An Energy Trilemma That Remains Affordable
By Nicholas Watson
625 words - 2 mins read
Since the war in Ukraine began, bringing with it a cost-of-living crisis, governments around the world have become increasingly preoccupied with energy affordability, turning the dilemma of the energy transition between sustainability and security into a trilemma.
Energy prices spiked in the weeks after Russia’s invasion in February and have remained elevated since. The International Energy Agency says high fuel costs account for 90% of the rise in average costs for electricity generation worldwide.
However, the short-term pain will be more than offset by the long-term gains if governments keep their net-zero plans on track.
There are two main reasons for this:
1. Electrification and its associated energy efficiency improvements will lead to energy demand finally decoupling from economic growth, meaning that just 2.1% of global GDP will be spent on energy in 2050 compared to 3.4% today, according to the sixth edition of DNV’s Energy Transition Outlook.
Looking at Europe as an example, DNV forecasts that households on the continent will see their energy expenditure rising sharply until the energy supply shocks are alleviated, by around 2025. By the late 2020s, household energy expenditures in Europe will have fallen to around the same levels as in 2021, in nominal terms. The subsequent decades will see a stabilisation of household energy expenditure at 10% lower on average than in 2021, gradually declining to 30% below 2021 levels by mid-century.
2. The costs of not dealing with the drivers of climate change continue to rise. Deloitte’s latest Global Turning Point Report, released in May 2022, predicts that unchecked climate change could cost the global economy $178 trillion over the next 50 years.
As Deloitte Global’s CEO, Punit Renjen, says in the report: “The time for debate is over. We need swift, bold and widespread action now — across all sectors. Will this require a significant investment from the global business community, from governments, from the non-profit sector? Yes. But inaction is a far costlier choice. The data bears that out. What we have before us is a once-in-a-generation opportunity to re-orient the global economy and create more sustainable, resilient and equitable long-term growth. In my mind, the question is not why we should make this investment, it’s how can we not?”
Experts stress that one of the defining features of the ongoing energy transition and achieving net zero carbon emissions is not the prohibitive expense but the relative affordability. The main reason for that is the growing amount of green, inexpensive electricity — the “hero of the energy transition”, as Sverre Alvik, director of Energy Transition Outlook at DNV, puts it.
Clearing green bottlenecks
Swiftly securing substantial supplies of affordable green energy, primarily from renewable sources, is therefore of paramount importance. Beyond boosting yearly capacity additions, experts say we also need a build-out of transmission lines grids, storage solutions and technologies that enable system flexibility.
However, meeting this rising demand requires an industry with the footprint, infrastructure and investment ready and waiting to deliver. Yet there remain far too many bottlenecks thwarting the ability of companies and investors to build at scale and at speed, say industry figures.
For example, Vestas Wind Systems, the Danish wind turbine manufacturer, says it can take up to 10 years to build a wind energy project in Europe, especially offshore; transmission lines take even longer.
“The permitting process takes so long because it is, in essence, a manual machine, often under-resourced, dogged by jumbled decision-making across a multitude of input providers and too often starved of digital support. The result is that in Europe, for example, there is four times more wind capacity caught in permitting delays than under construction,” Vestas executives write.
Other factors constraining renewable energy projects include supply-chain bottlenecks, a growing skills gap, lack of collaboration with local communities, geopolitics, and trade-offs between infrastructure build-out and biodiversity loss.