Season 6, Post 8: The transition mission
The good news is that a record sum was spent on energy transition investments last year. The bad news: it’s still nowhere near enough. This was the message your author took away from listening to a seminar hosted by BNEF, a leading energy research organisation, earlier this week.
Begin with the positives. Dollars spent on energy transition have risen every year for the last ten. 2023’s total of $1.8tr was 17% higher than that of 2022 and almost double the amount spent in 2010. As one of the event’s presenters put it, “we’re in the really steep part of the growth curve.” Most of this figure is being allocated to passenger transportation – electrical vehicles and related infrastructure – with renewable energy and storage ranking second. Both solar and wind saw record installation levels in 2023 despite many well-publicised offshore wind project cancellations.
Despite such progress, the period January 2023 to January 2024 marked the first time in the world’s history that the average surface temperature had exceeded the 1.5 degree Paris target during a 12-month period. Ask young people and the second most pressing issue facing society today is climate change and protecting the planet – after the cost of living.
Sure, the data from BNEF shows that energy transition investments far outweigh those in the fossil fuel industry – by around 60% in 2023. However, if the world is to get back on track to net zero by 2050, then it will need to triple energy transition spending from current levels. India needs to spend among the world’s largest economies (increasing its spend by a factor of nine), but it is closely followed by Japan (at over six).
How will it be done? There are no easy answers, but BNEF highlighted both the importance of an attractive funding environment (most likely a combination of public and private sector investments) and robust supply chains. Much of the world is currently heavily dependent on China for energy transition solutions – be it batteries, solar panels, electrolysers and more – and so diversification needs to be prioritised. This should create major opportunities for many businesses in the western energy ecosystem.
21 February 2024
The above does not constitute investment advice and is the sole opinion of the author at the time of publication. Past performance is no guide to future performance and the value of investments and income from them can fall as well as rise.
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Alex Gunz, Fund Manager
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