The Energy Transition will determine European Competitiveness: let's hope we figure out how to make it happen and fund it in the next 5 years

In the week of the likely confirmation of Ursula Von Der Leyen as European Commission President for another 5 year cycle while the Council just published its 2024-2029 Strategic Agenda, it's clear competitiveness and the 'Green Transition' remain an intertwined pillar of the European policy agenda as they are core to long-term European prosperity, security and sovereignty.

In that context it's always helpful to go back to the core of the issue: as Vaclav Smil has cogently explained in his books and articles, in world history, access to cheap and abundant energy is very likely THE factor explaining why certain countries/continents have known significant economic growth and productivity gains. When the objective is to revitalize economic growth and competitiveness (productivity gains), it's clear energy cannot be prioritized enough in the next five years.

In that context it's always good to look at data and there is nothing better than the yearly International Energy Agency (IEA) World Energy Investment Outlook [Link]. A few things stand out:

- There is a s???????????????????? ???????????????????????? ???? ?????????? ???????????? ?????????????????????? over fossil fuels (nearly 2-to-1) - with Solar #PV the king. But this remains very concentrated in developed markets and far too low in Emerging and Developing Economies (EMDEs). It's mildly positive news if you are focussed on competitiveness and possibly on-shoring CleanTech or low carbon value chains of the future. It's not so good news if you are focussed on curbing global warming, since the choices the major EMDEs make in the next few years in terms of energy/mix and infrastructure will make or break the likelihood of meeting climate objectives.?

- Investments in grid/storage are not in lockstep with investment in energy generation. If we can't connect renewable power to the grid (a growing problem in parts of Europe), that's not good for the investment sentiment in the projects from either corporates or financiers as it affects both electricity supply and demand. And without predictability over large sources of reliable, affordable, low carbon electricity, many sectors such as cement, steel, chemicals, etc relying on electrification will delay their own investment plans to decarbonize. Therefore investments in grids must be the Nr. 1 priority.

- ?????? ???????????? ???? ???????????? ???????????????? ?????????? % ???? ???????? ?????????????????? (????????-???????? ????????) ?????? ???????????? ?????????????????? (risk-free rate + equity premium) - with rising interest rates, this has had significant financing costs increase for projects, which have only be partially offset by the downward technological cost curve (particularly for Solar PV). Which shows that ultimately these factors are key determinants of investment decisions, more so than 'green' sentiments. In ?????? ?????? ????'?? ?????? ?????????? ?????????????????????? ??????????????, ?????? ?????????????????? ????????????????????????????.

- ?? ???????? ?????????????? ?????????????????????? ?????????????? ???????????????????? (CAPEX used to build assets) and ?????????????? (the type of funding by whom), and between ?????????????? ?????????????????? (the one making the investment decision - corporate/governments) and ?????????????? ??????????????????. Often discussions on the role of private capital to fund the transition mix these concepts (in CMU discussion and Sustainable Finance discussions): counterintuitively asset managers and investment funds (in the scope of SFDR for example) are not finance providers, not investors: they don't decide whether Solar PV, wind parks, nuclear or coal fired power plants get built.

- Because of the distinction between investing/finance and capital/finance provider as well as the traditional dominance of the cost of capital (CoC), ?????? ???????????? ???? #?????????????? ?????????????????????? ???? ?????????????????? ????????????????????????, ?????? ???????????? ???? #?????? ?????????? ???? #???????????????????? ???? ?????? ???????? ?????????????????????? ???????? ???? ?????????????? ??????????????.

But behind these positive notes remains a very stark message: the investment gap between current flows and what is needed to meet climate goals remains enormous (a factor of 2 to 3x compared to current flows). Therefore, let's hope we are at the beginning of a European political cycle of 5 years during which we measure success in the number of capital providers making the right investments (particularly in electricity grids!) because they see the right business case in Europe, less by the number of legislative acts we get done. And no, the Capital Markets Union will not be the silver bullet that makes the "un-financeable" suddenly financeable. Well thought through leveraging of public finance to crowd-in private finance (i.e. blended finance, state aid, etc...) maybe.

And I know many in the 'Brussels bubble' who have seen many more EU political cycles than I have may view this as naive optimism. For all our sakes, I hope it is not: this time must be different.