January 22, 2025 • 19 mins
Was 2024 a good or a bad year for clean energy and climate progress? Looking through one prism, we saw record global electric vehicle sales, massive clean power capacity additions, and the adoption of new energy storage technologies. Yet, if we compare these record numbers to what is actually required to achieve net zero by 2050, we find ourselves falling short. What lessons can be learned from the year gone by, and how might we apply these lessons to improve future outcomes? On today’s show, BloombergNEF’s Deputy CEO, Albert Cheung, shares his note “Five Energy Transition Lessons for 2025.”
Complementary BNEF research on the trends driving the transition to a lower-carbon economy can be found at BNEF<GO> on the Bloomberg Terminal or on bnef.com
Links to research notes from this episode:
Five Energy Transition Lessons for 2025 - https://www.bnef.com/insights/35643
See omnystudio.com/listener for privacy information.
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:00):
This is Dana Perkins and you're listening to Switched on
the BNAF podcast. It's January, and while we might have
stopped wishing our friends a happy new year, many of
us are still taking stock of what we learned in
twenty twenty four and thinking about how to apply this
to the future. As each of us do this, we
find out if we are more of a glass half
(00:21):
full or half empty kind of person, or perhaps for
many of us who work in the clean energy and
climate space, maybe we oscillate between them both. On today's show,
we're going to bring you something different from our usual
BNAF analyst interview. Albert Chung, bn EF's deputy CEO is
going to read his recent note titled five Energy Transition
(00:41):
Lessons for twenty twenty five. In it, he considers what
lessons can be gleaned from the year gone by and
how this should inform the journey ahead in just five points.
If you like our show and want other people to
be able to find it, give us a review or
subscribe wherever you get your podcasts. B and EF subscribers
will be able to read Albert's note at BNF on
(01:02):
the Bloomberg terminal or at BNF dot com. Right now,
let's hear Albert's five energy transition lessons for twenty twenty five.
Speaker 2 (01:21):
Five Energy transition lessons for twenty twenty five. To work
in clean energy and climate is to live in a
constant state of cognitive dissonance, stuck between good news and bad.
On the good side, every year brings continuous growth in
clean tech industries, record levels of investment and steady technological advances.
This past year was no different. Record numbers of electric
(01:41):
vehicles were sold in twenty twenty four, record amounts of
clean power capacity were installed, New energy storage technologies gain traction,
and when our investment totals are published later this month,
we will hopefully see that energy transition investment hit a
new record. To watch this space, Yet, despite years of
continuous and rapid acceleration, it has never Each winter, BNF
(02:02):
analysts spend weeks crunching numbers only to conclude that global
energy transition investment is running well below the level required
to get on track for net zero by mid century.
This year, the story is likely to remain unchanged. Such
is the relentless logic of being on a growth curve
that sits stubbornly below the curve you want to be on.
The dissonance is even stronger this year and has many
(02:22):
contributing factors, including the incoming Trump administration, the slowing growth
of evs, the struggles of Europe's battery sector, the limited
progress on hydrogen and industrial decarbonization, ongoing difficulties in the
offshore wind sector, and the COP twenty nine finance deal
that left many countries underwhelmed. This sense of unease carries
five important lessons that we should absorb as we begin
(02:44):
a new year of work in the energy transition. One,
the energy transition won't slow down because of the challenges above.
The word slow down was never far from the lips
of commentators and executives last year, but in reality, our
latest estimates indicate that at twenty twenty four was a
pretty strong year for clean energy deployment. Solar PV installations
(03:04):
were up thirty five percent year on year, wind was
up five percent, energy storage installations rose seventy six percent
in megal hour terms, and EV sales gained twenty six percent.
Note these are BNF estimates that predate the end of
twenty twenty four, even stripping out mainland China, a market
that can sometimes skew figures does not change the direction
(03:25):
of travel, with most of these sectors continuing to grow
in the America's and EMEA regions. Onshore wind outside of
APAC is a notable exception, with installations down as permitting
delays and grid connection queues remain a bottleneck. Newer technologies
like clean hydrogen and carbon capture in storage or CCS,
have had a tougher year, but here we still see
growth on the way. Bnof's latest forecasts are for as
(03:47):
much as sixteen million metric tons of annual clean hydrogen
production capacity to come online by twenty thirty, up from
nearly nothing today, and around two hundred million metric tons
per annum of CCS capacity to be installed by then.
