The energy transition is probably the greatest test on our generation. It must be done so that the stockpiling of CO2 coming from human activities is stopped and related climate change is halted. However, it is a daring task for it entails rebuilding the energy system while it keeps running and providing the immense flows of energy that power our modern daily lives; it is extremely challenging since the new energy system and the journey to build it need to be simultaneously sustainable, reliable, and affordable while overcoming huge uncertainties regarding what will prevail in technology, business models and asset mix; it is deeply complex because many disciplines must work together, multiple stakeholders need to collaborate and an unseen alignment across countries’ policies needs to be built. Humanity track record in overcoming existential challenges and thriving should inspire us and keep us confident that we will make it.
Thoughtful and decisive leadership will be vital. Amid a multitude of perspectives and cacophony of numbers it is useful to break the energy transition in a set of key topics that stand out for its impact and need for action and that should be in the agenda of those involved.
Topic #1 is the new electrification. Electricity could see its share in the end-use energy mix increase from 20% to 50% by 2050 in a Net Zero Scenario (NZE) driven by a significant growth in industry and transport which respectively could add 11.000 and 9.000 TWh of demand to the existing global needs of 23.000 TWh. Industrial electrification investments, mostly in steel production and light industry, the reshape of the stock of light-vehicles to 90-100% electrified and a charging infrastructure worth more than $2T will be the key areas of focus.
Topic #2 is clean electricity. Added to #1 it is the most important driver of emissions reductions, accounting for around 50% in NZE. Total electricity production could increase from 26.000 TWh to >70.000 TWh by 2050 to feed the expansion of end-uses and the production of green hydrogen which could need additional 12.000 TWh. Renewables are already the default option for capacity additions in almost all countries and capacity could increase from 3 TW in 2020 to 27 TW in 2050 and be complemented with batteries whose capacity could grow from 18 GW to more than 3.100 GW in the same period. Estimated investment would be around $1T/year. The magnitude of the execution, the expected stress on resource availability, such as land and negative spillovers such as biodiversity will be the key areas of attention.
Topic #3 is the electrical grid which is required to make the ends of the previous two topics meet. The electrical grid will probably have to double by 2050 with 42 million miles of new above-ground lines, 7.5 million miles of new underground cables, and 124,000 miles of new submarine cables. The global investment in the grid would add up to around $21,4T . Key challenges will come from funding, availability of critical materials and integration of the physical infrastructures with existing ecosystems.
Topic #4 is the decarbonization of heavy transport meaning road trucks, aviation and marine that for the most part cannot be electrified. Technologies that hold a viability promise are today almost entirely at a prototype or development stage such as biomass to liquids, hydrogen fuel-cells systems, cellulosic ethanol or use of ammonia and hydrogen in ships. Public investment on energy R&D has increased 10% in 2022 to close to $170B and will need to be boosted to generate the context for massive capital commitments in new technologies. For hydrogen alone investments in production and distribution could account to $6-7T and for CO2 another $6T until 2050.
Topic #5 is the decarbonization of hard-to-abate industry meaning the industry that cannot be electrified given its need for extremely high temperatures and process specific emissions. Chemicals, steel, and cement account for most of these emissions today. As with heavy transport, 60% of the technologies needed to decarbonize gravitate around hydrogen, carbon capture and bioenergy and are still pre-commercial. Europe has started to place the onus on businesses, and their directors, to take responsibility for the actions of all their supply chain partners nudging the right behaviors. Given the global nature of these supply chains deep international collaboration will be needed to avoid competition distortions and free riding.
Topic #6 is financing. Estimates point to the need of a net investment in energy of $3T per year from now until 2050 to build a net zero economy, up from $1T today. Clear policies in the form of regulation, subsidies to early-stage technology, net-zero incentives to the financial sector and carbon pricing are necessary to set the right context to reduce risks and make private investments profitable. IRA and Repower EU are the most recent examples of government action towards supporting clean energy investment. In parallel non-profit funding solutions need to be put in place for low-income geographies where investment per year needs to quadruple and to speed up phase-out of existing emitting capacity namely coal generated power.
Topic #7 closes the list with critical materials. These include lithium, nickel, cobalt, manganese, rare earths, copper, or aluminum. An energy system powered by clean energy technologies differs profoundly from one fueled by traditional hydrocarbon resources. A typical electric car requires six times the mineral inputs of a conventional car and an onshore wind plant requires nine times more mineral resources than a gas-fired plant. Current plans to double the availability of critical materials fall short on the expected needs by around 50%. Major disruptions in the mining sector are expected to lie ahead as it copes with the increase demand and an unfavorable context of high geographical concentration of these resources, long project development lead-times, growing scrutiny on environmental and social performance and higher exposure to climate risks. Deep-sea mining is something to keep under the radar.
All these topics, as well as others that could be added to the list, deserve a deep dive and a continuous update. The more each of us can understand what is at stake the more we are prepared to play our part so that we can continue to dream of a world in which human use of energy leaves no mark on our planet. A bit of optimism will certainly help us through setbacks. Remember that after all it was the human species who engendered the enlightenment and invented the refrigerator and the expresso.
Note: Most of the information contained in this article is based on the International Energy Agency and it may differ from other studies and sources.
Have a great and impactful week!
Teresa Abecasis
Executive in Residence at Católica Lisbon School of Business and Economics