The Energy Transition Facing Technological Uncertainty
In this period of transition and changing technological paradigms, what are the available strategies for private companies?
Choosing two Italian energy companies, we can cite Eni and Enel as good examples of two different but typical situations. In the first one, as Eni is doing, fossil fuel companies focus on gas as a transition fuel, a back-up for renewables since storage is still not widely available. As many on the international field, Eni believes that a large scale storage technology will likely not be available in the next 20 or 30 years and that gas will therefore play a key role.
Another way is to heavily invest in CO2 removal or in carbon capture and storage, in order to keep using fossil fuels and recover the gases they release into the atmosphere. This is a solution which has aroused more interest in American companies than in European ones.
The other typical situation is exemplified by Enel which is focusing instead on the most efficient way to produce sustainable electricity. Since generation is a sector in rapid evolution, Enel has refused to build expensive plants which will likely become obsolete in a few years. It is instead investing on renewables, storage and batteries, smart grids and electric devices, cars in primis.
What is the role of renewables in the diversification strategy of hydrocarbon companies?
It is still limited but growing. My impression is that, on the basis of what many CEOs have openly stated, these companies are moving from being an “oil and gas” company towards being an “energy” company, since renewables will play an increasing role in their production. Eni created a distinct renewables department, and many other companies did as well, but investments are still insufficient to achieve the energy transition needed to comply with the Paris Agreement. This, however, is also due to the technological uncertainty we have been talking about, since hydrocarbon companies are probably temporizing in order to understand what will be the winning technology to invest in.
Switching from the private to the public sector, what do you think is and will be the role of institutions and governments in the energy sector? In particular, do you think that we are moving from a dominant public sector to an increasing importance of the private sector?
Indeed, the private sector is growing; out of this year’s 391 billion dollars specifically invested in climate-related initiatives, of which 93% have been invested in GHGs mitigation infrastructures and then almost all of this in renewables power and energy efficiency, 60% came from the private sector. Yet, this is happening because of a growing return on investments, especially in the short term. We are still missing a clear message from the public sector. The Paris Agreement was surely a strong signal, but we need more solid and more concrete commitments of several countries about how it will be implemented , especially those which are responsible for the largest shares of both emissions and investments. A clear signal could be a pricing mechanism, such as a carbon price, tax or a trading scheme – it does not matter which form it takes as long as it shows investors this is the direction governments want to take. This will shift the price balances even more towards renewables.
What is lacking also a plan to stimulate investments in research and development. This is what private investors are already working on, but the public sector is so important here they will not be able to fully achieve this objective alone. And this support needs to be strong, but not incredibly high in financial terms. It is the same kind of support that was applied for the space program in the 1960s: a great international and collective effort to develop the required technology to go to the Moon. The idea is the same: a great international plan, this time for climate change and in particular to develop renewables, energy efficiency, energy storage and CO2 removal.
Choosing two Italian energy companies, we can cite Eni and Enel as good examples of two different but typical situations. In the first one, as Eni is doing, fossil fuel companies focus on gas as a transition fuel, a back-up for renewables since storage is still not widely available. As many on the international field, Eni believes that a large scale storage technology will likely not be available in the next 20 or 30 years and that gas will therefore play a key role.
Another way is to heavily invest in CO2 removal or in carbon capture and storage, in order to keep using fossil fuels and recover the gases they release into the atmosphere. This is a solution which has aroused more interest in American companies than in European ones.
The other typical situation is exemplified by Enel which is focusing instead on the most efficient way to produce sustainable electricity. Since generation is a sector in rapid evolution, Enel has refused to build expensive plants which will likely become obsolete in a few years. It is instead investing on renewables, storage and batteries, smart grids and electric devices, cars in primis.
What is the role of renewables in the diversification strategy of hydrocarbon companies?
It is still limited but growing. My impression is that, on the basis of what many CEOs have openly stated, these companies are moving from being an “oil and gas” company towards being an “energy” company, since renewables will play an increasing role in their production. Eni created a distinct renewables department, and many other companies did as well, but investments are still insufficient to achieve the energy transition needed to comply with the Paris Agreement. This, however, is also due to the technological uncertainty we have been talking about, since hydrocarbon companies are probably temporizing in order to understand what will be the winning technology to invest in.
Switching from the private to the public sector, what do you think is and will be the role of institutions and governments in the energy sector? In particular, do you think that we are moving from a dominant public sector to an increasing importance of the private sector?
Indeed, the private sector is growing; out of this year’s 391 billion dollars specifically invested in climate-related initiatives, of which 93% have been invested in GHGs mitigation infrastructures and then almost all of this in renewables power and energy efficiency, 60% came from the private sector. Yet, this is happening because of a growing return on investments, especially in the short term. We are still missing a clear message from the public sector. The Paris Agreement was surely a strong signal, but we need more solid and more concrete commitments of several countries about how it will be implemented , especially those which are responsible for the largest shares of both emissions and investments. A clear signal could be a pricing mechanism, such as a carbon price, tax or a trading scheme – it does not matter which form it takes as long as it shows investors this is the direction governments want to take. This will shift the price balances even more towards renewables.
What is lacking also a plan to stimulate investments in research and development. This is what private investors are already working on, but the public sector is so important here they will not be able to fully achieve this objective alone. And this support needs to be strong, but not incredibly high in financial terms. It is the same kind of support that was applied for the space program in the 1960s: a great international and collective effort to develop the required technology to go to the Moon. The idea is the same: a great international plan, this time for climate change and in particular to develop renewables, energy efficiency, energy storage and CO2 removal.
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