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.