Delivering the energy transition

The planet is warming but challenges hinder efforts to tackle climate change. We outline obstacles to the energy transition.


To deliver the energy transition, the world economy needs to move away from thermal fuels into green electrons. Climate targets are ambitious, and geopolitics have amplified the desire for energy security and independence. Meanwhile, the war in Ukraine has ratcheted up the sense of urgency, adding energy security as another dimension to green technology investment. This has led to a raft of ambitious energy targets. But what might hinder progress? And are the targets too ambitious in light of the obstacles? 


To start with, permitting needs to accelerate. We also believe that supply chains of raw materials and green technologies for electricity generation, storage and transmission have not received the attention they deserve. In particular, China dominates many aspects of green technologies, including the MIFTs (metals important for future technologies) and polysilicon. This is a concern in many countries that are looking to make their supply chains more autonomous. Furthermore, there is also an impending shortage of skilled linemen and trades, which, along the rapid increases in capital spending and supply chain bottlenecks add to cost inflation.


System integration is also critical for successful delivery of the energy transition. System integration usually revolves around aligning electricity generation with the power consumption infrastructure and creation of bi-directional flow of energy between the grid and users. With bi-directional energy flow, electricity generation could be powered through locally installed renewables and maintain a stable grid. For example, some states allow for excess energy produced through solar panels to be sold back to the utility companies. To ensure stability, energy storage, through technologies like batteries or hydrogen, will play a critical role.


Headwinds to energy transitions in a nutshell: China

Developed economies in Europe and North America accounted for the lion’s share of clean energy investment in 2022, of course, this is heavily influenced by the fact that they are also the biggest emitters. China has accounted for nearly a third of global clean energy spending in 2022. Yet the country could also serve as a case study for some of the issues that crop up when decarbonizing the economy. Furthermore, capacity additions in solar and wind have exceeded those in coal in recent years.

Clean energy investment (2022E), by country/region

That said, following a sharp drop in rainfall and wind speed, China endured severe power shortages in 2Q22 and 1Q23 in some regions. In response, the government approved more coal-fired power capacity to stabilize power supply, reinforcing the idea that while energy transition is one focus, energy security also matters. According to the China Electricity Council, China will likely add 70GW (gigawatt) of new coal-fired power capacity in 2023, which we expect to be followed by 60GW and 45GW of new additions in 2024-25. At the same time, coal-fired power units are increasingly being converted to operate at lower utilization rates so they can back up variable solar and wind units, highlighting the importance of system integration. While the addition of renewable energy capacity has already accelerated, the pace should pick up over 2023-25 as prices of wind turbines and polysilicon drop with rising supply.

Global energy investment

Yet, there are caveats to assumptions of ever-decreasing costs. Indeed, the global community’s push towards Net Zero is not all positive. The IEA (International Energy Agency) estimates that investment in the energy sector will increase by 8% to US$2.3tn in 2022, with investment in green power accounting for almost three-quarters of total growth in capex. At first glance, this sounds encouraging. However, it turns out that nearly 50% of the increase in capex is due to cost inflation, highlighting one in a series of obstacles that can impede the decarbonization of the global economy.

Global clean energy investment

Slow permitting holding back progress

Energy security has added a new dimension to an initial focus on the energy transition. While acknowledging that reducing our reliance on fossil fuels is important, governments are increasingly keen to accelerate the speed at which green technologies are implemented. Europe’s planning and permitting times are lagging behind those in the U.S. and China.1 The EU acknowledges that fast deployment of renewables can help mitigate the energy crisis. With this in mind, and given how reliant Europe has been on Russia’s fossil fuels, the EU has been working on a confluence of measures aimed at reducing permit times.

Minimum, maximum and average wind farm planning times

Offshore wind dominates government renewable ambitions

While onshore wind farms are important, there is also an immense focus on offshore wind farms. Against this backdrop, we note that permitting offshore wind farms is still a challenge. It takes four years for planning permission in the UK, two years in Germany, and France has only just completed the first wind farm, with the whole project taking 10-12 years to complete.


Raw material supply chains stretched

A stable supply of raw materials is critical for green targets. The Metals and Mining team at BofA Global Research have identified 22 MIFTs that are critical for energy transition. The scarcity of these commodities could become a constraint on the road to Net Zero, with all metal markets set to flip into deficit by 2030E. Beyond a brief dip at the height of the COVID pandemic, emissions have continued to increase, as more oil, gas and coal is burned. As such, efforts to achieve Net Zero are insufficient. Furthermore, we believe the degree of emission reduction achievable with the current resource endowment is still not getting the attention it deserves.

Metals demand under IEA Net Zero 2050

What are the implications? Missing Net Zero targets simply means continuing along the trend of global warming. With the current resource endowment, the world is unlikely to be able to limit global warming to 1.5°C; instead, we are more likely headed towards a 1.8-1.9°C temperature rise. Importantly, CO2 emission increases in 2021 and 2022 have added around 0.1°C to the terminal temperature in 2050E.

Emission profiles out to 2050, based on resource availability and including Net Zero

Notwithstanding a global push towards achieving Net Zero, resource constraints are perhaps one of the biggest obstacles to tackling climate change. The IEA’s holistic Net Zero 2050 scenario comprises concrete targets in electricity generation, transmission/distribution, storage and consumption that need to be achieved to hit Net Zero by 2050.


