The Critical Role of Time in Shaping the Energy Transition

The scale of the energy transition cannot be overstated. While the common goal is clear – a sustainable, affordable and secure energy supply – the path to achieving it is one that is hard and demanding. Fundamental questions in our approach to energy consumption, efficiency and infrastructure have to be asked. Because it is not just about making the switch to renewables; it is about making every aspect of the energy we use more efficient and sustainable.

Consider this: Global electricity demand is expected to rise at a faster rate over the next three years, growing by a yearly average of 3 to 4%. This would mean that over the next 25 years, the world would need to rebuild the entire global electricity supply and, at the same time, transform the old one. Efficiency is not just a nice-to-have; it is an absolute necessity. Over 1,500 gigawatts of wind and solar projects are waiting to be connected to the grid in Europe and the US alone. Expanding grids also means new factories where equipment can be produced or harbors from where this can be shipped. Building factories and infrastructure also needs time – time which we, in many respects, do not have. So, it is vital we think about how we can make things more efficient, how much energy we consume and where it really makes sense to consume it. Simply carrying on and doing everything as before, not questioning consumption, and hoping for energy to become more sustainable and cheaper is wishful thinking.

What it ultimately needs is a change in attitude. Energy is a valuable commodity and to attract investments, it needs business models that pay off. The just-published BloombergNEF New Energy Outlook 2024 estimates that the investment volume required to achieve economic transition by 2050 would cost $181 trillion. A fully decarbonized global energy system by 2050 could come with a $215 trillion price tag. This would mean that for every dollar that goes to fossil fuels, an average of $3 needs to be invested in low-carbon energy over the remainder of the decade.

Three aspects stand out to me which underpin the essential element of time in the Energy Transition:

1. Different Regional Dynamics: While it is easy to view the energy transition through a focused lens of the country we live in, it is important to remember that this planet that we share extends far beyond our own borders. In short – we need to look at the global picture. The energy transition is happening at different speeds in different regions, each with completely different approaches.

While investment in advanced economies has increased significantly, the same level of investment has not taken place in emerging and developing nations. In fact, they currently account for only 10% of sustainable debt issuances, which have become a popular tool to fund green and sustainability-linked activities. This is where affordable energy becomes a key factor in the energy transition. Sustainability should not come at the expense of affordability but rather enhance it.

2. Redefine market mechanisms: Financial instruments are needed to de-risk and catalyze the huge amount of investment required for the energy transition, as described above. The unprecedented growth of the energy market requires a complete overhaul of market mechanisms such as risk and performance guarantees.

Bankability for innovative projects is often difficult to achieve because technology providers cannot guarantee performance over the lifetime of such new technology and commercial banks will be reluctant on these terms. We will require a combination of public and commercial banking instruments to bridge this gap.

3. Think big and small: Decarbonization must be addressed throughout the supply chain for it to be successful. Large companies, like ours, often have more visibility and get heard. However, the industry also depends on many small and mid-size companies to succeed. These can be classical suppliers or new startups, which are needed to deliver the transition we aspire to.  

I would love to be able to answer the question: How long will the energy transition take? But it is not that simple. We are already in the midst of change, with renewables’ share of the global electricity mix nearing 50%, up from around 30% today. By recognizing the challenges inherent in the energy transition, we can chart a realistic roadmap toward a sustainable and secure energy future. But this roadmap needs to include doing more with less – i.e. enhancing energy efficiency. Some see time as a source of apprehension in this journey, but I consider it an ally – if we use it wisely and efficiently.