The EU Utility transformation: A pathway powered by solar & wind; Diabetes & Covid-19: A silent EUR45bn problem; plus updated sector reports

We tend to be like protons – always leaning towards the positive; at times, however, this can be particular taxing, i.e. when looking at the negative effects the pandemic is having on the worldwide number of diabetics (steeply rising) and the EUR45bn additional bill health care systems will have to foot; or at the substantial investment gap or the investment needs to be frontloaded in order for the European utilities sector to meet the rising demand in electricity while staying in line with the announced target of limiting global warming to 1.5°C. Or when looking at our updated risk reports for the automotive, chemicals and transport equipment sectors. Yet – we remain notoriously optimistic as the only difference between try and triumph remains a little ‘umph’.

The EU Utility transformation – a pathway powered by solar & wind

Decarbonization of the European utilities sector: How exactly will the rising demand in electricity be met and is it in line with the announced target of limiting global warming to 1.5°C? Where are the investment gaps and how much additional investment is needed or rather, how much investment needs to be frontloaded? The highlights:

• Electrification is the key to decarbonization in the EU... The utilities sector is a key focus area if climate neutrality is to be reached by 2050: electricity demand is increasing and will reach record highs, driven by transportation and industries where the electrification rate is projected to rise from 30% to 60% by 2030. If established technologies are implemented, the electrification rate could reach as high as 76% by 2050. As a consequence, growth for wind and solar photovoltaics must triple.
• … But renewable energy isn’t ramping up fast enough to meet rising electricity demand. While 2020 was a landmark year, with renewables overtaking fossil fuels to become the main source of electricity in the EU (38% of electricity generation), hydropower and bioenergy have stalled and 2020 also saw the largest decrease in nuclear generation since 1990, a trend that is expected to continue as countries set national phase-out targets. This highlights the need for a solar and wind ramp-up, especially as the EU’s recent Fit for 55 proposal has set a target for the share of renewable electricity of at least 60% by 2030 and 85% by 2050. But even leaders in solar and wind development (Denmark, Ireland, Germany, Spain) still have a long way to go as phasing out coal by 2030 remains a key challenge: an additional 100GW of wind and solar PV, as well as 15GW of “hydrogen ready” gas power plants, are needed for its replacement. As a result, we find that the Ff55 proposal faces a five-year implementation gap.
• To stay in line with the 1.5°C warming pathway, a front-loading of investments of EUR40.8bn per year is needed until 2030 for the power grid and EUR44.7bn per year for power plants. In addition, the coal phase-out will require an additional EUR131bn across the EU, which should be broken down to EUR83bn (63%) going towards wind, EUR30bn (23%) towards solar and EUR19bn (14%) towards new gas plants. Of this total investment, EUR96bn will need to go to the Coal-6 countries — Germany, Poland, Romania, Czech Republic, Bulgaria and Slovenia — which have set coal phase out dates past the 2030 deadline. In addition, by 2030, a carbon price of EUR152 per ton is needed to induce a market-based transition.
• Carbon capture and storage (CCS) technologies can help sectors decarbonize quicker, but deployment must be sooner and accelerated. In order for the Ff55 pathway to be compliant with a 1.5°C scenario, either 1) CCS technology must be deployed across industry and utilities at a large scale in the next 10 years or 2) the utility sector must decarbonize even faster than proposed to allow for more emissions certificates to be used for industry, buying time for CCS to pick up.

You’ll find the second publication of our sector pathway mini-series here ; the first publication on the transport section (in case you’ve missed it) can be found here . The mini-series continues in early December – so stay tuned for more.

Diabetes and Covid-19: A silent EUR45bn problem

People suffering from diabetes have a higher risk of getting and developing a severe form of Covid-19. At the same time, the Covid-19 pandemic has increased the risk of developing diabetes in the long run, as lockdowns exacerbated another widespread disease: overweight. A further rise in the prevalence of diabetes could add 25 million people suffering from diabetes worldwide, causing 45 billion euro of direct health costs per year.

While the world is struggling to fight the Covid-19 pandemic, the number of people suffering from diabetes has kept increasing rather unnoticed. According to the International Diabetes Federation (IDF) meanwhile around 537 million people live with diabetes, that is every 10th adult aged between 20 and 79 years. 20 years ago, the prevalence in this age group was merely 4.6% with the total number of people having diabetes amounting to 151 million. The full report is available here .

Updated Sector risk reports

We recently updated our assessments for the automotive, chemicals and transport equipment sectors:

Automotive : Rated S (sensitive risk), as chip shortages are delaying the recovery (while increasing the pressure related to structural challenges).

Chemicals : Rated M (medium risk), with persistent supply-chain disruptions and new Delta risks slowing down growth in H2 2021.

Transport Equipment : Rated S (sensitive risk) as the slow recovery in global demand and new Delta risks hardly bode well in the short run.

Plus: A fresh episode of our podcast ‘Tomorrow’ on the Allianz Global Wealth report and the repercussions of Covid-19 for global wealth with Arne Holzhausen, who heads the insurance, wealth and trend research at Allianz Research.