The energy transition is a step-change in the nature of how humanity functions. It is a break from a distinct mode of operating that began during the mid-to-late 1700s during the Industrial Revolution. For any step-change to be successful often divergent interests need to be unified. This is specifically true for the energy space that we currently find ourselves in: there needs to be a ‘synergisation’ of the interests of fossil fuel extraction and processing companies, renewable energy providers and the customers and consumers of energy products.

This ‘synergisation’ is happening through the innovation of mass-electrification; the mainstreaming of electric and low-carbon mobility and transformation; fuel switching for high-energy industrial processes; and wide-spectrum digital transformation to drive efficiency. For success, it also needs to be coupled with an enabling regulatory environment and the requisite financial backing. Up until now there have been few common threads available to pull together to unite the purposes of these critical actors. There are a number of emergent themes which are providing impetus to this. Some of the major ones are briefly described below:

1. The global response to the COVID-19 pandemic has demonstrated that the unwritten and written rules of the economic game are able to be altered significantly in the face of a commonly identified threat. This has emboldened lobby groups (such as WindEurope and others) to show renewed vigour in lobbying governments to use renewables-linked stimulus to revive economies after the COVID-19 lockdowns and resultant economic crises facing the various regions of the world. Governments themselves in the context of the EU are also holding this line and the European Commission has just announced a massive EUR750 billion stimulus package with alignment to these themes. This all points to the fact that the regulatory environment is evolving to allow for the energy transition to accelerate and drive value creation for the businesses and employees involved in these value chains.

2. The price parity of renewables with other forms of electricity generation is now a fundamental reality in all estimations of new-build LCOE. Coupled with the advance of utility-scale battery storage systems, this allows for scalable options related to seasonal storage and other supply-shaping innovations to receive real attention. This drives value for both the producers and the consumers of energy and allows for new energy sources to compete on an economic basis.

3. There is significant interest in the hydrogen economy from all quarters. Most recently, the emergent focus is on harnessing abundant renewable energy to produce “green hydrogen” in order to power the next generation of industry. The shift to a renewables and hydrogen-based economy is able to capitalise on existing gas infrastructure in much of North America, Europe and Asia. Large gas players such as Uniper and Siemens are readying brownfield assets for conversion to hydrogen fuel and adapting their transmission and storage infrastructure accordingly. There has already been a demonstration of intent by oil companies. A recent survey by standards authority DNV-GL of 1000 senior oil gas professionals recorded a more than 100% increase in the number of respondents who thought their organisations would invest in or develop hydrogen projects in the next year (20% in 2019 and 42% in 2020). The mining, industrial and transportation sectors will also appreciate the possibilities afforded by hydrogen. This is a major development that brings into line some of the competing and divergent interests that have slowed or diverted the energy transition process historically.

4. ESG-linked funding has increasingly become a feature of the financing landscape over the last 3 years, with specialised ESG-linked loans (where loan interest rates are set according to the achievement of specific ESG goals) being one of the fastest growing segments of this market. This funding incentivises corporates to put ESG at the centre of their operations in order to reduce their overall cost of capital. Usually, the energy transition forms part of these strategies and targets. This shows that funding providers understand that they form a critical part of the nexus which leads companies to act responsibly and that they are able to offer suitable products to the market that stimulate this behaviour.

These are exciting developments which remind us that we are at the precipice of an energy transition that will exceed the scale of the previous one almost 300 years ago.

The president of the European Union (EU), Ursula Von Der Leyen, has heeded  the call to channel funds to renewable energy in order to provide for a dual benefit in lowering carbon emissions and stimulating economic recovery.  This is on the back of calls and pressure from heads of states (like German Chancellor Angela Merkel), international bodies, trade unions, politicians, and industries to centralise climate change in post pandemic economic recovery plans.  At the same time, the growth of the renewable energy sector is soldiering on in countries like Kenya and Australia, amid the global economic downturn.  Below are the stories that stood out in the month of May 2020.

