About energy transition: A slow and flawed transition

Source: The post is based on the article “A slow and flawed transition” published in the Business Standard on 6^th November 2022.

Syllabus: GS – 3 – Energy.

Relevance: About the energy transition.

News: The developed world has reduced its primary energy consumption and they are working on an energy transition. They shift most of the energy-intensive manufacturing to developing countries, where energy consumption is accelerating.

What are the challenges associated with energy transition?

Energy transitions are not similar to technological transitions. For instance, within 15 years, 90% of consumers in the West had switched to smartphones. Within 20 years, 50% of the developing world had internet access.

On the other hand, within this same 20-year period, despite all the cost reduction and policy support, wind and solar combined accounted for less than 5% of primary energy consumption.

Continued reliance on fossil fuels: The world relies on fossil fuels for 90% of its primary energy consumption in 1990. Today, it was around 83%. According to the International Energy Agency, fossil fuel reliance will remain at over 60%, even in 2050, unless the world drastically accelerates behavioural change.

Not enough attention on mass electrification: The media and investors focus on solar and wind investment. But they are not focussing on the challenge of how to electrify large parts of the economy and mass electrification.

Low focus on transmission investments: The world at present is focussing more on the strengthening of the grid but not on energy transmission investments.

Electricity as a percentage of energy use: Over the last 20 years, electricity as a percentage of energy use has risen only 2-3% in most major economies. No major economy has an electricity share of more than 20% in total energy use.

Transportation: Looking at the combined data for the US/Europe and China, electricity today accounts for only about 2% of the transport energy consumed. Even in 2040, EVs will constitute only 40% of the vehicles on the road.

The US has the lowest gasoline prices of any major economy and does not seem to have the political will to put in place the tax structure needed to shift preference to EVs.

What can be done to ensure just energy transition?

The world has to move electricity production entirely to renewables and then electrify other parts of the economy like industrial production, transport and residential heating, all large direct consumers of fossil fuels. For instance, even today, renewables as a percentage of electricity generation were only 20-25% in the US/China but 45% in Europe.

Need new investments: The world needs new investments to change the process and add specialised equipment for the energy transition in energy-intensive manufacturing of products such as cement, steel, plastics, chemicals and fertilisers.

Residential and commercial heating: In this, the world needs to move to a newer technology of electric heat pumps in buildings.

Overall, massive investments will have to be made for just energy transition and every investor will have to focus on their value chain to make it feasible.