Annual Report - 2018
Annual Report - 2018
My Take on The European Energy Transformation
What insights can you share on the sustainable infrastructure transformation in Europe?
The European sustainable infrastructure market is undergoing rapid transformation, driven by the growing concern of nations and citizens over global warming and its direct impacts on the planet. The COP21 agreement in Paris in 2015 was a wake-up call for Europe, and raised the awareness of public and private stakeholders. Renewable energy capacity is now growing at a rapid pace, and most European countries are pressing the public transportation and power production industries to transition even faster from fossil energy to renewable energy.
Nordic countries are at the forefront of this transformation, pushing for the build-out of infrastructure needed to support electrification of vehicles, the circular economy and more decentralized renewable energy production. France, Spain and Italy are also catching up with ambitious targets. Most of the EU countries and large corporations are now calling for zero net carbon emissions by 2050 at the European level, to keep global warming below +1.5°C. This places Europe among the world’s front-runners in the energy transition journey.
What trends have you seen emerge over the past 10 years?
Thanks to the liberalization of the energy market and the emergence of new technologies, we have observed the sudden weakening of the traditionally “centralized” and vertically integrated business model of incumbent energy utilities, and the emergence of alternative producers and suppliers. Incumbent utilities are suffering and have been forced to adapt. In 2018, we saw a massive shift in German utilities, with E.ON, Innogy and RWE all trading assets to adapt to the market landscape. In Denmark, Ørsted (formerly Dong Energy) exited all fossil activities and became a pure renewable player. SSE is following the same strategy in the U.K. In France, ENGIE has sold its upstream oil & gas and LNG activities, and is gradually selling all its coal-fired plants.
The rapid decrease of the LCOE (levelized cost of energy) of wind and solar has also completely disrupted the energy mix. Gas, coal and nuclear have been replaced by renewable assets as the most economically viable fuel for newly built power plants in Europe. The emergence of storage technologies “behind” and “in front of the design” is also challenging historical market design. Despite the privatization of the sector, public stakeholders are weighing more than ever on these markets. Germany, Switzerland and Belgium will shut down all nuclear fleets by 2025. France and the U.K. are now facing difficult strategic decisions regarding the future of their nuclear fleets. Spain just announced its intent to move to 100% renewable electricity by 2050. Cities and local communities have launched similar initiatives to promote the energy transition, announcing strict pollution limits and banning the highest-polluting vehicles from their centers.
We saw heightened focus on energy efficiency among citizens and industrials, presenting a new business opportunity with the emergence of the Energy Service Company (ESCO) and more energy services globally. This market is growing rapidly and has attracted a range of newcomers, including real estate, construction, utilities, international oil companies (IOCs), hardware OEMs, and IT players.
Mostly under the pressure of institutional shareholders, large oil companies and transportation players are being forced to invest in renewables and demonstrate a strategic plan to gradually shift away from fossil fuels. Shell, Total and Equinor (formerly Statoil) are likely the most advanced European IOCs in this transition. European OEMs will have brought to market more than 25 electric vehicle models by the end of 2019. Trains, buses and boats are becoming electric or fueled by hydrogen.
What do we need for accelerated industry transformation? What trends do you expect we’ll see emerging in the next 5-10 years?
The reinforcement of ESG criteria for listed and private companies would clearly accelerate the transition to a more sustainable world. This would allow sustainability KPIs (key performance indicators) to serve as a key parameter driving companies’ valuation.
A G20 coordinated approach to push for the implementation of a CO2 tax at a global level would heavily accelerate this transition in the transportation and energy sectors, as would tighter regulations from the EU states to reduce CO2, NOx and SOx emissions.
With the recent focus on green bond initiatives, I expect that financing will become even more accessible for mid-cap and small-cap companies willing to invest in distributed renewable energy, energy efficiency and recycling solutions. With the emergence of storage, Distributed Energy Resource Management Systems (DERMS) and Vehicle-to-Grid solutions, new technologies and services will balance the grid and further disrupt the way we produce, store and use energy. Finally, we will also see an accelerated change in citizen behaviors around mobility, energy conservation and recycling.
Which sustainable technology do you think has the biggest potential to disrupt our infrastructure systems?
Green Hydrogen is one of the most promising solutions to accelerate the energy transition and significantly reduce CO2 emissions of the transportation, energy and heavy industries sectors. Large-scale electrolyzer technologies are quickly evolving as Proton Exchange Membrane (PEM), alkaline and now Solide Oxide Electrolyzer cells (SOEC) technologies become cheaper and more robust. Hydrogen can be used to carry energy, store energy and fuel transportation.
As global renewable energy capacity continues to expand, hydrogen can help manage the intermittency and eliminate the need for new power transmission lines. While the technologies required to build the Green Hydrogen global ecosystem (including electrolyzers and fuel cells) are still at the early stages, they have strong potential and under certain conditions can already be competitive.
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