Yesterday’s numbers: how 2020 is proving to be a turning point for the energy and climate transition

As we make our way into 2021, with many of our past certainties blown away by the covid-crisis, it is becoming clear that 2020 will mark a turning point for the energy and climate transition. What a wake-up call year it has been! 2020 is a record year in many ways, with of course the impressive death toll of the covid and the worst recession since the Second World War in most of the major economies. 2020 is also – for now – one of the 3 hottest years ever recorded, with an average temperature 1,2 °C above pre-industrial levels. In California alone, 9,500 wildfires have consumed some 4.2 million acres of forest, while satellite data revealed in September 2020 that the year’s Arctic sea ice cover shrank to the second-lowest level ever recorded. In France, my home country, 2020 is the hottest year since 1900, according to Meteo France. Here are 5 areas to follow in 2021, and also 5 reasons to believe that we have passed a turning point.

1.      Climate policy : try - just a little bit harder*

For those who attended COP25 in Madrid in December 2019, you might remember the publication at this occasion of UNEP’s 2019 Emissions Gap report (https://wedocs.unep.org/bitstream/handle/20.500.11822/30797/EGR2019.pdf?sequence=1&isAllowed=y). Here is an extract : ?This report tells us that to get in line with the Paris Agreement, emissions must drop 7.6 per cent per year from 2020 to 2030 for the 1.5°C goal and 2.7 per cent per year for the 2°C goal. The size of these annual cuts may seem shocking, particularly for 1.5°C. They may also seem impossible, at least for next year. But we have to try. ?. One year later, the decrease of global CO2 emissions is estimated at approximately 7%. in large part due to travel restrictions and lockdowns imposed in many geographies.

Will we be able to replicate this without enduring the hardship and economic consequences of covid-related restrictions, and to engage on a sustainable 1,5°C trajectory, or will this be just a short term drop? At least this gives us an indication of how changes in human behavior can significantly reduce carbon emissions.

There are some reasons to hope. For one thing, at a policy level, commitment to reach carbon neutrality is accelerating:

• The EU Green Deal was presented early 2020, aiming to make Europe climate neutral by 2050 (with a 55% CO2 reduction target by 2030).
• In September, China — the world’s largest emitter of greenhouse gases — made a landmark announcement that it will become a net-zero emitter of carbon by 2060.
• South Korea and Japan have since made similar pledges. In total, countries committing to carbon neutrality by 2050 or 2060 account for 45% of global emissions. More commitments are to be expected on the run up to COP26.
• And of course, the US is back in the Paris Agreement - President Joe Biden has promised to deploy tens of thousands of new wind turbines and millions of new solar panels as part of a plan to put the US on a path towards net zero emissions in the electricity sector by 2035, a central pillar of his $2tn climate platform.

Covid has provided a pivotal moment for decision makers as we enter what could possibly be a “roaring green twenties” decade. Policymakers realized that the massive stimulus packages ($12.6 trillion globally) earmarked for pandemic recovery could be directed into infrastructure, innovation, and programs that will contribute to creating green and resilient economies for the long term.

*I couldn’t resist quoting Janis Joplin, after all we are just a few months after the 50th anniversary of her death…

2.      Power generation: limitless renewables?

Another reason for optimism is the unstoppable growth of renewables. Despite some tensions on the solar PV supply chain, the covid crisis did not slow down the growth of renewables; and even highlighted how remotely piloted renewables could be an advantage during lockdowns compared to to thermal power plants. Here are some facts about renewables in 2020:

1/ For the first time, more electricity was generated from renewables than from fossil fuels in Europe. Renewables accounted for 38 percent of Europe's electricity mix in 2020, compared with only 37 percent for fossil fuels (source: Agora Energiewende, Ember)

2/ According to the International Energy Agency, new installed renewable capacity reached close to 200 GW in 2020, a new record and an astonishingly accounting for almost 90% of the increase in total power capacity worldwide (up from 72% in 2019). Over the last decade, solar PV has had a 35% CAGR and represents over 635GW installed. Probably the fastest-growing energy source on record…

3/ Utility-scale Solar PV and wind are already cheaper than coal, nuclear, gas peaking, and in most cases than gas combined cycle. The cost of solar PV systems is decreasing in average by more than 10% per year. Now that renewables have become competitive, the key is to have affordable storage options to cope with the variable production from renewables. Once storage systems become competitive, nothing will stand in the way of massive renewable energy deployment.

 Source : The Economist, Bloomberg NEF

Renewables overtook coal for power generation in the US for the first time, and GE recently announced to exit from the new build coal power market: are these signs that the days of “king coal” are over? It’s not that simple. Coal-fired power plants are still by far the world’s largest contributor to global CO2 emissions. China, the world’s largest emitter of greenhouse gases, still depends on coal and gas for 70% of its electricity. The average age of its coal fleet is of 14 years, so these power plants are still far away from decommissioning. And of course, electricity accounts for only a small share of the overall energy use globally, which is why the next decade also needs to be the one of massive electrification of transportation and industrial processes.

