JUNE 2023 Renewable energy: the 2050 remix Last year was transformative for renewable energy. War in Ukraine escalated the urgency of 昀椀nding alternatives to fossil fuels, while new renewable energy capacity additions and clean energy output 1 2 peaked. But with fossil fuel subsidies reaching a record USD 1 trillion and higher interest rates threatening investment, is the clean transition still on track? And what will the future renewable energy mix look like? KEY TAKEAWAYS Julien Girault Sustainability Analyst • Amid the challenges of 2022 there was signi昀椀cant progress in renewable energy capacity and clean tech solutions. • We expect progress to accelerate following the positive policy developments of the US In昀氀ation Reduction Act and European Green Deal Industrial Plan. • Solar and wind will replace hydro as the dominant sources of power in a renewable energy mix that will have to grow its proportion of the total global energy mix from 15–20% today to 60–80% by 2050. • Expansion of renewable energy remains dependent on investment in solutions and enabling technologies in critical areas such as key materials, grids and mass storage. In 2022, when fossil fuels appeared to be at estimates that renewable energy capacity will 5 the centre of energy availability, a昀昀ordability account for 90% of global electricity expansion and security, growth in renewable energy which means growth of 2,400GW in the next capacity and output hit record levels. Over 80% 昀椀ve years – equivalent to all the capacity of new installed power generation capacity added in the last 20 years. The IEA also was renewable3 (dominated by solar and wind forecasts that renewable energy will be the as indicated in Exhibit 1) and grew by 300GW leading source of electricity by 2025, mostly year-on-year.4 Considering these trends, driven by China but also by contributions from the International Energy Agency (IEA) now the European Union, India and the US. ALLIANZGI.COM

RENEWABLE ENERGY: THE 2050 REMIX Yet, despite this progress, it is Exhibit 1: Current and forecast renewable energy power generation surprising to see long-term targets and forecasts have not changed6, which means the world is still not on 2050 Solar PV Wind Hydro track to meet the 1.5°C scenario of 7 the Paris Agreement. To align with this goal, capacity needs to triple by 2030 Solar PV Wind Hydro 2030 and rise 10-fold by 2050 (versus 8 a 2021 baseline). This equates to 2021 Solar PV Wind Hydro 8,000–10,000GW by 2030 and over 20,000GW by 2050. 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Renewable energy is cost competitive, but still Solar Photovoltaic (PV) Wind Hydro Bioenergy (+ BECCS*) Concentrating Solar Power Geothermal Marine vulnerable to in昀氀ation * The steady lowering of renewable BECCS = Bioenergy with carbon capture and storage. energy pricing coupled with rising Source: IEA World Energy Outlook 2022 and Allianz Global Investors. fossil fuel prices has resulted in highly competitive pricing for clean energy – Exhibit 2: Levelised cost of energy* (USD/MWh) see Exhibit 2. However, investors need to be careful of in昀氀ationary pressures USD/MWh (2021 real) and potential related interest rate 400 rises, supply chain constraints, or delay in core technologies. Signi昀椀cant 300 upfront investment is required to develop the necessary infrastructure to support the expansion of clean 200 energy, and rising interest rates will feed through into pricing. This sensitivity varies by renewable source, 100 but wind infrastructure is an example where sizeable upfront investments 0 are raising the sensitivity to interest 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 rates, as noted in Exhibit 5. Onshore wind O昀昀shore wind Fixed-axis PV Tracking PV There will be signi昀椀cant demand for Average 4 RE (renewable energy types) Coal Gas speci昀椀c components and materials * for the build-out of clean energy Levelised cost of electricity: the long-term o昀昀take price on a MWh-basis required to recoup all networks and the events of 2022 project costs and achieve a required equity hurdle rate on the investment, Bloomberg. exposed supply chain vulnerability Source: Bloomberg NEF and Allianz Global Investors. in meeting the demand for these components. Not only do these economic uncertainties present for the balanced by gas power plants. Mass 9 factors risk decelerating progress expansion of renewable energy. storage is the solution to ensure but they also risk signi昀椀cant in昀氀ation. cost-e昀昀ective upscaling of renewable This highlights the need to increase Lastly, there is the structural factor of energy, countering marginal cost 10 the scale and reach of circularity in intermittence. Fluctuations in output impacts from gas price in昀氀ation and the economy (especially e-waste) can result in additional costs incurred decoupling clean energy growth from to ful昀椀l climate mitigation and due to energy-balancing measures increased gas demand to address adaptation goals. The European required in the decoupling of energy intermittency. Central Bank (ECB) has recognised production and consumption. To the challenges that in昀氀ation and date, intermittence has been mainly 2

