• Sustainability Snapshots - Energy Transition Vol 1
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Sustainability Snapshots - Energy Transition Vol 1

14 October 2021

ENERGY IS A CONCERN FOR EVERYONE

Our Sustainability Snapshot series provides short sharp high-level insights into the sustainability mega-trends shaping our world. 

Energy transition refers to the global energy sector’s shift from fossil-based systems of energy production and consumption — including oil, natural gas and coal — to renewable energy sources like wind and solar, as well as lithium-ion batteries.

The increasing penetration of renewable energy into the energy supply mix, the onset of electrification and improvements in energy storage are all key drivers of the energy transition.

Regulation and commitment to decarbonization has been mixed, but the energy transition will continue to increase in importance as investors prioritize environmental, social and governance (ESG) factors.

CURRENT KEY TRENDS DRIVING THE ENERGY TRANSITION

Renewable energy gaining popularity

The global economy is experiencing a significant growth in distributed renewable energy. As David Elmes, head of the Global Energy Research Network at Warwick Business School, puts it, The exciting trend to watch for in 2021 will be how we shift from large, centralised, technology-focused energy solutions to smart, local energy systems. This will be a bit like the mainframe to PC transition in computing, or how cloud computing now makes it easier to go digital anywhere, anytime.” “In many places where loads are distributed where power grids or incentives are weak, rooftop solar could make a huge difference. The costs of such technology are rapidly declining, and companies are investigating ways to overcome the high transactional costs.”

Green investment goes mainstream

The green bond market saw a great 2020, hitting $1 trillion in issuance since 2007. Overall the market is expanding with $665 billion, or nearly three-quarters of a trillion dollars, in sustainable debt issued in 2020.

There is growing pressure for companies to report on climate risk and environmental impact. In the UK, reporting to guidelines from the Taskforce for Climate Related Financial Risk (TCFD) has been mandated from 2025. Over the coming year there will be a continued commitment from policymakers to promote and legislate for decarbonisation globally.

Investment under environmental, social and governance guidelines (ESG) is also accelerating, with the latest figures putting the global market at $38 trillion in assets under management. 

Fossil fuels are losing favour

In 2020, Carbon Tracker research suggested 46% of coal-fired power plants would be unprofitable, rising to 53% by 2030 and overall global coal consumption was expected to fall by 8% according to the IEA

Mckinsey’s latest energy report, The Global Energy Perspective 2021, suggests that while coal demand has peaked already, peaks in demand for oil and gas are not far behind – coming in 2029 and 2037, respectively. What is expected is that energy growth is going to be driven by growth in electrification, much of which will be renewably generated.

Government Commitment

The UK government has already laid out extensive plans for achieving its climate targets. The EU has committed to the green economy in its next budget, and the European Commission’s new Sustainable Finance Disclosure Regulation are set to come into force in March 2021.

The US has returned to the Paris Agreement under executive order and Biden’s agenda also promises aggressive measures to tackle climate change – The US recent $1.5 trillion budget proposal includes 27% increase in overall clean energy spending.

In Canada, the Liberal Government’s 2021 Budget pledge $17B to promote green recovery after COVID-19.

Employment Increase

Green energy has created 4 million jobs in Europe so far. Another 492 000 will be created in the world to tackle climate change. The energy transition will add 0.3% more jobs by 2050. Cutting global emissions could create 0.9% more new jobs.

Energy Assessments

Regardless of industry or geographic location, energy costs are a significant expense for a business.   For some businesses, energy can be one of the largest annual expenditures, accounting for upwards of 25% of their overhead costs.  Many jurisdictions are now beginning to offer incentive programs to help companies reduce their energy consumption, but the marketplace for these services is vast and fragmented.  Once the work is done, many organizations lack the means to effectively measure and monitor these changes to ensure they are maximizing their savings.

At BDO we offer a variety of services to help organisation's assess, assure and manage energy consumption and reporting requirements.

To read more about Energy Transition - please download our Sustainability Snapshots - Sustainable Transition publication here.