Analyst Sees Market Making Big Mistake With Energy Transition

The pace of change in today’s world is often fast-paced and dizzying. Technologies that seem to be an integral part of our lives can become unnecessary and irrelevant in the blink of an eye.

Energy is one of the sectors where innovation and new ideas are of great importance as countries and companies try to find ways to transition to a society based on renewable energy sources such as wind and solar rather than fossil fuels such as coal, oil and natural gas.

During a panel discussion at the World Economic Forum last week in Davos, Switzerland, one analyst expressed concern that the market did not seem to have learned from other technological revolutions.

Thomas Hohn-Sparbort, Head of Sustainability Research at Lombard Odier, highlighted the huge shifts taking place in low and zero carbon technologies and, by extension, in society at large.

“We have seen past industrial revolutions, including past energy transformations,” Hone-Sparbort said. “What we are really seeing right now is a complete transformation of our entire economy.”

“The demand in our economy, the way we power cars, the way we heat our buildings, the way we use energy in industry, all this needs to be transformed.”

We are, as Hone-Sparbort said, “looking at trillions of dollars of investment needs.”

When it comes to the energy transition, the sums at stake are indeed significant. Last year, the International Energy Agency’s World Energy Outlook 2022 report suggested that clean energy investment could exceed $2 trillion a year by 2030, 50% more than today.

As the Davos discussion, moderated by CNBC’s Jumanna Berchetsche, continued, Hone-Sparbort was asked if clean energy was now available on the scale needed.

He replied that the answer to this question “is changing very quickly, and today I would say yes, it has become the cheapest source of energy.”

“I think the market as a whole is underestimating just the speed at which this transition is unfolding,” he added, explaining that there are lessons to be learned from history.

“We’ve done some work looking at past technological revolutions, whether it’s the introduction of steamboats, mobile phones, any major new infrastructure technology.”

All such transitions, Hone-Sparbort argued, “tended to follow a very similar pattern. They unfold very slowly…and then the transition is completed within 10 to 20 years.”

“However, if you look at what the market is expecting today – how long it will take us to electrify our buildings, electrify our fleet – the time frame is still much longer.”

For Hohne-Sparborth, it didn’t seem to be able to handle it, “when a new, superior technology comes along that becomes cost-competitive, its deployment can happen very quickly.”

Dramatic changes

Andres Glusky, CEO of the energy company, also appeared on the CNBC panel. AES.

“What we are facing… is a sea change,” he said, adding that renewables are now “in most cases the cheapest form of energy.”

“The issue is capacity — how to keep the light on 24 hours a day, 7 days a week — and that’s where you have to use lithium-ion batteries on a daily basis.”

Developing his point of view, he continued to emphasize the importance of introducing various technologies.

“To really achieve full decarbonization, we will need green hydrogen, we will probably need small modular nuclear bombs, and so on.”

“And I also fully agree that we need renewables to be more than just competitive – just better so we can keep costs down, [and] equal in quality.

“And that, frankly, is something that the corporate sector and many consumers are very demanding.”