Source : The Economist, BP Statistical Review

3.      Transportation: electric avenue

In Europe, 2020 might well be the year the car market became electric: with over 1,3 million units sold in 2020, electric vehicles represented 12,5% of the car market in Europe (1 out of 8 new cars sold being full electric or hybrid), against 3% in 2019. We are still far from the EU target of a 35-40% share of EVs in new car sales by 2030, with 30m of EVs on the road by then. Getting there will require a huge effort to accelerate the roll out of charging infrastructure: 3m charge points will be needed in Europe at the end of the decade (against 200 000 today). This will require approximately €20 bn of investment, according to EY research, and probably also more concentration in a fragmented market (over 1,000 charge point operators exist in the EU).

Strong acceleration is expected on this market, as the list of countries declaring to ban sales of new gasoline and diesel in the future gets longer (Britain, Ireland and the Netherlands have said they will ban sales of new gasoline and diesel cars starting in 2030, for example). China, the world’s largest market for EVs, accounting for roughly 50% of global EV sales, aims at a 20% share of EV in car sales by 2025. No wonder that car makers are shifting gears in the low-emission vehicles: one of the latest example is GM, which has just announced a target to sell only zero-emission cars and trucks by 2035.

4.      From big oil to big green, the rise of the new renewable energy supermajors?

In October 2020, Exxon was unseated as the most valuable energy company in America by NextEra Energy, a Florida-based electric utility with a strong renewable energy portfolio. At the time I noted a comment from The Economist : “To many investors, backing an American oil company looks only slightly shrewder than stuffing cash in a blender”. In fact, the world’s top energy companies have published record losses in 2020 and slashed the value of their oil and gas assets by around $80 billion in 2020 after revising lower the long-term outlook for fuel prices. Home working, videoconferencing and online services that we have all experienced in the last months may contribute to the flattening of long-term oil demand, on top of the growth of the EV market. Oil markets are definitely at a crossroad: BP’s 2020 report on the future of energy considers that the demand for oil may have already reached its peak and faces an unprecedented decades-long decline.

Oil majors have not said their last word and have increased their ambitions in the clean energy sector: BP now has a 50 GW renewable energy target (25 times its current installed capacity) by 2030, Total wants to be in the top 5 of renewable energy producers and aims for 35 GW of renewable energy by 2025 and 100 GW in 2030, to mention a few. This is good news: these well-capitalised new entrants will contribute to drive down costs of renewable energy generation and storage technologies, to support the deployment of low-carbon mobility infrastructure and to accelerate the flow of capital required to reach carbon neutrality targets. Interestingly, 2 major oil players (Equinor and Eni) are involved in today’s largest offshore wind project under construction (Dogger Bank).

 5.      Hydrogen: scaling up fast

For hydrogen, 2020 will probably be remembered as the year when investment plans went from millions to trillions. Here are a few indications of the acceleration that we are witnessing:

1/ Several European countries have announced in the second half of 2020 multi-billion investment plans for hydrogen, representing over € 30 bn put together.

2/ Over 100 GW of electrolyser capacity could be deployed by 2030, if all national hydrogen plans announced are implemented. The biggest developments are expected in Europe (40 GW) and in China (30 GW). Compared to the current installed electrolyser capacity (close to 100 MW), this is huge change. Expect to see gigafactories for electrolyser components manufacturing, sharp drop in prices and as a consequence new use cases for hydrogen, in industry, energy systems and mobility.

3/ New green hydrogen projects announced are quickly moving to the 100 MW and 200 MW range (compared to 20 MW for the largest plants in service today). For example, here is a selection of projects and initiative disclosed late 2020 and early 2021:

• Yara and ?rsted will jointly develop a 100 MW wind-powered electrolyser plant, aiming to replace fossil-based hydrogen with green hydrogen for ammonia production in Yara’s plant in the Netherlands. Yara is also planning a 200 MW electrolyser unit for another plant.
•  Nouryon, in partnership with Gasunie, Tata Steel and the Port of Amsterdam, are analyzing the feasibility of a 100 MW electrolyser plant.
• Air Liquide invests in H2V Normandy, aiming to develop a 200 MW plant in Port Jér?me, France.
• Engie and Total are jointly investing in the Masshylia project, a 40 MW electrolyser, fueled by a 100 MW solar plant, close to Marseille.
• Iberdrola plans to install 100 MW solar photovoltaic plant and hydrogen production system in partnership with chemical manufacturer Fertiberia in Spain.
• The new “Green Hydrogen Catapult” initiative will see green hydrogen industry leaders, including ACWA Power, CWP Renewables, Envision, Iberdrola, ?rsted, SNAM, and Yara, target the deployment of 25 gigawatts through 2026 of renewables-based hydrogen production, with a view to reduce the current cost of hydrogen to below US$2 per kilogram.

In the end, 2020 has delivered the convergence of political, private sector, and social will for a decisive shift of our economies. Many low-carbon technologies are mature or ready for large-scale roll out, and investors are increasingly decarbonizing their portfolio, or announcing plans to do so under the pressure of regulators. So let’s be optimistic and hope that 2021 will deliver more GDP (Growth, Decarbonization, Planet)!