So even the hard to abate sectors will start to
make progress. And what about the Trump effect? Our updated
EV sales forecast for the US now sees them accounting
(04:09):
for one third of new vehicles sold in twenty thirty,
roughly a tripling of today's market penetration. True, this is
lower than the forty eight percent penetration expected by twenty
thirty under Biden era regulations, but it is still growth.
As for clean power. We would still expect more than
nine hundred gigawatts of new solar, wind and storage build
in the US by twenty thirty five under a scenario
(04:32):
in which investment and production tax credits are fully repealed.
This is down from our most recent forecast of over
one thousand, one hundred gigawatts under existing incentives, but it
is still growth. So our first lesson is simple. Clean
energy technologies will continue to grow and the energy transition
won't slow down, even if it feels hard at times two,
(04:54):
this is the hard part of the journey. That the
transition is starting to feel hard shouldn't come as aus
Many of the easier opportunities have been conquered. Early adopters
in richer countries have already bought evs and home solar
systems and renewables developers have snapped up the best sites
with the cheapest grid connections in the most economically and
politically stable markets. These early movers played a critical role
(05:17):
in driving down the costs of clean energy technologies and
bringing them to scale, but achieving scale means that growth
rates will start to fall. At the time of writing,
our latest estimate is that EV sales globally grew twenty
six percent year on year in twenty twenty four to
seventeen point two million units, approaching a quarter of all
new car sales. This is undoubtedly strong growth, but it
(05:39):
is much slower than the sixty percent and thirty four
percent growth rates in twenty twenty two and twenty twenty three.
In fact, the growth is starting to look fairly linear.
If our projection is right, the global ev market will
have grown by a steady three point three to three
point nine million units in each of the last four years.
Confounding predictions that energy transition technologies always grow exponentially everywhere,
(06:03):
we now think the solar sector will do something similar.
Annual solar installations likely grew an impressive thirty five percent
in twenty twenty four and have quadrupled since twenty twenty,
but our team is forecasting just eleven percent growth in
twenty twenty five and more or less linear growth thereafter.
This is because several advanced markets are reaching high penetrations
of solar. Greece and Spain, for example, likely drew more
(06:25):
than a quarter of their electricity from solar last year.
This drives down midday power prices, necessitating new revenue models
and increased storage deployment to push penetration even higher. We
know these solutions will come, but they require policy development
to open a new frontier for the growth of solar
in mature markets. Growth in emerging markets will be the
bigger driver in future. India, Pakistan, Turkey, Saudi Arabia and
(06:50):
Romania all posted more than fifty percent growth in solar
installations in twenty twenty four by our estimates. However, many
emerging markets still lack the regulatory market environment needed for
large scale clean energy adoption. This next phase of the
transition means tackling new problems, Unlocking storage and flexibility in
mature renewables markets to drive to higher penetrations, developing renewables
(07:13):
in markets that lack the proper technical and commercial arrangements,
getting charging infrastructure right to support mass market drivers and
truck fleet operators switching to evs, as well as driving
demand for clean energy and fuels in aviation, shipping, and
heavy industry. Progress is being made on these challenges, and
solving them will create new opportunities and stimulate the next
(07:33):
cycle of growth in the transition.
Speaker 1 (07:36):
Three.
Speaker 2 (07:37):
Be careful not to misinterpret the data in a space
as complex and a motive. As the energy transition, real
challenges can often be accompanied by exaggerated ones. Let's take
the EV sector again, where misinformation or at least to
misinterpreted data is common. The EV slowdown story in twenty
twenty four was largely focused on the EU, where sales
(07:57):
growth did indeed slow down. While most headlines put the
blame on consumers not wanting evs, the truth was more nuanced.
For example, in summer twenty twenty four, EV sales in
Germany slipped by double digits from the year before, but
news reporting failed to point out that there had been
a surge in sales the year before, triggered by the
ending of a subsidy regime. What's more, the European Environment
(08:18):
Agency has now confirmed that ninety eight out of one
hundred and one automakers met their binding CO two emissions
targets in twenty twenty three. The three that didn't are tiny. Crucially,
the EU wide targets have remained the same from twenty
twenty one to twenty twenty four, so it is somewhat
likely that these automakers will have met their targets again
in twenty twenty four, and EV sales were roughly flat
(08:39):
in Europe in twenty twenty four, not down. In other words,
the auto industry is already selling enough evs in Europe
to comply with the only meaningful emissions policy they are
subject to. Those emissions targets will tighten up to a
new level in twenty twenty five, remaining flat again until
twenty twenty nine. Given this policy design, a perfectly rational
automaker strategy would be to work wait until twenty twenty
(09:01):
five before launching new, improved, competitively priced evs, while doing
the bare minimum to push EV sales in twenty twenty
four and deferring price cuts even as battery prices fail
to a new record low. I believe that in retrospect
we will see that the EU EV slow down in
twenty twenty four was baked in from the start. It
was a feature of European emissions policy design, not a bug.
