Energy Transition: Risks, Opportunities and Challenges Incumbent

The energy transition is a pathway toward transformation of the global energy sector from fossil-based to zero-carbon by the second half of this century. At its heart is the need to reduce energy-related CO2 emissions to limit climate change. Decarbonisation of the energy sector requires urgent action on a global scale, and while a global energy transition is underway, further action is needed to reduce carbon emissions and mitigate the effects of climate change. China notably pledged to stop funding foreign coal projects in September last year and in December the White House ordered US agencies to curb overseas engagements in fossil fuel schemes. Such international funding bans are a lowrisk, high-reward move for headline-hungry leaders. While their true impact may be hard to gauge, they will undoubtedly make it harder to finance oil and gas projects. The climate checkpoint concept currently under consultation will further raise the importance of the oil and gas sector meeting the UK’s climate objective to reduce emissions to net zero by 2050.

The energy transition will be enabled by information technology, smart technology, policy frameworks and market instruments. IRENA has assessed decarbonisation pathways through REmap and is equipped to support and accelerate the energy transition by providing the necessary knowledge, tools and support to member countries as they increase the share of renewable energy in their power sectors.A rapid transition to systems based on renewable energy will create huge savings for consumers and industry compared to an unsustainable fossil fuel future. By taking action to ease commodity prices, support a healthy global supply chain and clear permitting delays that will unlock hundreds of gigawatts of shovel-ready projects around the world, governments can ensure they create a virtuous circle of investment that delivers more renewable energy, better savings and secured energy in the future.

One of the key drivers of the energy transition is the electrification of the energy system, powered as far as possible by renewable energy sources. Electricity companies, particularly in Europe and the US, have been facing the transformational challenges of the energy transition for the past decade as the rapid increase in the supply of renewable power, catalysed by government policy and support, has radically changed the economics of the sector as well as its operational dynamics. For a long time, one of the main problems facing the energy transition seemed to be technical. The technologies available—primarily wind and solar—did not seem capable of sustaining society on their own. However, this picture is changing and now having different form. At one level these concern issues such as regional differences in terms of economic factors and the energy mix, the reaction to energy transition from heterogenous groups of consumers with varied preferences, and the geo-political consequences of re-drawing the energy map. At another level the pace of technological change, the re-purposing, refurbishment or replacement of infrastructure, the impact of market forces and the need for companies to radically adapt their business models to align with both government policy targets and regulations, and consumer preferences, all add extra layers of complexity, which are further compounded by the need to consider these questions and repurposing energy transition across different countries and multiple sectors of the economy.

Given these issues, and the uncertainty over the achievable pace of change, the incumbents in the current energy system face a multi-layered challenge to determine the risks to their current business, to formulate a strategy to thrive in a re-shaped energy sector and global economy and to assess the optimal speed at which to implement their plans for change. It is arguable that the solutions which incorporate future use of abated hydrocarbons, as well as their removal, may need to be considered to encourage cooperation from across the spectrum of energy suppliers and consumers. Arriving at a successful outcome will involve an assessment of all the questions raised, to arrive at a full understanding of how the current energy value chain may be restructured over the next two to three decades and whether the bridge gap being proposed, allows the movement to meet up opportunity. This will involve analysis of new technologies, government policies, regulatory frameworks, the interaction between different energy vectors, and an appreciation of the potential geo-political consequences of the energy transition. We therefore aim to conceptualise a framework upon which further research can be undertaken on these pathways and analyse the key consequences of them for the overall energy system.

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