The energy transition
The energy transition
The energy transition is a broad & secular growth theme
According to BloombergNEF, more than US$11 trillion of investment in renewable energy infrastructure globally will be required.
This will create an attractive investment environment for long term investors with expertise in the sector and a detailed understanding of the energy markets.
The recent International Energy Agency (“IEA”) flagship reports in May including “Net Zero by 2050”, “World Energy Investment 2021” paint a structurally bullish long term demand growth for renewable energy infrastructure investment, unlike the sector has previously seen.
The IEA provides a comprehensive study on what is required to transition to a net-zero energy system by 2050: “while ensuring stable and affordable energy supplies, providing universal energy access, and enabling robust economic growth”.
The IEA is clear in that, although the number of countries announcing pledges to achieve net-zero emissions over the coming decades continues to grow, the pledges by governments to date, even if fully achieved, continue to fall well short of what is required to bring global energy-related carbon dioxide emissions to net-zero by 2050 and give the world an even chance of limiting the global temperature rise to 1.5 °C.
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New generation required by 2030
IEA’s capacity additions pathway calls for scaling up of solar PV and wind rapidly this decade, reaching annual additions of 630 GW of solar PV & 390 GW of wind by 2030, four-times (4x) the levels set in 2020. The IEA points out that for solar PV, the addition is equivalent to installing the world’s current largest solar farm, nearly every day.
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By 2050
By 2050, the energy sector needs to be dominated by renewable energy, instead of fossil fuels, with two-thirds of total energy supply in 2050 from wind, solar, bioenergy, geothermal and hydro energy. Solar is forecast by the IEA to become the largest source, accounting for one-fifth (~20%) of energy supplies, with solar PV capacity increasing 20-fold (20x) between now and 2050, and wind power increasing 11-fold (11x).
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Electrification
Electricity will account for almost ~50% of total energy consumption in 2050. It will need to play a key role across all sectors including the transport, buildings and industrial sectors. Cheap electricity will be essential to produce low- emissions fuels such as green hydrogen.
IEA’s World Energy Investment 2021 publication
Shows that renewables dominate investment in new power generation and are expected to account for 70% of 2021’s total of US$530 billion spent on all new generation capacity.
US$1 spend today delivers four times more electricity than spent 10 years ago. Thanks to rapid technology improvements and costs reductions, a dollar spent on wind and solar PV deployment today results in four times more electricity than a dollar spent on the same technologies ten years ago.
The IEA is clear in its outlook
The ~US$ 750 billion that is expected to be spent on clean energy technologies and efficiency worldwide in 2021 remains far below what is required in climate-driven scenarios. Clean energy investment would need to double in the 2020s to maintain temperatures well below a 2°C rise and more than triple in order to keep the door open for a 1.5°C stabilisation.
In Australia’s east coast electricity market, the National Electricity Market (NEM), The Australian Energy Market Operator’s (AEMO) 2020 Integrated System Plan anticipates an additional 26 to 50 GW of new largescale renewable energy generation, depending on the scenario, will be needed in the NEM by 2040, supported by between 6 and 19 GW of new dispatchable resources.