(09:23):
Lesson learned, Be careful not to misinterpret the data. Four.
A successful transition is a profitable one. It may be
a blindingly obvious point, but the past year has reminded
us that the energy transition will only succeed if clean
energy investments generate risk adjusted returns that meet the requirements
of companies and their investors. There is no world in
(09:43):
which public or concessional capital alone can solve the climate
mitigation challenge. This truism has reared its head in the
hydrogen sector, where costs are rising, not falling. Our estimates
for levelized costs of clean hydrogen are thirty five percent
high on average than two years ago, at three dollars
seventy five four to eleven dollars seventy per kilogram, depending
on geographical location and other factors. An ammonia auction by
(10:06):
Germany's H two Global Foundation last year priced green ammonia
imports at double the price of gray ammonia in Western Europe,
and there are now very few places in the world
where we expect clean hydrogen to compete with the gray
variety by twenty fifty. So for prospective industrial users and
producers of hydrogen who must make multi decadal investments to
adopt greener molecules, meeting any return expectations will depend on
(10:28):
regulations such as carbon pricing and subsidy for the foreseeable future.
Governments that are serious about driving hydrogen use in sectors
such as fertilizers chemicals and steel must make sure that
long term incentives, regulations, and demand side policy are in
place to support companies and investors down this road. The
benefits can be counted not only in terms of carbon emissions,
but also enhanced energy security. The offshore wind industry offers
(10:52):
a contrasting but equally relevant example. The emergence of zero
subsidy offshore wind projects in Europe in the late twenty
tens led to a surge in interest across the world,
with new opportunities arising in the US and Asia, National
and state government agencies set up auction processors to award
the cheapest power purchase contracts to the most aggressive bidders,
and in many cases those developers were also made to
(11:13):
bid competitively for seabed leases or offer other non monetary
benefits to make their bids more attractive. This ultra competitive
approach has delivered impressively low clean power prices, but has
also sown the seeds of other problems. Even before the
inflation surge of twenty twenty two to twenty twenty three,
wind turbine manufacturer's margins were being squeezed by their over
ambitious customers and pressure to invest in ever larger turbine platforms.
(11:37):
Rising costs have since led to failed auctions in various
countries and a spate of canceled projects in the US
and other markets. Only now are lessons beginning to be learned.
As recently as December, an offshore wind auction in Denmark
failed as developers were expected to pay for the right
to develop their power plant with no revenue contract on offer.
The risk adjusted returns were simply not there. Against this backdrop,
(11:58):
it is no wonder that a number of all oil
and gas companies have moved to limit their exposure to
offshore wind. This may even prove to be a positive
for the industry if it reduces competition and demonstrates that
policy regimes still need to attract private sector investment. The
same logic applies to financial institutions and their role in
the transition, and here we are at an exciting juncture.
A growing list of banks, including JP, Morgan City and RBC,
(12:21):
have committed to publish their ratios of clean energy financing
to fossil fuel financing, and BNP Paraber has set a
target of ninety percent, or a nine to one clean
to fossil financing ratio for twenty thirty by focusing on
the solutions building clean energy and not only the problem
fossil fuel emissions. These types of metrics are a big
step in the right direction and will likely form a
(12:42):
key part of banks transition plans. However, the banks cannot
achieve these ratios on their own. For these aims to
be realized, the conditions in the real economy must exist
to allow attractive risk adjusted returns on energy transition investments,
and only government can create those conditions.
Speaker 1 (12:59):
Five.
Speaker 2 (13:00):
Geoeconomic competition has become the biggest complicating factor in the
two decades that benef has been around. The overarching narrative
around multilateral climate action has shifted twice, first from sacrifice
to opportunity, and then more recently, from opportunity to competition.
