COP27 – How is the energy sector accelerating the energy transition?

If the recent coronavirus pandemic showed us anything, it was that polarised systems are hugely vulnerable to systemic risks. The energy sector's over reliance on hydrocarbons and nuclear power left it particularly exposed to the supply-chain shocks that have already sent shockwaves through global markets.

This is just one symptom of the building pressure on the energy sector to diversify into more sustainable energy sources.

The shift from fossil fuels to renewable energy is not merely an environmental imperative – it offers a host of economic benefits too. Renewable sources such as solar and wind power generate electricity without emitting any greenhouse gases, offering a cost-effective alternative to increasingly expensive and polluting fossil fuels.

Furthermore, renewable energy sources often require less capital investment than traditional power generation methods, providing a more accessible option for areas with limited access to financing.

These benefits, as much as the sociological pressure to move away from fossil fuels, have led to an acceleration in the transition to a greener future.

But what exact role is the energy industry playing in that transition?

What are the primary challenges of the energy transition?

The most obvious challenge of a complete energy transition is capital expenditure. The cost of replacing old coal-fired power plants with renewable energy infrastructure is very high. Sticking to the Paris Agreement's target of a maximum of 1.5°C global warming requires considerable investments in renewable energy, storage and grid infrastructure, to the tune of USD 5.7 trillion per year until 2030.

Most of this capital is expected to come from the private sector, but governments must provide incentives to ensure this transition happens quickly and efficiently. Additionally, getting rid of existing infrastructure is costly and challenging, as it involves dealing with legacy contracts, legal issues, and environmental impacts.

Another challenge associated with the energy transition is grid stability. The current grid infrastructure was designed for a centralized electricity system based on steady generation from large power plants. With the rise of more decentralized generation from renewable sources, grid stability is becoming increasingly difficult to maintain as energy production fluctuates in response to changing weather conditions.

Finally, there are regulatory and policy issues associated with the energy transition. Many countries have yet to adopt policies that facilitate a quick and efficient shift away from fossil fuels. Without the right regulatory framework, energy transition initiatives can be difficult to implement and sustain.

The energy sector is uniquely positioned to overcome these challenges

As mentioned, the energy transition is capital intensive, but the energy sector is not short on resources. As the 8th largest industry in the world, the energy sector has access to massive amounts of capital.

Many energy companies have invested heavily in renewable technologies, such as solar and wind power, over the past few decades. They are now well positioned to leverage this investment to make further progress towards a clean and sustainable energy system.

In addition, many countries have put in place incentives for businesses to invest in renewable energy. This has opened up opportunities for energy companies to access more funding and accelerate the transition to a low-carbon economy.

Furthermore, advances in technology have drastically reduced the cost of renewable energy production, making it more accessible as well as profitable. For the first time in history, solar energy is cheaper than coal, and the worldwide renewable energy sector is expected to be worth over $1.5 trillion by 2025.

Investing in renewables not only benefits the environment, but also materially benefits those energy companies that make the switch. Renewable energy sources provide a steady and predictable source of income, which also undercut the cheapest fossil fuels on cost.

The business opportunities presented by the emerging renewable energy sector will only continue to grow in the years to come, as the world is increasingly looking for sustainable forms of energy.

How is the energy sector already accelerating the energy transition?

The COP27 is an excellent example of how the energy sector is already accelerating the energy transition. Some of the initiatives announced include:

• The Africa Just and Affordable Energy Transition Initiative (AJAETI) – The aim of this scheme is to offer the technical and policy support needed to increase renewable electricity generation in Africa by 25% and facilitate affordable energy for at least 300 million people.
• The Planning for Climate Commission – A joint initiative by the Green Hydrogen Organisation, International Hydropower Association, the Global Wind Energy Council, and the Global Solar Council. The Planning for Climate Commission focuses on speeding up the process of getting new renewables and green hydrogen projects planned and approved. With compliance being a major hurdle for any renewable energy project, the commission looks to reduce barriers and create a more efficient process.
• The Caribbean Climate Smart Fund – A collaboration between RMI and Lion’s Head Global Partners, this scheme will see the launch of a USD 15 million Project Preparation Facility, supported by USD 75 million in funding to invest in climate-smart projects and initiatives in the Caribbean. The Fund will support projects that help people become resilient to the impacts of climate change while also helping to improve access to clean energy and energy efficiency technologies.
• The Launch of the Global Renewables Alliance – This initiative will bring together key stakeholders to facilitate the swift deployment of renewable energy in countries across the globe. The Alliance aims to reduce barriers and create a more efficient process for financing, permitting, and connecting renewable projects. It also seeks to build local capacity, pilot innovative business models, and share lessons learned from successful initiatives.

Projects like the ones listed above are just the tip of the iceberg when it comes to tackling climate change. To truly move forward, governments and businesses must work together to develop innovative solutions that will help reduce emissions and increase energy efficiency.

By leveraging the collective power and resources of stakeholders from around the world, we can accelerate progress and make a real difference in our fight against climate change.

Building a sustainable energy future

The energy sector is under huge amounts of pressure to accommodate a growing need for energy – including oil and gas – with a global transition towards low-carbon energy systems.

Using advance technologies and an innovative approach, our client – a major energy supermajor – is attempting to balance these needs, looking at ways to achieve efficiencies in its current value chain whilst investing in a more sustainable energy future. Discover how GlobalLogic is helping them on their journey here.