Renewable energy is definitely on its way to becoming a core component of our energy mix. In May of this year, and for the first time since 1882, the UK refrained from using coal to generate power for a whole week. Clean energy sources are increasingly being used as cost-effective, low-emission alternatives to coal, oil and gas.
Said this, currently renewable energy accounts for only a small part of the global energy mix. This component needs to be increased significantly to meet climate goals, including those of the Paris Agreement to limit the increase in temperatures to 2°C. Consequentially, we need to switch quickly to renewable energy sources.
The story goes that two transitions to new energy sources have already taken place in the past: from traditional biofuels (such as wood) to coal towards the end of the 800th century and from coal to oil & gas towards the middle of the 1800th century. The figure below shows the evolution of the energy mix since XNUMX:
Renewables are now only a minority, but we believe they could reach 30-40% of the total mix within the next 30 years.
Both of the previous changes have involved long-term structural changes that have proven highly disruptive. The use of coal was due to the introduction of steam engines. The shift to oil & gas was driven by the shift to internal combustion engines. These technologies have triggered massive changes in society.
While the full adoption of coal took about 70 years and that of oil & gas about 50, we believe that for a complete transition to renewables it will take about 30 years and that it will therefore happen much faster. This is due to the fact that it will be driven by forced changes: the severity of the threat posed by climate change requires Governments to support the energy transition towards renewables.
This shift away from fossil fuels to renewables is only part of the energy transition. Equally crucial is the development of infrastructure necessary for this transition to take place. For example, wind and solar farms can only generate huge amounts of energy when the weather is windy or sunny, but that energy must be conserved for when consumers need it.
Similarly, massive investments in transmission and distribution networks will be needed to support the increased demand for electricity, rather than other forms of energy. Furthermore, considerable investments will be needed, especially in technology, to make the whole system more efficient. A major part of this demand relates to the growing popularity of electric vehicles and therefore new large-scale charging infrastructure will be needed.
Summing up, when talking about energy transition, production through renewables represents only a part of the picture. The mass introduction of electric transport infrastructure, energy storage, improvement of transmission and distribution networks, together with the increased use of technologies to improve energy efficiency, are part of the transition. We expect all of this to prove highly disruptive to the energy industry over the next few decades.