During the twenty tens, the narrative of shared sacrifice, where
countries look to limit their own responsibility for climate action
(13:23):
while pushing more onto others, was replaced by a new
narrative of opportunity and leadership. As the twenty twenties began,
countries race to show their seriousness about climate action, announcing
zero targets and more ambitious nationally determined contributions NDCs and
implementing more clean energy policies. Narrow self interest seemed to
give way to enlightened self interest. A second shift is
(13:46):
now in full swing toward hard nosed calculations of how
much economic value and national security benefit countries can capture
from the clean energy transition, and how they can compete
in these new industries against geopolitical and economic rivals. The
narrative of opportunity has not gone away, but it has
had a strong dose of realism and competition injected. This
shift is understandable and possibly inevitable. For example, there are
(14:09):
several major economies in Asia whose large incumbent steel industries
are predicated on access to cost competitive coal resources. Some
of these countries may never be cost competitive hydrogen producers,
so the shift from coal to hydrogen based steel may
permanently alter their competitive position in a global industry. These
are complex considerations which have not featured in the power
(14:31):
sector transition, where competition is mainly domestic. In the clean
tech manufacturing industries, especially solar and batteries, many countries are
now trying to gain a foothold. However, a massive wave
of investment in mainland China in twenty twenty two to
twenty twenty three has led to significant over capacity globally,
with nameplate capacity outstripping demand by more than double in
twenty twenty four. For both technologies, Prices of key technologies
(14:54):
have fallen to new lows, speeding the pace of the
energy transition but bringing pain to manufacturers. Electoralizer manufacturing sector
could be about to experience a similar supply glut, and
wind in China has suffered the same fate under these circumstances.
Policies in the US, India, Europe and other markets which
aim to protect and grow domestic manufacturers, face an uphill struggle,
(15:15):
and it doesn't seem like they're getting everything right. In
Western markets, where battery factory projects are struggling, evs are
still not fully cost competitive. This is despite global battery
prices falling twenty percent last year to a new record low,
driven by declining battery metal prices and intense competition especially
among lithium iron phosphate battery producers in China. In the
(15:36):
US and India, developers continue to pay over the odds
for solar equipment because of trade tariffs and other barriers.
Like the US, the EU is trying to use tariffs
to slow imports of Chinese made evs. It is also
taking steps to protect its wind sector and its fledgling
electoralizer industry from Chinese imports. Policymakers are knowingly or not
choosing a costlier transition with the expectation that this will
(15:59):
reap economic, security and political benefits. This choice is rarely
discussed explicitly, and the phenomenon goes beyond the US and Europe.
In twenty twenty four, Turkey, Brazil, and Canada also raised
or introduced tariffs for clean tech imports. Chinese and other
Asian companies have built a clear lead in new energy
manufacturing industries, not only in terms of scale and cost,
(16:20):
but also in terms of technology and knowhow. Yet the
reality is that many of these clean tech manufacturers are
nursing their wounds over low or negative margins while searching
for new overseas markets that won't shut them out. For
the sake of a successful transition, policymakers around the world
should be focused on limiting excess investment in specific oversupplied technologies,
(16:40):
while also looking for other investment opportunities where their countries
may possess competitive advantage. Not every country needs to be
a solar cell and battery maker, and diversifying supplies for
security purposes does not have to mean onshoring. At the
same time, they must remain focused on creating supportive policy
regimes for the transition itself, per lesson number four above,
(17:01):
to create demand for clean tech. Shutting out foreign companies
will raise the cost of the energy transition for the
end user and prevent the spread of much needed technical
know how and innovations At a time when both energy
security and climate outcomes are at stake. Policy makers would
be better off working out how to productively bring the
expertise of the world's leading companies onto their shores, whether
(17:23):
through joint ventures or intellectual property arrangements, and making sure
that they foster a dynamic local industry for installation, operations, maintenance,
and end of life management for energy transition technologies. Finally,
many countries remain heavily dependent on fossil fuel imports that
carry significant geopolitical and energy security risks. As they transition
to a cleaner mix, these risks will recede even if
(17:46):
key energy transition technologies are imported. Remember that the lights
stay on even if clean tech imports are slowed. Geoeconomic
competition may be an inevitable feature of the energy transitioned,
but policymakers have a choice in how to address it.
Those choices, more than anything else, will shape the energy
transition in twenty twenty five and beyond. So there you
have it, our five energy transition lessons for twenty twenty five.
(18:09):
One the energy transition won't slow down. Two, This is
the hard part of the journey. Three, be careful not
to misinterpret the data. Four A successful transition is a
profitable one, and five geoeconomic competition has become the biggest
complicating factor. Very best of luck to all those navigating
the complexities of the energy transition in twenty twenty five.
