Analysts see that the market is making a big mistake with the energy transition

The pace of change in the modern world is often rapid and dizzying. Technologies that seem integral to our lives can, in what feels like an instant, become redundant and irrelevant.

Energy is a sector where innovation and new ideas matter a lot, as countries and companies try to find ways to shift to a society based on renewable energy such as wind and solar rather than fossil fuels such as coal, oil and natural gas.

During a panel discussion at last week’s World Economic Forum in Davos, Switzerland, one analyst expressed his fear that the market did not seem to have learned from other technological revolutions.

Thomas Hohne-Sparborth, head of sustainability research at Lombard Odier, highlighted the huge shifts taking place in low and zero carbon technologies and, by extension, society as a whole.

“We’ve seen previous industrial revolutions, including previous energy transitions,” Hohne-Sparborth said. “What we’re really seeing now is the complete transformation of our entire economy.”

“The demand side of our economy, the way we drive vehicles, the way we heat our buildings, the way we use energy in industry – all of this needs to be transformed.”

We were, Hohne-Sparborth said, “looking at investment needs in the trillions of dollars.”

When it comes to the energy transition, the amounts being discussed are indeed significant. Last year, the International Energy Agency’s “World Energy Outlook 2022” report said clean energy investment could be on track to exceed $2 trillion a year by 2030, an increase of over 50% from today.

Analysts talk about clean energy, the pace of change and lessons the market can learn from history

As the discussion in Davos – which was moderated by CNBC’s Joumanna Bercetche – progressed, Hohne-Sparborth was asked if clean energy was now affordable at the scale required.

The answer to that question was, he replied, “very rapidly changing, and today I would say, yes, it has become the cheapest source of energy.”

“What I think the market is generally underestimating is simply the pace at which this transition is unfolding,” he added, explaining that one could learn from history.

“We’ve done some work looking at past technological revolutions, whether it’s the adoption of steamships, of cell phones — any piece of major kind of new infrastructure technology.”

All such transitions had, Hohne-Sparborth argued, “tended to follow a very similar pattern. They unfold very slowly … and then the transition completes in 10 to 20 years.”

“But if you look today at what the market expects — how long it will take us to electrify our buildings, to electrify our fleets — the time frame is still much longer.”

For Hohne-Sparborth, it didn’t seem to get through, “when a new, superior technology emerges that becomes cost-competitive, rollout can happen very quickly.”

Dramatic change

Andres Gluski, CEO of the energy company, also appeared on the CNBC panel AES.

“What we are facing … is a dramatic change,” he said, adding that renewable energy now represented “the cheapest form of energy in most cases.”

“The issue is capacity—how do you keep the lights on 24/7—and that’s where you need lithium-ion batteries on a daily basis.”

To expand on his point, he went on to emphasize the importance of adopting a variety of technologies.

“To really get to full decarbonization, we need green hydrogen, we’re probably going to need small modular atoms, etc.”

“And I also strongly agree that what we need is for renewables to be more than just competitive — just better, so we lower costs (and) equal in quality.”

“And that’s frankly what the business sector is asking for a lot, and a lot of consumers.”

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