When Saudi Aramco CEO Amin Nasser said last March that gas and oil are here to stay, he was stating an inconvenient truth.
“We should abandon the fantasy of phasing out oil and gas and instead invest in them adequately, reflecting realistic demand assumptions,” the CEO said to applause from the audience during a global energy conference in Houston.
Despite the world pumping more than $9.5 trillion into the energy transition over the past two decades, green alternatives have been unable to displace hydrocarbons at scale.
Taking a broader perspective, the energy transition is, in fact, stalling, according to the 14th annual edition of the World Economic Forum’s report, Fostering Effective Energy Transition 2024,. The report, published in collaboration with Accenture uses the Energy Transition Index (ETI) to benchmark 120 countries on the performance of their current energy systems that uses 46 indicators covering energy sustainability, security and equity.
While 107 out of 120 countries have progressed on the ETI over the last decade, there has been a slowdown in the transition due to economic and geopolitical volatilities in recent years that have impacted interconnected global energy systems and value chains. The higher energy prices in many markets have hit vulnerable consumers and households and the higher costs of capital have hampered investments especially in emerging and developing markets.
The problem is not the technology readiness of key enablers like energy storage clean hydrogen, sustainable aviation fuels, carbon capture and many other clean technologies, says Maciej Kolaczkowski, who oversees the World Economic Forum’s Advanced Energy Solutions community. The real issue is an absence of compelling business cases.
Take the case of Aramco, which is also a producer of green hydrogen. There are few takers for this alternative product.
Nasser told delegates that, in energy terms, the cost of green H2 amounted to the equivalent of $400 per barrel of oil — roughly five times the current price. He added that renewable hydrogen would only be affordable with a “significant amount of [government] incentives and offtake agreements of at least 15 years” — but that companies are wary of starting businesses that are only profitable with subsidies and would then be unable to make money if those were taken away.
It is little wonder then that Aramco, which has a market cap of $1.8 trillion and boasted $121 billion in profit last year, is not about to shut down its main line of business.
The State Of The Global Energy Transition
The slowdown in the pace of the global energy transition, first identified in 2022, has intensified in the past year, according to the Forum’s 2024 report. It shows that the three-year improvement in global ETI scores between 2021-2024 is almost four times less than the upswing over the 2018-2021 period. Furthermore, the report indicates that 83% of countries achieved lower scores than last year on at least one of the primary performance dimensions of the energy transition – sustainability, equity and security. Economic volatility, heightened geopolitical tensions and technological shifts have all had an impact, complicating its speed and trajectory.
Europe continues to lead the ETI rankings, with the top 10 list for 2024 fully composed of countries from that region. Sweden (1) and Denmark (2) top the rankings, having both placed in the top three countries each year for the past decade. They are followed by Finland (3), Switzerland (4) and France (5). These countries benefit from high political commitment, strong investments in research and development, expanded clean energy adoption – accelerated by the regional geopolitical situation, energy-efficiency policies and carbon pricing. France is a new entrant in the top five, with recent energy-efficiency measures reducing energy intensity in the past year.
Among G20 economies, Germany (11), Brazil (12), the United Kingdom (13), China (17) and the United States (19) join France in the ETI top 20, along with new entrants Latvia (15) and Chile (20), which were buoyed by increases in renewable energy capacity.
China and Brazil have progressed significantly in recent years, primarily driven by long-term efforts to increase the share of clean energy and enhance their grid reliability. Brazil’s ongoing commitment to hydropower and biofuels, recent strides in solar energy, along with initiatives tailored to create new opportunities have been key in attracting investments. In 2023, China also significantly scaled up its renewable energy capacity and continued to grow and invest in its manufacturing capability in clean technologies such as batteries for electric vehicles, solar panels, wind turbines and other critical technologies. China, together with the U.S. and India, is also leading in developing new energy solutions and technologies, the report says.
The Role Of New Technologies
Young, innovative companies, are playing a pivotal role in creating these new energy solutions– such as small modular reactors (SMRs) which can be built more quickly and cheaply than traditional nuclear power plants, peer-to-peer energy generation, green hydrogen, innovations in fusion, electric car charging, energy storage and carbon management technologies. Among the 2024 cohort of Technology Pioneers announced on June 6 were 14 companies working on both established and emerging green technologies in areas such as carbon-negative and circular materials, carbon capture, regenerative agriculture, alternative proteins, nuclear fusion as well as carbon-negative and circular materials.