Speaker 1 (18:39):
Today's episode of Switched On was produced by Cam Gray
with production assistance from Kamala Shelling. Bloomberg NEF is a
service provided by Bloomberg Finance LP and its affiliates. This
recording does not constitute, nor should it be construed as
investment in vice, investment recommendations, or a recommendation as to
an investment or other strategy. BLOOMBERGINNIF should not be considered
(19:00):
as information sufficient upon which to base an investment decision.
Neither Bloomberg Finance LP, nor any of its affiliates makes
any representation or warranty as to the accuracy or completeness
of the information contained in this recording, and any liability
as a result of this recording is expressly disclaimed
This is Dana Perkins and you're listening to Switched on
the BNAF podcast. It's January, and while we might have
stopped wishing our friends a happy new year, many of
us are still taking stock of what we learned in
twenty twenty four and thinking about how to apply this
to the future. As each of us do this, we
find out if we are more of a glass half
(00:21):
full or half empty kind of person, or perhaps for
many of us who work in the clean energy and
climate space, maybe we oscillate between them both. On today's show,
we're going to bring you something different from our usual
BNAF analyst interview. Albert Chung, bn EF's deputy CEO is
going to read his recent note titled five Energy Transition
(00:41):
Lessons for twenty twenty five. In it, he considers what
lessons can be gleaned from the year gone by and
how this should inform the journey ahead in just five points.
If you like our show and want other people to
be able to find it, give us a review or
subscribe wherever you get your podcasts. B and EF subscribers
will be able to read Albert's note at BNF on
(01:02):
the Bloomberg terminal or at BNF dot com. Right now,
let's hear Albert's five energy transition lessons for twenty twenty five.
Speaker 2 (01:21):
Five Energy transition lessons for twenty twenty five. To work
in clean energy and climate is to live in a
constant state of cognitive dissonance, stuck between good news and bad.
On the good side, every year brings continuous growth in
clean tech industries, record levels of investment and steady technological advances.
This past year was no different. Record numbers of electric
(01:41):
vehicles were sold in twenty twenty four, record amounts of
clean power capacity were installed, New energy storage technologies gain traction,
and when our investment totals are published later this month,
we will hopefully see that energy transition investment hit a
new record. To watch this space, Yet, despite years of
continuous and rapid acceleration, it has never Each winter, BNF
(02:02):
analysts spend weeks crunching numbers only to conclude that global
energy transition investment is running well below the level required
to get on track for net zero by mid century.
This year, the story is likely to remain unchanged. Such
is the relentless logic of being on a growth curve
that sits stubbornly below the curve you want to be on.
The dissonance is even stronger this year and has many
(02:22):
contributing factors, including the incoming Trump administration, the slowing growth
of evs, the struggles of Europe's battery sector, the limited
progress on hydrogen and industrial decarbonization, ongoing difficulties in the
offshore wind sector, and the COP twenty nine finance deal
that left many countries underwhelmed. This sense of unease carries
five important lessons that we should absorb as we begin
(02:44):
a new year of work in the energy transition. One,
the energy transition won't slow down because of the challenges above.
The word slow down was never far from the lips
of commentators and executives last year, but in reality, our
latest estimates indicate that at twenty twenty four was a
pretty strong year for clean energy deployment. Solar PV installations
(03:04):
were up thirty five percent year on year, wind was
up five percent, energy storage installations rose seventy six percent
in megal hour terms, and EV sales gained twenty six percent.
Note these are BNF estimates that predate the end of
twenty twenty four, even stripping out mainland China, a market
that can sometimes skew figures does not change the direction
(03:25):
of travel, with most of these sectors continuing to grow
in the America's and EMEA regions. Onshore wind outside of
APAC is a notable exception, with installations down as permitting
delays and grid connection queues remain a bottleneck. Newer technologies
like clean hydrogen and carbon capture in storage or CCS,
have had a tougher year, but here we still see
growth on the way. Bnof's latest forecasts are for as
(03:47):
much as sixteen million metric tons of annual clean hydrogen
production capacity to come online by twenty thirty, up from
nearly nothing today, and around two hundred million metric tons
per annum of CCS capacity to be installed by then.
So even the hard to abate sectors will start to
make progress. And what about the Trump effect? Our updated
EV sales forecast for the US now sees them accounting
(04:09):
for one third of new vehicles sold in twenty thirty,
roughly a tripling of today's market penetration. True, this is
lower than the forty eight percent penetration expected by twenty
thirty under Biden era regulations, but it is still growth.
As for clean power. We would still expect more than
nine hundred gigawatts of new solar, wind and storage build
in the US by twenty thirty five under a scenario
(04:32):
in which investment and production tax credits are fully repealed.
