Clean Energy

The Realities of Transitioning to Clean Energy.

The energy transition is a crucial aspect of addressing climate change and is one of the biggest global challenges. Global demand for power is rising, and numerous countries have set ambitious net-zero goals. However, national power grids and consumers are ill-prepared for the extensive electrification required for the transition.

The transition to renewable energy necessitates substantial investments in global infrastructure, innovation in clean energy, and open discussions about the associated challenges and opportunities.

A fundamental reset of our energy relationship is necessary if we are serious about limiting global warming to 1.5˚C. Cheap fossil fuels, which have fuelled industrial innovation for two centuries, are no longer viable. Achieving lower electricity prices through clean energy will ultimately benefit everyone, but the journey will be demanding and costly.

Commodities play a central role in the energy transition, driving net-zero ambitions. This includes energy sources, metals for electric vehicles, agricultural products, food, and global freight.

Therefore, it is crucial for commodities producers and traders to have a voice in the conversation. Understanding these trends will help policymakers manage the transition effectively. Prematurely abandoning fossil fuels before viable alternatives are available could lead to an energy crisis, while delaying action could result in runaway climate change.

The energy industry is currently facing unprecedented challenges as it shifts from fossil fuels to clean energy. Merely referring to it as an “energy transition” underestimates its magnitude. It is evident that the world still heavily relies on fossil fuels.

Breaking the reliance is crucial.

Weather patterns are being altered and extreme weather events are increasing due to climate change, affecting food and water supply, geopolitics, and biodiversity.

Climate change is not the sole existential threat; fossil fuels are finite and becoming more costly to extract, posing a challenge to the sustainability of the global economy.

Discovering alternative clean energy sources to replace fossil fuels is imperative for the long-term viability of the global economy.

We have now reached a critical juncture.

The global energy supply’s vulnerability has been exposed by both the pandemic and the Russian invasion of Ukraine. These geopolitical and societal changes could potentially speed up the shift towards clean energy in the future, but we are confronted with substantial immediate obstacles. Achieving the right balance in this regard is the paramount challenge we must address to ensure a smooth energy transition.

The extent of the transition.

Only 14% of the total energy consumed in 2021, which amounted to 175,000 TWh, originated from the four main sources of clean energy: wind, solar, hydropower, and nuclear. This indicates a minimal contribution despite the apparent emphasis placed on the energy transition by policymakers. The task of transitioning to clean energy remains colossal.

Efforts have predominantly focused on reducing the reliance on fossil fuels through strategies like carbon trading or taxation, as well as imposing obstacles in their exploration, extraction, and transportation. However, insufficient investment has been made in clean energy on the necessary scale to truly make a difference.

Since the energy crisis began in September 2021, European countries have allocated and designated €768 billion to protect consumers from escalating energy costs. This significant sum of money could have been better utilized by investing in renewable energy sources.

The challenge associated with renewable energy.

The exclusive path to our future lies in harnessing clean energy, but we must address crucial inquiries concerning our journey:

  • How can we disentangle fossil fuels from the global economy without causing destructive consequences?

  • What level of investment is required in global infrastructure to facilitate the transition?

  • How do we achieve the necessary scalability of clean energy?

The last question holds particular significance as we are currently distant from finding a comprehensive answer. We are still years away and require substantial financial resources for clean energy to surpass fossil fuels as the most cost-effective and abundant energy source.

Wind and solar power, being reliant on the wind and sun, are sporadic energy sources. They are only accessible when there is wind or sunlight. While energy storage technologies such as batteries hold promise as a crucial link, their current inefficiency poses a challenge. Despite utilizing the most advanced storage solutions, wind and solar power still fall short as a viable substitute for the consistent baseload power generated by fossil fuels or nuclear sources.

The predicament of baseload power.

If we envision an ideal situation, substantial investments and advancements during this decade result in increased efficiency of wind and solar power generation. This progress allows us to increasingly depend on intermittent renewable sources to meet our daytime energy needs.

However, a challenge arises when the majority of electricity demand growth occurs during nighttime, primarily due to the widespread charging of the millions of new electric vehicles (EVs) in residential settings. In such a scenario, renewable energy sources face difficulties in meeting the requirements, prompting us to consider alternative clean energy options that are better equipped to provide consistent and continuous power, such as geothermal, hydro, and nuclear energy.

Understanding the challenges is crucial for everyone.

The most crucial global challenge we face is effectively handling the energy transition in a net zero world. Successfully navigating this transition holds the potential for an economic boom driven by renewable energy. Conversely, any missteps could result in severe setbacks spanning generations.

While we are aware of the necessary actions and their underlying justifications, the approach to reaching our goals remains a matter of universal concern. It is not solely the responsibility of governments and energy companies; each of us has a vested interest in a future powered by clean energy. Therefore, it is essential for everyone to comprehend the obstacles that await us.

Greater transparency with consumers is imperative.

During the transition to clean energy, there will be additional financial burdens in both the short and medium term. These costs arise from various factors, such as the initial investments required to adopt clean energy technologies like solar panels and heat pumps in residential properties. These capital expenses, although necessary for the long-term benefits they bring, can strain budgets in the short and medium term.

Moreover, the costs associated with transitioning to clean energy extend beyond the installation of renewable infrastructure. As fossil fuel reserves become harder to access and extract, the production costs for goods and services reliant on these finite resources also increase. Industries that heavily rely on fossil fuels, such as transportation, manufacturing, and agriculture, may face higher expenses as their production processes become more expensive due to the rising costs of fossil fuel extraction.

At the same time, the widespread availability of renewable energy sources, such as wind and solar power, may not yet match the scale needed to fully replace fossil fuels in all sectors. While significant progress has been made in renewable energy technologies, their deployment and infrastructure are still developing. Consequently, the limited availability of renewables at the necessary scale can contribute to higher costs, as the demand for clean energy outpaces the supply.

Therefore, the transition to clean energy incurs higher costs in the short and medium term due to capital investments, increased production expenses for fossil fuel-dependent industries, and the current limitations of renewable energy availability. Despite these financial challenges, transitioning to clean energy remains a crucial step in mitigating climate change and securing a sustainable future.