The year started with global leaders and business executives attending the World Economic Forum in Davos. There, Al Gore delivered an exasperated speech while the President of the EU again showed the bloc has an unyielding commitment to the green agenda. Whether or not Churchill was the one that coined the phrase “History is written by the victors”, the point is that prevailing armies dictate policies and winning technologies. Al Gore reminded the Davos audience that we have the technologies needed to deliver the 50% GHG reduction target by 2030, and called for more political will. The President of the EU Commission, Ursula Von der Leyen’s address in Davossummarized the management of the energy crisis that was exacerbated by the war in Ukraine. In less than one year, the EU replaced 80% of Russian pipeline gas, brought down NatGas prices (that peaked at €350/MWh in August) and put in place more policies to accelerate the energy transition. At the same event President von der Leyen announced the Net Zero Industry Act, the EU equivalent to the US IRA (more on that below). In her words, “the story of the cleantech economy is still being written” but it is increasingly clear that cleantech companies will be victors.

IRA positive externalities cross the US border, another boost to Cleantech

The Biden administration’s green agenda will accelerate the energy transition in more profound ways than previously expected, with positive externalities reaching beyond the US border. For instance, Mexico is receiving direct foreign investments into EV and battery build up, as the IRA rules of North American content include production in the NAFTA member country. South Korean, Chinese and American investments into battery supply chains shall see Mexican manufactured batteries being produced in 3Q24 while automakers invest in new EV production sites. Across the Atlantic, the EU parliament also responded to the IRA Bill, deeming it discriminatory as it favours US-based climate tech manufacturers. Currently, the EU produces ca. 25% of all global EV production while the US produces 10% so a fear that US production would attempt to compete not with Chinese-based EV manufacturers but with EU-based ones instead is not unfounded. The EU’s new legislation attempts to address a range of issues such as the regulatory environment, funding, labour force skills. It also aims to tie up to key legislation, like the EU Critical Raw Materials Act that among other goals also elevates the importance of recycling minerals in batteries, one of the key solutions in iClima’s taxonomy. Specific rules on financing and “regulatory sandboxes” are being put in place to scale up solar and wind, as well as the deployment of heat pumps, clean energy storage, green hydrogen, green transportation and carbon storage. The EU Commission will present a reform of the electricity market in March, hoping to enable electricity users to benefit from more predictable and lower costs of renewable power.

Europe did not burn as much coal for electricity in 2022 as feared and renewables take over NatGas

The energy think tank Ember analysed the EU energy transition in 2022 and made very relevant points. Firstly, there was no “winter coal surge” with coal powered electricity generation dropping since September. Secondly, the importance of interconnection was emphasized, as the country that is usually the largest exporter of electricity in the bloc (France) last year became a net importer, as 2/3 of the drop in hydro and nuclear production in France was replaced by imports mainly from Germany, Spain, Belgium, Italy and the UK. Ember expects that NatGas and coal used for electricity production in the EU bloc will drop in 2023 and points out that in 2022 solar + wind represented 22% of the electricity mix, overtaking fossil gas (at 20%) for the first time and staying above coal power (at 18%). The right direction of the grid mix is not enough for Swedish activist Greta Thunberg. She was arrested (for a short period of time) in Germany when protesting against the expansion of a coal mine.

Passing the $1 trillion mark; a material milestone that puts to rest the debate on the impact of the energy crisis on the speed of the energy transition

BloombergNEF just published their “Energy Transition Investment Trends 2023”. It states that in 2022 the total global investments into low carbon energy transition solutions reached $1.1 trillion, passing the $1 trillion mark for the first time. With the additional $274 billion invested in the power grid, energy transition related investment combined reached $1.38 trillion last year. The acceleration is good news, but we are quite far from the average $4.55 trillion of annual investments that BNEF’s Net Zero scenario calls for by 2030 (BNEF’s New Energy Outlook estimates investment into green electricity, industry, buildings and transport of $194 trillion globally to 2050). The report points out that 2022 was the year when investments into green solutions equalled funding into fossil fuels. Interestingly, China accounted for $546 billion of the total global investment, followed by the US at $141 billion. If the EU were treated as a bloc, it would be the second largest green investor at $180 billion; otherwise Germany comes in at third.

Some analysts thought the energy crisis, exacerbated by the war in Ukraine (that in a few weeks will have been going for one year) was triggering a slowdown in the energy transition. They expected more investment into fossil fuels as a solution to the short term “energy trilemma,” but they are being proven wrong. The cleantech economy will write our (bright) future.

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