Hydrogen primed for key role in world’s greenest stimulus plan.  The European Union (EU) remains relentless in championing the transition to renewable energy and reducing carbon emissions to zero by 2050.  The EU president, Ursula Von Der Leyen has of today announced an ambitious post-covid green economic recovery stimulus package, centred around hydrogen energy. Most notably, the economic stimulus package includes an estimate of tens of billions of Euros for hydrogen technology and infrastructure for clean energy.  Implementation of the green proposal is subject to unanimous consent by all 27 member states of the EU (yahoo finance).   This is indicative of a goal to combine assistance for company recoveries with attempts to bolster companies to reduce carbon emissions (Reuters).   In addition, at a corporate level, the automotive industry had been increasing demands to the EU to expedite the transition to low carbon fuels, re-skill workers and encourage a Just Transition (Ends Europe). One can expect not only lower carbon emissions and economic recovery, but also inclusive economic development given a re-skilling of workers and the focus on the Just Transition.

COVID-19: Wind is ‘key building block’ for economic recovery. The Global Wind Energy Council (GWEC), together with a number of global industry participants have released a statement calling on governments, intergovernmental institutions, and lending bodies to place wind energy at the core of the post pandemic stimulus packages. Wind energy is one of the fastest growing industries and is estimated to create about 4 million direct and indirect jobs (Renews.Biz). This sentiment is shared by South Africa’s wind energy association, South African Wind Energy Association (SAWEA), which released a similar statement to the South African government (Engineering News)

Get back round the table with unions, Chancellor – let’s agree a post-Covid plan.  Trade unionists are urging the government of the United Kingdom to take advantage of the post pandemic times to reshape the economy to meet the challenges of the future, including the need to address climate change, which would play a part in creating millions of skilled renewable energy jobs.  This would contribute to meeting the needs of the future and towards establishing local value chains (Labour List).

North America: Oil demand drop, renewable energy resiliency prompts calls for federal clean energy investment in economic recovery.  In Canada, the Green Party MP, Elizabeth May is calling the government of Canada to support the renewable energy sector over the oil sector due to the resilience that green energy has shown in comparison to the dramatic drop in demand for oil caused by the pandemic (Hill Times).  In the United States, former staff members who had assisted Jay Inslee develop his climate policy during his 2020 presidential campaign are calling congressional Democrats to adopt the policy in the coronavirus relief legislation (Common Dreams).

Africa: André de Ruyter on Eskom’s serious air pollution problems.  Andre de Ruyter, the CEO of Eskom, South Africa’s national electricity provider, has reported that the entity is working towards the closure of its old coal fired plants (Moneyweb) in part to address Eskom’s serious air pollution output. In Kenya, the new renewable capacity facilitated by the Lake Turkana Wind Plant has increased the country’s energy sufficiency, ushering a reduction of the reliance on imports from Tanzania and Uganda (The East African).  This sufficiency and expansion of wind projects can be expected to play a part in the much-needed economic stimulus in the face of the global downturns caused by the pandemic.

Oceania: COVID-19 recovery plans must heed climate science. The Australian network of the UN Global Compact, a voluntary global CEO commitment to support sustainability principles and UN goals, has urged the Australian government to include stricter measures on carbon emissions in the country’s post pandemic stimulus package (Financial Standard). In Queensland, Renewable Energy Systems and Energy Estate have partnered to work on the Central Queensland Project to deliver 2 GW of wind, solar, storage developments and new transmission infrastructure (PV Magazine).

Corporate: Citigroup launches new ESG Investment Banking Group.  In response to the increasing emphasis on incorporating environmental, social and governance factors in business operations, Citigroup has announced that it is launching a business unit commissioned to assist clients on sustainability transitions across coverage areas.  This is due to the increased pressure from activists and investors.  As a result, companies that take ESG factors into account are rewarded (Reuters).  Earlier this year, Larry Fink, CEO of Black Rock, wrote, in an open letter to CEOs, that climate change is reshaping finance and that the firm has committed to placing sustainability at the centre of its investment approach (Black Rock). In further support of this view, a study by the global law firm Ashurst shows growing investor awareness to find climate change solutions  (Real Clear Energy).

A number of factors are indicative of the direction and positive growth of the renewable energy industry in the medium to long term.  These are: the proposal of a green stimulus by the EU, the continuous calls for a green economic recovery from heads of states among others, the resilience of the sector during the economic downturn caused by the pandemic in comparison to the oil sector, and the increasing commitments of ESG factors in business operations.  With the expansion of the industry and the focus on a Just Transition, one can expect lower carbon emissions and a gradual transformation of economies to engender inclusivity.

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