This is down from our most recent forecast of over
one thousand, one hundred gigawatts under existing incentives, but it
is still growth. So our first lesson is simple. Clean
energy technologies will continue to grow and the energy transition
won't slow down, even if it feels hard at times two,
(04:54):
this is the hard part of the journey. That the
transition is starting to feel hard shouldn't come as aus
Many of the easier opportunities have been conquered. Early adopters
in richer countries have already bought evs and home solar
systems and renewables developers have snapped up the best sites
with the cheapest grid connections in the most economically and
politically stable markets. These early movers played a critical role
(05:17):
in driving down the costs of clean energy technologies and
bringing them to scale, but achieving scale means that growth
rates will start to fall. At the time of writing,
our latest estimate is that EV sales globally grew twenty
six percent year on year in twenty twenty four to
seventeen point two million units, approaching a quarter of all
new car sales. This is undoubtedly strong growth, but it
(05:39):
is much slower than the sixty percent and thirty four
percent growth rates in twenty twenty two and twenty twenty three.
In fact, the growth is starting to look fairly linear.
If our projection is right, the global ev market will
have grown by a steady three point three to three
point nine million units in each of the last four years.
Confounding predictions that energy transition technologies always grow exponentially everywhere,
(06:03):
we now think the solar sector will do something similar.
Annual solar installations likely grew an impressive thirty five percent
in twenty twenty four and have quadrupled since twenty twenty,
but our team is forecasting just eleven percent growth in
twenty twenty five and more or less linear growth thereafter.
This is because several advanced markets are reaching high penetrations
of solar. Greece and Spain, for example, likely drew more
(06:25):
than a quarter of their electricity from solar last year.
This drives down midday power prices, necessitating new revenue models
and increased storage deployment to push penetration even higher. We
know these solutions will come, but they require policy development
to open a new frontier for the growth of solar
in mature markets. Growth in emerging markets will be the
bigger driver in future. India, Pakistan, Turkey, Saudi Arabia and
(06:50):
Romania all posted more than fifty percent growth in solar
installations in twenty twenty four by our estimates. However, many
emerging markets still lack the regulatory market environment needed for
large scale clean energy adoption. This next phase of the
transition means tackling new problems, Unlocking storage and flexibility in
mature renewables markets to drive to higher penetrations, developing renewables
(07:13):
in markets that lack the proper technical and commercial arrangements,
getting charging infrastructure right to support mass market drivers and
truck fleet operators switching to evs, as well as driving
demand for clean energy and fuels in aviation, shipping, and
heavy industry. Progress is being made on these challenges, and
solving them will create new opportunities and stimulate the next
(07:33):
cycle of growth in the transition.
Speaker 1 (07:36):
Three.
Speaker 2 (07:37):
Be careful not to misinterpret the data in a space
as complex and a motive. As the energy transition, real
challenges can often be accompanied by exaggerated ones. Let's take
the EV sector again, where misinformation or at least to
misinterpreted data is common. The EV slowdown story in twenty
twenty four was largely focused on the EU, where sales
(07:57):
growth did indeed slow down. While most headlines put the
blame on consumers not wanting evs, the truth was more nuanced.
For example, in summer twenty twenty four, EV sales in
Germany slipped by double digits from the year before, but
news reporting failed to point out that there had been
a surge in sales the year before, triggered by the
ending of a subsidy regime. What's more, the European Environment
(08:18):
Agency has now confirmed that ninety eight out of one
hundred and one automakers met their binding CO two emissions
targets in twenty twenty three. The three that didn't are tiny. Crucially,
the EU wide targets have remained the same from twenty
twenty one to twenty twenty four, so it is somewhat
likely that these automakers will have met their targets again
in twenty twenty four, and EV sales were roughly flat
(08:39):
in Europe in twenty twenty four, not down. In other words,
the auto industry is already selling enough evs in Europe
to comply with the only meaningful emissions policy they are
subject to. Those emissions targets will tighten up to a
new level in twenty twenty five, remaining flat again until
twenty twenty nine. Given this policy design, a perfectly rational
automaker strategy would be to work wait until twenty twenty
(09:01):
five before launching new, improved, competitively priced evs, while doing
the bare minimum to push EV sales in twenty twenty
four and deferring price cuts even as battery prices fail
to a new record low. I believe that in retrospect
we will see that the EU EV slow down in
twenty twenty four was baked in from the start. It
was a feature of European emissions policy design, not a bug.
(09:23):
Lesson learned, Be careful not to misinterpret the data. Four.