RENEWABLE ENERGY: THE 2050 REMIX Developed countries have directed policy support to at their disposal. To address this point, the International renewable energy through subsidies and 昀椀scal stimulus Renewable Energy Agency (IRENA) has proposed the idea packages like the In昀氀ation Reduction Act in the US and of a transfer mechanism, whereby developed countries the European Green Deal Industrial Plan. However, most can support developing countries. Exhibit 3 shows the developing economies do not have the same 昀椀scal tools concentration of renewable energy capacity globally. Exhibit 3: Share of primary renewable energy in the energy mix by location in 2021 Above 40% 20–40% 10–20% 5–10% Below 5% Unit: % of global energy generation Source: https://ourworldindata.org/renewable-energy#how-much-of-our-primary-energy-comes-from-renewables. How the renewable energy mix is likely to transition Renewable energy comprises a broad range of energy Our own renewable energy heatmap – Exhibit 5 – sources, each at its own stage of maturity, with its own incorporates an assessment of the key areas of future trajectory, risks and opportunities. Hydroelectric dependency and risk materiality. Some can be power is currently the world’s third-largest energy source counterintuitive like climate change, where the very and by far the largest renewable energy source. IRENA factor renewable energy is trying to solve may also estimates that it will account for 37% of renewables, equal negatively impact its future adoption. It is also important to 1,250GW, by the end of 2022 (solar: 31%; wind: 27%). to understand the extent to which future development However, by 2050 while we expect hydroelectric power is a function of processes, technologies and enabling to have increased slightly, its share of the overall and infrastructure (grids and grid connections) that do not renewable energy mixes is expected to have fallen sharply. currently exist. Some of these factors may be subject Solar and wind are expected to be the leading sources of to political volatility to the extent that progress may be energy in the renewables mix – see Exhibit 4. policy-related (eg, reducing the delay on permits). 3

RENEWABLE ENERGY: THE 2050 REMIX The heatmap reinforces the need for both in-depth modelling, are considered in the forecasts of the agencies 11 analysis and targeted investor engagement to fully (eg, IRENA in its World Energy Transition Outlook 2022 understand the risks and opportunities for the di昀昀erent devotes a whole chapter to the problem of critical 12 renewable energy sources. These factors, even if materials and the IEA also discussed this point in its sometimes highlighted less often and with more abstract Net Zero Emissions by 2050 scenario). Exhibit 4: Renewable energy capacity expected growth 60% 56.4% 50% 40% 41.4% 30% 27.2% 25.4% 28.5% 20% 10% 9.8% 5.3% 3.0% 1.8% 0% 0.5% 0.5% 0.2% Solar PV Wind Hydropower Bioenergy & Geothermal Others (from solar energy (using the kinetic (several technical biofuels (system of (including marine and photovoltaic energy of the wind options using the (could be solid, collection energy and panels) with wind turbines force of the water) liquid or gas of the internal concentrating (whether onshore or – including biomass, calori昀椀c solar power*) o昀昀shore) biofuels and energy to the earth) biomethane) 2021 – % of global RE capacity 2050 forecast – % of global RE capacity * Concentrating solar power = solar thermodynamic power. Source: Allianz Global Investors, IEA, IRENA. Exhibit 5: The future potential for each energy source and their risks measured by key indicators Potential and maturity of renewables Dependence sensitivity Risk factors Potential Geopolitical Mining & Potential New Finance/ Public for scale-up Stage of Weather Climate stress & Intermittency rare earths for use in infrastructure interest rate/ opposition of output maturity (short term) change supply chain & piloting* (availability the circular & storage in昀氀ation and/or capacity (long term) disruption and economy needs context political controversies) pressure Solar PV Wind Hydropower Bioenergy & biofuels Geothermal Others Lowest dependency or lowest risk Highest dependency or highest risk * Piloting: controlling the generation of electricity according to demand. Source: Allianz Global Investors, IEA, IRENA. 4

