The ups and downs of the global energy transition journey

The energy transition that has been long underway continues to make strides. In 2020, even as COVID-19 lockdowns put pressure on industries across the world, the adoption of renewable energy such as wind and solar PV have continued to gain traction globally, while electric vehicles set new sales records.

“The new energy economy will be more electrified, efficient, interconnected and clean. Its emergence is the product of a virtuous circle of policy action and technology innovation, and its momentum is now sustained by lower costs,” the International Energy Agency (IEA) said in its World Energy Outlook 2021.

“In most markets, solar PV or wind now represents the cheapest available source of new electricity generation. Clean energy technology is becoming a major new area for investment and employment — and a dynamic arena for international collaboration and competition.”

According to IEA data, sales of electric cars (including fully electric and plug-in hybrids) doubled in 2021 to a new record of 6.6 million. Overcoming the strains in the global supply chains caused by the pandemic, EVs are winning over more and more consumers, as the number of electric cars on the world’s roads by the end of 2021 was about 16.5 million, triple the amount in 2018.

Yet hurdles remain in the renewable energy transition, and they have not become less daunting. The Russian invasion of Ukraine has only engendered more uncertainty in an industry that is already mired in it.

Washington-based nonprofit research firm Resources for the Future (RFF) said that even before Russia’s invasion of Ukraine, Brent crude spot prices rose from an average of $42/bbl in 2020 to $71/bbl in 2021. This spiked to more than $120/bbl by early March 2022 when the Russian tanks rolled across the border.

The spikes in energy prices have been worse in Europe, where the RFF saw natural gas markets in the Netherlands, which already broke record levels in 2021, further surged to more than €165 per megawatt-hour (roughly $54 per MMBtu) in early March, more than 10 times higher than the 2020 average.

The RFF noted that as clean energy technologies such as electric vehicles, wind turbines, and solar modules also rely on the same global supply chains which in some cases are geographically concentrated and inelastic, geopolitics will continue to play a role in energy markets for the foreseeable future.

“Energy outlooks released in 2021 could not have anticipated these events, and only one scenario (the US Energy Information Administration’s High Oil Price) assumed oil prices reaching today’s levels at any point before 2050,” RFF said in their Global Energy Outlook 2022.

“These price increases burden energy consumers around the world. In the near term, options for easing high prices are limited, but in the medium to longer terms, energy security can be enhanced through reducing oil and natural gas consumption and further diversification of suppliers.”

Energy security is made even more critical in a world where energy demand is further expected to rise as more developing countries rise up from the throes of the pandemic and continue their growth. Meanwhile, the looming climate crisis grows no less urgent, and the energy sector remains as the world’s top producer of greenhouse gases. Change cannot come sooner for the sector, in other words.

“We cannot afford to ignore either today’s global energy crisis or the climate crisis, but the good news is that we do not need to choose between them – we can tackle both at the same time,” IEA Executive Director Fatih Birol said in the agency’s World Energy Investment 2022 report.

“A massive surge in investment to accelerate clean energy transitions is the only lasting solution. This kind of investment is rising, but we need a much faster increase to ease the pressure on consumers from high fossil fuel prices, make our energy systems more secure, and get the world on track to reach our climate goals.” — Bjorn Biel M. Beltran