China stands out as the largest producer of many critical resources. This came about by many factors including China’s reliance on energy imports, most notably being a dominant oil importer. Concerns over this, along with a strong push to tackle emissions, mean the authorities have invested heavily over the past two decades in materials that are required in “future” technologies, including EVs and renewables.


Metals production is often dominated by China, causing apprehension in many developed markets. Linked to that, any use of batteries and critical minerals from China, Russia, Iran and North Korea will make a vehicle ineligible for the tax credit in the U.S. Meanwhile, the EU wants to build a domestic supply chain, aiming to source domestically at least 10% of the EU’s annual consumption for extraction, at least 40% of the EU’s annual consumption for processing and at least 15% of the EU’s annual consumption for recycling.


As concerns over energy security are increasingly linked to the energy transition push, it is not surprising that policymakers ex-China are paying greater attention to the availability of critical minerals. Indeed, Europe’s dependence on Russian gas and the sudden halt of deliveries has focused governments’ attention on ridding themselves of their resource dependence. To address this, many governments have compiled Critical Raw Material lists, with accompanying strategies that seek to 1) ensure reliable and resilient supply, and 2) foster exploration, production and innovation. Commodity shortfalls will likely lead to rising price volatility.


Many green technologies are capex-intensive, so financial risk management is critical, given returns for renewable projects can be low. To ensure critical raw materials are available, they also obviously have to be produced. To facilitate that, governments are focusing on different measures:


  • Financing. Countries may use direct funding to support the development of domestic supplies through mechanisms, such as grants, preferential loans or loan guarantees. These financial incentives can be administered to pre-existing or new extraction projects.

  • Tax incentives. Countries may use favorable tax schemes to incentivise domestic production. They may also allow tax deductions for specific types of investment.

  • Geological surveys. Countries may develop geological survey data on existing mineral reserves and make these data available both domestically and abroad. Geological data can be made directly accessible to the public, or governments can offer public funding for exploration and surveying activities.

  • Recycling support. Policies that target development of a secondary-material supply market with adequate processing capability may include research and development funding, regulations to require or increase collection rates, and other support measures for new recycling facilities.

  • Innovation funding. Measures designed to accelerate technological progress and innovation, generally through funding and information-sharing initiatives, may include direct funding through grants or subsidies for research, development, demonstration and deployment.


Solar supply chain is run by China; wind more diversified

The supply chain set-up also matters when it comes to green technologies. China dominates the solar photovoltaic (PV) supply chain. While the U.S. and Europe are looking to reduce their dependence, incentives are needed to offset their 30-40% higher manufacturing costs. Why has China been so successful and why would it protect its solar industry? Its success has largely been driven by its ability to develop economies of scale and displace potential competitors. The solar PV market has turned into a multibillion-dollar industry for the Asian country, topping US$160bn within eight years.

Solar PV supply chain components, market share by country

While China dominates the solar market, wind energy tends to be more diversified. Indeed, three of the top-five wind turbine manufacturers are in Europe and the U.S. But Chinese wind turbine producers, which hold a 57% market share, operate almost entirely in their domestic market.


Electricity consumption, EVs: fuelling up while going at maximum speed

As governments have expanded their subsidy programs to boost EV penetration rates, competition among OEMs (original equipment manufacturers) has intensified. Globally, EV production increased by 74% or 3.5m units to 8.1M units in 2022. Our autos team expects an EV penetration rate of 42% in 2030, taking production to 41.6M units, implying that competition between auto manufacturers will remain intense.


Global EV battery to hit “sold out” situation by 2026-27E

Electric vehicle (EV) penetration needs to hit 100% by 2050 to reach Net Zero. We expect forecast the global operating rates of EV battery manufacturing to rise to about 66%/93% by 2025/30, based on announced capacity expansion plans so far, implying another round of substantial capex cycles will likely kick in over the next 2-3 years. We also expect further announcements of major EV battery manufacturer capacity addition plans (including joint ventures with up/downstream partners in EV battery value chains), mainly in North America, to benefit from IRA (Inflation Reduction Act) tax credits in the next few decades.


Highlighting the risk to the supply chain, Joon Ho Lee, APAC coordinator of Electric Vehicle (EV) Battery Thematic Research, notes that the EV battery supply-demand model suggests the global EV battery supply will likely hit a “sold-out” situation in 2026-27, with global operating rates rising above 85% then. The team expects the supply shortage to intensify further in 2027-30, driven by a continued rise in EV penetration globally.


Headwinds remain for the energy transition, but obstacles can be overcome

Overall, civilization can overcome these obstacles, but it will require a concerted effort by governments, companies and consumers. Climate targets are ambitious, and geopolitics have amplified the desire for energy security and independence. Progress can be amplified with 1) shorter permitting timelines 2) improving supply chains for raw materials needed for green technologies, 3) training the next generation of tradesmen in the manufacturing of renewable technologies, 4) in return could drive the cost of renewables lower and potentially lead to greater adoption rates and 5) integrating a bi-directional flow of energy between the grid and users while developing better storage capacities.

Data Sources:


1 World Wind Energy Association: Measuring Performance of Permitting Processes: The Wind Power Planning and Permitting Index WPPPI



Read our full analysis for a more in-depth look at these trends.