RENEWABLE ENERGY: THE 2050 REMIX Record investments still falling short markets to support the necessary infrastructure required for renewable energy expansion – such as connection to 13 While USD 1.3 trillion of energy transition investments the grid and pipelines. It is worth noting the potential to in 2022 was a record, it falls signi昀椀cantly short of what invest in private equity, which has been very involved in 14 is required. IRENA has estimated that at least USD this segment. 35 trillion needs to be invested by 2030 to meet the 1.5°C target14 – this means annual requirements of Considering renewable energy enablers: Exhibit 5 15 over USD 5 trillion globally. For renewable energies, highlights the areas of key dependency, and signi昀椀cant this equals an uplift in annual investment from USD potential investment opportunities exist, for example: 16 500 billion to USD 1–1.5 trillion . The rest (and bulk) of energy transition investments are focused on assisting • D evelopment of mass storage solutions for solar and adaptation within fossil fuels. wind energy. • Grid adaptation. In addition to expanding the scale of investment, • S ourcing of critical minerals and metals – including there is a need to increase the reach. Most renewable local, more sustainable mining, but signi昀椀cant energy investment 昀氀ows will go to solar photovoltaic opportunities could also arise in the circular economy and wind in the key markets of China, Europe, and the and e-waste solutions. US. However, there needs to be greater allocation to developing markets – Africa accounted for a mere 1% of Monitoring the evolution of disclosures: the past new renewable energy capacity installations globally year has seen increasing company disclosures on last year. the contribution of renewable energy to total energy consumption and, renewable energy targets, and The private sector has a major role to play. Public even greater granularity on location-based versus 昀椀nances have been challenged by successive crises, and market-based scope emissions. Improved disclosure will ongoing economic uncertainty could threaten the ability assist further re昀椀nement of key investment reporting 15 of governments to meet such enormous 昀椀nancing needs. requirements like “sustainable investment share” and 17 The depth and breadth of the private sector can also Do No Signi昀椀cant Harm , which should bring bene昀椀ts. ensure the fullest investment across renewable energy Similarly, it will assist the alignment of activities to the 18 sources across the world. UN Sustainable Development Goals , speci昀椀cally SDG 7: a昀昀ordable and clean energy and, even more speci昀椀cally, SDG 7.2: focused on increasing the renewable energy Investment implications of the future renewable energy mix share of the global energy mix. The gap between current and required investment is signi昀椀cant and the expectations of both public and private investments are very high. What is the answer? View our guide to investing in the energy transition: There are di昀昀erent ways to support the depth and www.allianzgi.com/en/insights/ breadth of investment required: outlook-and-commentary/ Financing renewable energy: this can be achieved energy-transition-infographic either through direct investment in projects in the private markets or through investment in companies Learn more about Allianz Global Investors’ expertise and activity in the renewable energy looking to signi昀椀cantly expand their renewable energy infrastructure. sector through Allianz Capital Partners: www.allianzcapitalpartners.com/en/ Investing in supporting infrastructure: similar to above, our-business/renewables this can be achieved through both private and public 5

RENEWABLE ENERGY: THE 2050 REMIX 1. Record Growth in Renewables Achieved Despite Energy Crisis (irena.org) 2. Fossil fuel consumption subsidies soared to record heights in 2022 3. Renewable Capacity Statistics 2023 and the report Highlights. (irena.org) 4. Record Growth in Renewables Achieved Despite Energy Crisis (irena.org) 5. The faster than expected drop in gas supply (eg, in Europe -13% YoY) has played a role in the expansion of renewable energy, but it is mainly the 2022 hydro and nuclear power de昀椀cits (lowest level since 2000) in Europe that pushed growth in solar and wind (as well as coal – but rather stockpiles oriented than switching gas-to-coal) 6. To date, only a few scenarios have been marginally updated, eg, a parameter adjustment for the BP forecast 7. United Nations Climate Change – The Paris Agreement 8. Renewable Capacity Statistics 2023 9. A n ew age of energy in昀氀ation: climate昀氀ation, fossil昀氀ation and green昀氀ation (europa.eu) 10. What is “Intermittency” in Renewable Energy? – EnergyX | Energy Exploration Technologies, Inc. 11. World Energy Transitions Outlook 2022 12. Net Zero by 2050 13-15. Investment needs of USD 35 trillion by 2030 for successful energy transition 16. Global landscape of renewable energy 昀椀nance 2023 17. Sustainable activities must Do No Signi昀椀cant Harm to environmental objectives of sustainable activities as set out in the EU taxonomy 18. United Nations Sustainable Development Goals Investing involves risk. The value of an investment and the income from it will 昀氀uctuate and investors may not get back the principal invested. Past performance is not indicative of future performance. This is a marketing communication. It is for informational purposes only. This document does not constitute investment advice or a recommendation to buy, sell or hold any security and shall not be deemed an o昀昀er to sell or a solicitation of an o昀昀er to buy any security. 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