A successful transition is a profitable one. It may be
a blindingly obvious point, but the past year has reminded
us that the energy transition will only succeed if clean
energy investments generate risk adjusted returns that meet the requirements
of companies and their investors. There is no world in
(09:43):
which public or concessional capital alone can solve the climate
mitigation challenge. This truism has reared its head in the
hydrogen sector, where costs are rising, not falling. Our estimates
for levelized costs of clean hydrogen are thirty five percent
high on average than two years ago, at three dollars
seventy five four to eleven dollars seventy per kilogram, depending
on geographical location and other factors. An ammonia auction by
(10:06):
Germany's H two Global Foundation last year priced green ammonia
imports at double the price of gray ammonia in Western Europe,
and there are now very few places in the world
where we expect clean hydrogen to compete with the gray
variety by twenty fifty. So for prospective industrial users and
producers of hydrogen who must make multi decadal investments to
adopt greener molecules, meeting any return expectations will depend on
(10:28):
regulations such as carbon pricing and subsidy for the foreseeable future.
Governments that are serious about driving hydrogen use in sectors
such as fertilizers chemicals and steel must make sure that
long term incentives, regulations, and demand side policy are in
place to support companies and investors down this road. The
benefits can be counted not only in terms of carbon emissions,
but also enhanced energy security. The offshore wind industry offers
(10:52):
a contrasting but equally relevant example. The emergence of zero
subsidy offshore wind projects in Europe in the late twenty
tens led to a surge in interest across the world,
with new opportunities arising in the US and Asia, National
and state government agencies set up auction processors to award
the cheapest power purchase contracts to the most aggressive bidders,
and in many cases those developers were also made to
(11:13):
bid competitively for seabed leases or offer other non monetary
benefits to make their bids more attractive. This ultra competitive
approach has delivered impressively low clean power prices, but has
also sown the seeds of other problems. Even before the
inflation surge of twenty twenty two to twenty twenty three,
wind turbine manufacturer's margins were being squeezed by their over
ambitious customers and pressure to invest in ever larger turbine platforms.
(11:37):
Rising costs have since led to failed auctions in various
countries and a spate of canceled projects in the US
and other markets. Only now are lessons beginning to be learned.
As recently as December, an offshore wind auction in Denmark
failed as developers were expected to pay for the right
to develop their power plant with no revenue contract on offer.
The risk adjusted returns were simply not there. Against this backdrop,
(11:58):
it is no wonder that a number of all oil
and gas companies have moved to limit their exposure to
offshore wind. This may even prove to be a positive
for the industry if it reduces competition and demonstrates that
policy regimes still need to attract private sector investment. The
same logic applies to financial institutions and their role in
the transition, and here we are at an exciting juncture.
A growing list of banks, including JP, Morgan City and RBC,
(12:21):
have committed to publish their ratios of clean energy financing
to fossil fuel financing, and BNP Paraber has set a
target of ninety percent, or a nine to one clean
to fossil financing ratio for twenty thirty by focusing on
the solutions building clean energy and not only the problem
fossil fuel emissions. These types of metrics are a big
step in the right direction and will likely form a
(12:42):
key part of banks transition plans. However, the banks cannot
achieve these ratios on their own. For these aims to
be realized, the conditions in the real economy must exist
to allow attractive risk adjusted returns on energy transition investments,
and only government can create those conditions.
Speaker 1 (12:59):
Five.
Speaker 2 (13:00):
Geoeconomic competition has become the biggest complicating factor in the
two decades that benef has been around. The overarching narrative
around multilateral climate action has shifted twice, first from sacrifice
to opportunity, and then more recently, from opportunity to competition.
During the twenty tens, the narrative of shared sacrifice, where
countries look to limit their own responsibility for climate action
(13:23):
while pushing more onto others, was replaced by a new
narrative of opportunity and leadership. As the twenty twenties began,
countries race to show their seriousness about climate action, announcing
zero targets and more ambitious nationally determined contributions NDCs and
implementing more clean energy policies. Narrow self interest seemed to
give way to enlightened self interest. A second shift is
(13:46):
now in full swing toward hard nosed calculations of how
much economic value and national security benefit countries can capture
from the clean energy transition, and how they can compete
in these new industries against geopolitical and economic rivals. The
narrative of opportunity has not gone away, but it has
had a strong dose of realism and competition injected. This
shift is understandable and possibly inevitable. For example, there are
(14:09):
several major economies in Asia whose large incumbent steel industries
are predicated on access to cost competitive coal resources. Some
of these countries may never be cost competitive hydrogen producers,
so the shift from coal to hydrogen based steel may
permanently alter their competitive position in a global industry. These
are complex considerations which have not featured in the power
(14:31):
sector transition, where competition is mainly domestic. In the clean
tech manufacturing industries, especially solar and batteries, many countries are
now trying to gain a foothold. However, a massive wave
of investment in mainland China in twenty twenty two to
twenty twenty three has led to significant over capacity globally,
with nameplate capacity outstripping demand by more than double in
twenty twenty four. For both technologies, Prices of key technologies
(14:54):
have fallen to new lows, speeding the pace of the
energy transition but bringing pain to manufacturers. Electoralizer manufacturing sector
could be about to experience a similar supply glut, and
wind in China has suffered the same fate under these circumstances.
