Energy Transition – is the glass half full or half empty?

Energy transition is the “magic word”. Everyone has a stake in this sector, in climate change or in sustainability goals, probably deal with it several times a day. Broadly speaking, the concept of energy transition is associated to a mass-scale transformation in the way energy is produced, transported and consumed. Its ultimate goal is linked with reducing the environmental impact of energy consumption (either reducing climate change emissions or air pollutants), providing access to energy to those still missing it and a massive transformation in sources of energy utilized.

But how things are really going? Is the energy transition really underway or there is a bit of over-hype around it, driven by what we would need and also hope for?

- Is the global energy mix transforming? Not really, as the share of fossil fuels in the primary energy consumption still remains above 80% of the total. However, not all fossil fuels are equal in environmental terms and natural gas is eating up some market shares from coal over recent years, although the latter is still growing in absolute terms

Are we in line with Paris agreement targets? No we are not! A flattening trend in CO2 emissions seen in 2014, 2015 and 2016 brought hopes that a decoupling between economic growth and rise in emission was finally achieved. However, in 2017, CO2 emissions resumed its upward trend, pointing in the opposite direction we should go (and we have committed to….)

Are we (finally) moving away from oil? Actually looking at the number seems the opposite. Since oil crisis in 70’s and the OPEC embargo, the share of oil in total energy demand has steadily declined. But in 2014, 2015 and 2016, the trend reverted with oil gaining weight in overall mix (and in 2017 preliminary numbers show a substantial stable). More notably, oil consumption continues to rise breaking, year after year, new record highs and no signs this is going to change.

So should we surrender to a business-as-usual trajectory with the anticipated catastrophic implications for our planet? Once again the answer is no, as germs of transformation are emerging.

The front-runner is the power sector. Thanks to well-designed policies and technology improvements, renewables are becoming the mainstream in the way to produce electricity and – finally – at competitive prices. More than 50% of 2017 global investment in the power sector concentrated in wind and solar plants. Also recent trends show that companies and governments are finally moving away from building new coal-fired plants, although coal remains by far the n.1 source of electricity generation.

The rise of renewables at the expenses of coal has the potential to deliver huge benefits, especially in light of growing role of electricity in world’s economy, underpinned by digitalization, rising utilization of applications and penetration of electricity in other sectors traditionally dominated by classic sources of energy.

The very good news is that declining costs for new technologies, new business models and especially well designed policies and government commitments are bringing electricity to a vast portion of the population that did not have access before. China and India are two striking examples: the former able to provide electricity to 500 millions of citizens in just 10 years; the latter achieved full electrification just few months ago. But much needs to be done in Sub-Saharan Africa where most of population remains in the dark 

Transport sector appears on the verge of major transformation. Over the last 12 months, a large number of car manufacturers have announced big shift in their investment plans towards electric vehicles. Several cities plan to ban the use of diesel cars as a way to improve air quality. And utilities around the world are stepping up in re-charging infrastructure plans. Still, with less than 4 million electric cars currently circulating, EVs represent just a small fraction of over 1 billion cars around the world. Moreover, prospects for electrification of trucks and even more for shipping and aviation still belong to “aspirational” category rather than reality.   

Overall, it is undisputable that the energy sector is evolving, but still the backbone of the energy system largely remain the traditional one. However, in some sectors the speed of change is rapidly accelerating. Companies in Europe and elsewhere in the world are stepping up their efforts in re-shuffle their business models and strategies.The trend is common among utilities, like Enel, Engie and Iberdrola, manufacturing and efficiency companies like Schneider, but also among traditional actors such as Shell, Total and Equinor. Many others have joined or are set to do it.

The journey is still long but the direction is set. What will make a huge difference is how fast will be this journey.

The planet is losing its patience.