Reasons to be hopeful about the energy transition
Over the past few decades, technological advancements have revolutionised the way we create and use electricity – and there’s even more progress on the horizon.
Just 50 years ago, the world was a very different place. Nuclear energy was in its infancy, computers were a rarity and the power system was almost wholly dependent on oil and coal. If you consider how far we have come, can you imagine what the step change will be like in the next 50 years?
At Aurora Energy Research, we provide market analytics that help to channel private capital into the green-energy transition. I have seen encouraging signs that we’re on a very positive trajectory. Take, for example, the idea of sharing knowledge. We are seeing increasing collaboration among players who would normally be in competition. Policymakers, regulators, system operators and other agents who might usually be adversarial are working together towards one aim: how can we reach the energy transition affordably and without jeopardising our security of supply?
In certain market segments, such as batteries, competition to develop new technologies and ensure grid connections remains fierce. However, I think that this is a good thing and it’s among the reasons for the significant reduction in costs that we have seen for battery packs. Across the electricity sector, all actors are realising that achieving the common goal of decarbonisation requires close co-operation.
Of course, challenges persist. Europe’s grid network is a critical bottleneck. Network costs are rising and while renewable generation capacity is increasing, grid limitations restrict how many green electrons can flow. To deliver an affordable transition, investment in the network must rise significantly from the current €60bn a year to somewhere between €80bn and €120bn a year.
If we want to achieve our net-zero targets, electrification needs to increase rapidly, leading to a doubling of electricity demand over the next 25 years. This is due to the electrification of industry, electric mobility and hydrogen production. If that is to happen, we need major investment but that does not necessarily mean higher bills. As demand increases, the per-unit cost of each of those electrons will fall too. But we can only get there if we create a necessary backbone in the grid.
Overall, I am optimistic about reaching our goals in Europe. Living in democracies is messy – we have to accept that. We do not live in a planned economy where a top-down scheme is set for the next 10 years. Our liberal market economy means moving in cycles: we have to embrace that. If we take into account all of the positives that we have seen over the past decades, we should be far more confident about the energy transition than the current public discourse suggests. It is difficult to comprehend quite how electrified our world will be within the next half-century. And I truly believe that most of our electricity will be decarbonised. We will continue to see major cost reductions across batteries, solar, wind, EVs and other technologies. That fills me with excitement and positivity about the path ahead.
The question is whether governments are willing to make the political sacrifices needed to implement these changes. Those in Europe are on board and I think that they understand how to get there. But political will is a different issue.
About the writer:
An expert on issues around decarbonisation, Berlinbased Frederik Beelitz heads up Aurora’s Central European Advisory practice and has more than 15 years’ experience in energy-market economics.
