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Powering up the energy transition

01 September 2022
Enhanced weathering

In summary

  • Energy supplies, already constrained due to Russian sanctions, have been further disrupted by the impact of the summer heatwave
  • The US has passed the Inflation Reduction Act, committing $370 billion to climate and energy measures
  • China leads the global energy transition by expenditure

The global energy complex is under pressure. In recent months we have seen energy supplies constrained due to Russian sanctions, with further disruption arising as a result of the summer heatwave. In France, EDF has had to shut down over half of its nuclear plants. Whilst some of these plant closures have been attributed to corrosion issues, the recent heatwave has also led to a rise in temperatures of the local rivers used to cool the nuclear reactors, a crucial element in production, therefore reducing overall efficiency of this energy source. Germany’s Rhine River is currently too shallow to transport cargo, including traditional energy. The Sichuan province of China, which relies on hydropower for 82% of its power generation[2], experienced its worst drought in more than half a century in August, resulting in hydropower capacity being halved and causing a number of factories to close. Even the efficiency of solar energy is impacted by hot weather. For every degree above 25C, the efficiency of a solar panel can drop by as much as 0.5%. When a panel temperature reaches 45C, the solar efficiency could fall by 10%.

Whilst green energy has proven more inefficient during the summer heatwave, this has not deterred investment from around the world into this technology. 

The US

Last month, the US passed a historic Inflation Reduction Act. Whilst many countries have recently approved climate packages and enforced regulation, the size and scope of this Act should not be underestimated. It represents more than $370 billion of investment and subsidies to be spent over ten years dedicated to climate and energy measures. These include tax credits for EVs, $20 billion spent on clean vehicle manufacturing facilities, ten years of consumer residential energy tax credits and $20 billion to support climate-smart agricultural practices.

The EU

In response to the outbreak of war in Ukraine, the European Union published their plan to reduce reliance on Russian oil and gas. This plan is estimated to cost circa €300 billion by 2030[3] and includes investing in solar and wind power, energy storage investment, green hydrogen innovation and promotes awarding of permits to renewable energy projects.

China

Whilst these significant commitments by some of the developed world’s largest economic powers seem encouraging, they pale in comparison with the levels of deployed climate investment by China. Last year, China accounted for 46%[4] of the world’s new construction of renewable energy infrastructure, investing $380 billion, more than any other country during 2021[5]. China’s solar energy spending for the first six months of this year has totalled $42 billion (173% higher than last year). The country’s spending on new wind projects totalled $58 billion (107% above 2021 levels)[6]. According to China’s Renewable Energy Engineering Institute, the country is set to install a record 156 gigawatts of wind turbines and solar panels this year. By comparison under the Inflation Reduction Act, additions to US wind capacity could increase from 15 to 39 gigawatts per year by  2025-2026, according to researchers at Princeton University.

China leads global energy transition spending

Public and private investments, 2012-2021

China global energy

 Source: BloombergNEP, Note: The UK is included in EU calculations until 2020

 

The energy transition represents one of the most environmentally, but also economically, important shifts of recent times.

1 https://www.rte-france.com/en/eco2mix/power-generation-energy-source#

2 Bloomberg

3 https://ec.europa.eu/info/strategy/priorities-2019-2024/european-green-deal/repowereu-affordable-secure-and-sustainable-energy-europe_en

4 Bloomberg article

5 https://www.iea.org/data-and-statistics/data-product/world-energy-investment-2022-datafile

6 Bloomberg New Energy Finance

7 FE Analytics

8 FE Analytics

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