax credit are two regulations that are expected to have a significant effect in North America, well beyond their initial impact. They’ll increase the cost competitiveness of projects and will expand development activity, as well as acting as a catalyst for accelerating investment, said Sausmikat.

However, the situation in Europe is more complicated. While the European Union’s Green Deal and emissions targets set under ‘Fit for 55’ provide a broad road map, translating these measures and implementing detailed and specific measures for individual markets is still largely pending, he added. One of the reasons is that EU member states must assimilate these overarching targets within their national laws and regulations, which is both time-consuming and complicated.

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As the energy transition progresses in both regions, it will face numerous constraints and challenges, as a result of natural and technical factors. For example, more projects and larger developments mean there’s an increased demand for land. In Europe, due to overall population density, greater competition from alternative use and more restrictive permitting, space is already constrained. This has led to a greater focus on the offshore wind sector, alongside energy-saving measures that reduce the overall demand for additional power generation capacity.

“Conversely, there’s still quite a lot of land available in suitable regions in North America, where you have high wind speeds or good solar irradiation. And there are fewer competing uses for that land, and less regulation restricting development. I think another metric by which you can see that exemplified are the prices for non-residential land in North America, which are on average lower than in European countries.”

Another challenge that Sausmikat highlighted for both markets is the status of grid infrastructure. There has been chronic under-investment in this infrastructure, which is impacting the ability to integrate clean power projects into the system and, in turn, delaying the energy transition. “Many projects have been delayed and cancelled, with others take too long to be delivered. As a result, we are seeing a buildup of interconnection queues, meaning projects waiting to obtain a position in the grid system and be able to connect.”

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While policy proposals have been put forward to transform the permitting process for grid infrastructure as well as to increase investment in this area, little tangible progress has been made to date, he said. In the meantime, this will create significant opportunities for emerging sectors that provide solutions to these challenges. There are technologies that enable grid infrastructure to operate more efficiently, reduce electrical losses and improve efficiency, as well as storage and backup technologies, allowing, at a minimum, to connect more projects to the existing infrastructure, he added.

Sausmikat emphasized that the opportunity across both markets is significant, but understanding and tailoring investment approaches between each market is essential to navigate the regional nuances and complexities. Focusing on North America, he reiterated that it’s at an earlier stage of the energy transition but has implemented the legislation and regulation to provide decisive near-term support that will drive significant investment volumes in the short to medium term.

Read more coverage of the 2024 Global Investment Conference.