Policies in the US, India, Europe and other markets which
aim to protect and grow domestic manufacturers, face an uphill struggle,
(15:15):
and it doesn't seem like they're getting everything right. In
Western markets, where battery factory projects are struggling, evs are
still not fully cost competitive. This is despite global battery
prices falling twenty percent last year to a new record low,
driven by declining battery metal prices and intense competition especially
among lithium iron phosphate battery producers in China. In the
(15:36):
US and India, developers continue to pay over the odds
for solar equipment because of trade tariffs and other barriers.
Like the US, the EU is trying to use tariffs
to slow imports of Chinese made evs. It is also
taking steps to protect its wind sector and its fledgling
electoralizer industry from Chinese imports. Policymakers are knowingly or not
choosing a costlier transition with the expectation that this will
(15:59):
reap economic, security and political benefits. This choice is rarely
discussed explicitly, and the phenomenon goes beyond the US and Europe.
In twenty twenty four, Turkey, Brazil, and Canada also raised
or introduced tariffs for clean tech imports. Chinese and other
Asian companies have built a clear lead in new energy
manufacturing industries, not only in terms of scale and cost,
(16:20):
but also in terms of technology and knowhow. Yet the
reality is that many of these clean tech manufacturers are
nursing their wounds over low or negative margins while searching
for new overseas markets that won't shut them out. For
the sake of a successful transition, policymakers around the world
should be focused on limiting excess investment in specific oversupplied technologies,
(16:40):
while also looking for other investment opportunities where their countries
may possess competitive advantage. Not every country needs to be
a solar cell and battery maker, and diversifying supplies for
security purposes does not have to mean onshoring. At the
same time, they must remain focused on creating supportive policy
regimes for the transition itself, per lesson number four above,
(17:01):
to create demand for clean tech. Shutting out foreign companies
will raise the cost of the energy transition for the
end user and prevent the spread of much needed technical
know how and innovations At a time when both energy
security and climate outcomes are at stake. Policy makers would
be better off working out how to productively bring the
expertise of the world's leading companies onto their shores, whether
(17:23):
through joint ventures or intellectual property arrangements, and making sure
that they foster a dynamic local industry for installation, operations, maintenance,
and end of life management for energy transition technologies. Finally,
many countries remain heavily dependent on fossil fuel imports that
carry significant geopolitical and energy security risks. As they transition
to a cleaner mix, these risks will recede even if
(17:46):
key energy transition technologies are imported. Remember that the lights
stay on even if clean tech imports are slowed. Geoeconomic
competition may be an inevitable feature of the energy transitioned,
but policymakers have a choice in how to address it.
Those choices, more than anything else, will shape the energy
transition in twenty twenty five and beyond. So there you
have it, our five energy transition lessons for twenty twenty five.
(18:09):
One the energy transition won't slow down. Two, This is
the hard part of the journey. Three, be careful not
to misinterpret the data. Four A successful transition is a
profitable one, and five geoeconomic competition has become the biggest
complicating factor. Very best of luck to all those navigating
the complexities of the energy transition in twenty twenty five.
Speaker 1 (18:39):
Today's episode of Switched On was produced by Cam Gray
with production assistance from Kamala Shelling. Bloomberg NEF is a
service provided by Bloomberg Finance LP and its affiliates. This
recording does not constitute, nor should it be construed as
investment in vice, investment recommendations, or a recommendation as to
an investment or other strategy. BLOOMBERGINNIF should not be considered
(19:00):
as information sufficient upon which to base an investment decision.
Neither Bloomberg Finance LP, nor any of its affiliates makes
any representation or warranty as to the accuracy or completeness
of the information contained in this recording, and any liability
as a result of this recording is expressly disclaimed
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