Two of the 2024 Tech Pioneers – India’s Amperehour Solar and the U.S.’s Fourth Power – provide innovate ways of storing renewable energy while three others: Germany’s Marvel Fusion and Proxima Fusion and the U.S.’s Thea Energy are all working on fusion energy. (See The Innovator’s in-depth story about Proxima Fusion and its story about Marvel Fusion). Fusion energy has great potential as a safe, abundant, zero-carbon source of reliable electricity and is recognized as a potential game-changer in addressing climate change and rising global energy demand.
The Forum’s Advanced Energy Solutions community, which is comprised of technology companies, project developers, financial institutions, investors, and the large corporates who will buy the green solutions, aims to help speed up from decades to years deployment of these types of advanced energy solutions.
The key, says Kolaczkowski, will be building the right business cases.
Building Viable Business Cases
There is an economic case for moving to green energy. California’s Carbon Neutrality by 2045 plan, for example, estimates that, alongside neutralizing CO2 emissions, implementation would produce $200 billion of healthcare savings due to reduced air pollution and create four million new jobs to develop infrastructure and capacity.
One of the important things about this program is that the benefits are valued and priced into the investments. This is not often the case, meaning innovators, utilities, energy users and investors don’t get rewarded for generating these benefits, Kolaczkowski says.
At the same time, there is an additional cost gap – the so-called green premium. While some costs are expected to decrease, many solutions will still incur long-term additional costs that need to be paid. For example, the cost of clean hydrogen could reach as little as $0.12 per kilowatt hour (kWh) by 2035, but this would still not be in line with natural gas, the cost of which is expected to be as low as $0.09 per kWh in the same year. Sustainable aviation fuel (SAF) will still be up to two times more expensive than kerosene by 2050. And carbon capture will always be a pure additional cost to the emission producer that does not really have an alternative, says Kolaczkowski.
When combined, the green premium and the lack of accounting for the benefits of new technologies pose significant challenges to create viable business cases for the private sector to invest in advanced energy solutions, he says.
In 2023, around $60 billion was allocated to advanced energy solutions, but this needs to grow almost 10-fold over the next few years, according to Forum figures. Investment in storage, clean fuels, carbon capture, SAF and advanced nuclear need to exceed $500 billion per year by 2030 to align with global net-zero pathways.
Economic, health and climate outcomes need to be valued and priced into investments to address cost disparity. At the same time, the resulting increased cost of the energy transition – the price to pay for wider benefits – will need to be met by governments, and eventually consumers, while companies must also accept some margin compression, says Kolaczkowski.
Government funding, which exists in various forms such as subsidies, incentives, and guarantees to help minimize risk and cost, could enable more investment. California, for example, has been able to inject almost $50 billion from state funds, in addition to the Inflation Reduction Act at the Federal level, to make its Carbon Neutrality Plan by 2045 more attractive to investors.
Another way to cover the green premium cost is by passing it directly to end users and consumers. For instance, decarbonizing aviation by 50% would result in the tripling of fuel costs for airlines as they switch to SAF. If airlines were to preserve margin and pass the entire cost onto passengers, it would result in an increased ticket premium of around 18%.
Last month, Lufthansa became one of the first airlines to announce a surcharge on tickets to fund cleaner fuels and decarbonization. The Frankfurt-based group, which operates Eurowings, Swiss and Austrian Airlines as well as the German flag-carrier, said it would charge a fee of between €1 and €72 per ticket from next year.
A study suggests that decarbonizing Europe’s power grid by as much as 95% using advanced energy solutions and renewables would increase bills by roughly €14 per month for the average EU household.
Public acceptance will depend on whether consumers can be convinced that paying more is a viable path to a better future, says Kolaczkowski. “Asking people to pay a premium for an extended period of time is difficult,” he says, “so the role of government will become essential.”
Giving the energy transition new momentum will require addressing the green premium and accounting for the full costs and the benefits of advanced energy solutions, he says. “Supporting partnerships among innovators, large energy companies, energy users and investors is also key,” says Kolaczkowski. The Forum’s Advanced Energy Solutions community is trying to do just that, he says, “ by helping to increase public confidence in advanced energy solutions, boost technology readiness and demand, and bolster the business case for these much-needed greener energy solutions.”
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