The Future of the Energy Transition

This year’s edition of DNV’s flagship Energy Transition Outlook was abundantly clear in its conclusion that the transition is still in the starting gates. Green energy still isn’t absorbing all of the world’s new energy demand and fossil fuels still aren’t being replaced in absolute terms.

What is more, emissions from conventional energy sources are tipped to move even higher in 2024, a detail not aided by the recent revival in oil and gas exploration and the cost increases that are hampering the rollout of renewables.

So, if the current conclusion is that the energy transition is still in stall mode, the obvious question is: when will it begin in earnest? DNV expects emissions from oil use to reach their peak in 2025, followed by natural gas in 2027.

Moreover, our forecasts put non-fossil sources at 52% of the energy mix in 2050, a huge and welcome spike from the 20% they represent today.

GEOPOLITICAL FACTORS

An important driver in that predicted expansion is the recent rollout of mammoth decarbonization policy packages. In the United States, the Inflation Reduction Act (IRA) has caught the eye of private equity and $240 billion of clean investments have already been committed in response to the generous incentives. Meanwhile similar moves from the European Union have given the continent’s net zero ambitions a fighting chance.

It is also worth noting that the benefits of such big policy plays won’t be constrained to their specific geographies. This ‘race to the top’ in clean technology will boost global learnings around technologies like green hydrogen and carbon capture and storage, aiding regions that aren’t quite as far along on their transition journey. Such advances will only partly benefit medium and low-income regions, where de-risked financing will need to do much of the heavy lifting.

Geopolitics has had a major role in shaping these policy changes. Russia’s invasion of Ukraine put energy security at the forefront of the minds of governments around the world and much of what has happened since has been in direct response to the soaring commodity prices we saw in 2022. Increased global preference for domestically produced energy rather than imports, is a trend that, by and large, benefits renewables and nuclear.

FALLING SHORT

All of this concerted effort and cash is—as the ETO clearly asserts—still falling short though and most of the world is still nowhere near where it needs to be. ‘Reshoring’ policies are adding extra complications to an already strained energy supply chain. Meanwhile increases in the costs of raw materials worsens the situation for the very companies producing the offshore turbines that are going to get us to net zero.

In the face of such pressures, it is testament to the strength of developers that solar installations reached a record 250 GW in 2022, while wind power contributed 7% of global grid-connected electricity. If you combine transmission and distribution, DNV expects the global grid to double in length from 100 million circuit-km (c-km) in 2022 to 205 million c-km in 2050 as the demand for electricity swells.

But, in the nearer term, looming ‘gridlocks’ could put the brakes on the green energy expansion as many companies are forced to wait years for their chance to hook up projects. Without a rapid expansion in grid capacity and accessibility, it is likely that many of these renewables projects, particularly those offshore, will stumble and fall, something the energy transition cannot afford.

This goes hand in hand with delays to permitting as governments ready themselves for a mountain of project paperwork. Addressing these red tape related delays relies on top-down changes and both the US and the EU are pushing through policies designed to streamline this cumbersome process. The jury is out though on whether these measures prove effective and further action may well be needed to solve the problem.

FUTURE CLIMATE TARGETS

It is unsurprising therefore that the ETO for 2023 settled on this prediction: limiting global warming to 1.5°C is less likely than ever. By the end of the decade global energy-related CO2 emissions will only be 4% lower than they are today, and 46% reduced by 2050, translating to 2.2°C of global warming above pre-industrial levels by the end of this century. But in the face of such figures, we mustn’t allow despondency to creep in.

We know that the transition in its current guise is nowhere near fast enough for net zero by 2050 and this awareness is vital because there is still time to act. Countries and companies should still be aiming to hit their ambitious targets and with swift action to supercharge renewables deployment across the globe and simultaneously drastically cut consumption of fossil fuels, there is still a chance of hitting net zero by mid-century.

Ahead of COP28, this year DNV will release its long-awaited update to our ‘Pathway to Net Zero’ blueprint. It will include steps that must be taken by 2050 to swing the pendulum back towards 1.5°C from our current prediction of 2.2°C. To say that closing the 0.7°C gap will be no mean feat would be an understatement, but as an industry, let us step up to the plate.

For more information, visit: www.dnv.com.

This story was originally featured in ON&T Special Edition 2023. Click here to read more.