Getting a $1 billion bank loan to build wind farms was the easy part. Building them on time and to specification? That was a whole different beast. It was 2016, and I was deep in the trenches developing the wind industry in Russia while the global Energy Transition (ET) was just starting to pick up momentum.
Fast forward to 2024: this year alone, $500 billionย will be invested in solar power. The ET debate is filled with staggering figuresโ$3 trillion, $12 trillion, or even more annually to hit global climate targets. But my experience tells me these numbers, while headline-worthy, miss the mark. When the technology is right and markets allow, money will find its way.
That said, itโs worth taking a closer look at The Economistโs latest briefing, which challenges conventional wisdom about ET costs and offers a refreshing reality check. Letโs break it down.
Why Energy Transition Costs are Overblown
1๏ธโฃ Unrealistic Speed
Projections often assume weโll slash emissions so fast that it justifies insane investment levels over a short time. But weโre likely to break the 1.5ยฐC threshold in six years, making such scenarios impossible. Rushing things unnecessarily inflates costs.
2๏ธโฃ Overhyped Growth
Most models assume rapid economic and population growth, with GDP increasing over 3% annually. Yet historical averages are closer to 2-2.5%, meaning the energy demand these models forecast is exaggerated.
3๏ธโฃ Underestimating Tech Progress
Analysts often hype expensive, slow-to-scale technologies like hydrogenย and carbon capture, while underestimating how much costs are plummeting for proven solutions like solarย and lithium-ion batteries. For example, solar PV costs have consistently outperformed the wildest cost reduction forecasts.
4๏ธโฃ Baseline Energy Costs
Even if renewables didnโt exist, the world would still need to spend $2 trillion annuallyย to maintain energy infrastructure. The idea that ET costs are entirely โadditionalโ is misleading.
The Real Price Tag for Energy Transition?
The real cost of ET may be closer to $1 trillion a year, or less than 1% of global GDP. Hereโs why:
โข In 2024, $3 trillionย will already be spent on energy globally, with 75% from private investors and 25% from governments.
โข Solar alone will account for $500 billion, and clean energy investments overall will hit $2 trillionย this year.
These figures show weโre already scaling ET investments, and the world isnโt going bankrupt in the process.
But Whatโs Missing?
1๏ธโฃ Beyond Energy and Transport
Decarbonizing energy and transport is straightforward, but agricultureย and heavy industryย remain major emission sources without clear solutions. These sectors require entirely new technologies, and progress here will likely take much longer.
2๏ธโฃ High Costs in Developing Countries
The regions needing ET investments the mostโdeveloping countriesโface higher capital costs, which could either push up global ET expenses or deter investment entirely.
3๏ธโฃ The Real World โ Models
Economic models assume rational behavior, but reality is messy. Political interference, corruption, and incompetenceย often derail well-laid plans, making implementation costs higher than anticipated.
A Reality Check Worth Reading
The Economistโs briefing serves as a valuable reminder that while the Energy Transition is an enormous challenge, itโs not as financially insurmountable as some make it out to be. Clean technologies are advancing faster than anyone predicted, and the private sector is already driving most of the investment.
But this isnโt to say itโs all smooth sailing. Decarbonizing sectors like agriculture, managing uneven global capital costs, and navigating the messy real-world implementation are hurdles we canโt ignore. Still, $1 trillion annuallyโthe true cost of ETโlooks more like an opportunity than an obstacle.
๐ฌ Whatโs your take?ย Are these new numbers cause for optimism or just another overly rosy scenario? Letโs discuss in the comments. And if youโre navigating the cleantech space or need insights into scaling your green startup, drop me a messageย or visit my site at www.askerov.pro. Donโt forget to follow me here on LinkedIn for more takes on climate, tech, and business strategy. ๐โก