Five challenges we need to overcome to move the energy transition forward in 2023

As we look ahead to next year, how can industry meet climate targets and ensure security of supply

The year 2022 has been an exceptional year for the energy industry, with many unexpected surprises and shocks. I’m of course first and foremost referring to the horrific Russian occupation of Ukraine – which has been a terrible humanitarian disaster for the Ukrainian population. The war has also brought energy security into sharp focus across the world, but especially in Europe, which has been hugely impacted by the stop of Russian oil and gas imports.

In 2022, Europe’s power generation situation was also challenged by less hydro capacity due to lower rainfall and major service work which took out almost 50% of nuclear power plant generation capacity in France. This all comes after a difficult few years in the aftermath of the coronavirus pandemic, which has seen supply chain delays and rising inflation, exacerbated by the war in Ukraine. In many ways you could say that 2022, has been an ‘Annus Horribilis’ for the power generation sector.

But many of the challenges we’ve faced this year have also helped accelerate the energy transition. They have forced countries to look inwards and review their energy policies and security of supply situation, and this has already resulted in many short-term responses for both the demand and supply side. There is also increased awareness by governments and regulators of the need to focus on executing the energy transition more efficiently and way faster than before.

It is perhaps a bit ironic that we needed to have a war in Europe to realize this, and that an awareness of climate change was not enough for us to act.

It shouldn’t come as a surprise that DNV’s 2022 Energy Transition Outlook takes a very technology optimistic view on the growth prospects for renewables in the coming decades. By mid-century we forecast that renewables will account for more than 86% of global power generation, and solar PV and wind will account for 69% (up from 12% today). This means Solar PV capacity will increase 18-fold, onshore wind capacity will increase 6-fold and offshore wind 40-fold.

However even with this optimistic forecast – it will not be enough, and our most likely scenario forecasts that even with this strong uptake of renewables, the global temperature will increase by 2,2 degrease Celsius in 2050, which is well above the Paris-agreement target. So clearly even with such a positive growth perspective for the renewable industry, we need to do even more and move faster to realize our climate change commitments. This is our main message to governments and regulators.

So, from both a climate change and an independent security of supply perspective, and as we look ahead to 2023, here are five energy sector challenges that we need to overcome to move the needle on the energy transition.

  1. Regulators need to speed up the regulations and permitting for renewables. Today it is simply taking too long to get the needed regulation in place to get new projects installed. Speeding up regulation is urgently needed because it will still take a lot of effort and time of get decisions implemented – for example, in areas like transmission and power grids, which have long installation times.
  2. We need to focus on net-environmental effects- when it comes to permitting it is understandable that governments and regulators will need to have a thorough understanding of the full environmental sustainability and biodiversity impact before they grant a permit for a renewable project. However, no energy technology is fully without impact – which is why it’s important to focus on “net-environmental-effects”. It is simply not in societies interest that a singular or narrow impact can stand in the way of granting projects with “net-positive-environmental” effects. Let’s not make the perfect the enemy of the good, and hopefully the recently adopted EU emergency regulation will balance this better than it previously has.
  3. Governments and the EU should help speed up investments in new breakthrough technology like floating wind, dynamic offshore cables, energy islands and green hydrogen. These new technologies would come online much faster and in bigger volumes if there were extra incentives (subsidies) to help de-risk and scale these technologies, for a limited time, for example until 2030. If such extra funds are not available – project owners and investors will need to run normal (slow) commercial procedures for scaling up – and the question is, can countries and markets can really wait for this. I don’t believe so, as we would easily lose 10 years in implementation delays.
  4. Power grids need massive investment to scale. The plans for a massive build out of renewables and offshore wind in particularly in established markets (like Europe and the US) will rely on grand plans for transmissions and power-grids across nations and states. But building a new power grid will take 10-20 years, which means plans need to be turned into action today. The reward for making these big public investments though would be sustainable energy independence and an acceleration of the electrified green economy.
  5. Last, but not least – if we want the energy transition to unfold fast and at the lowest cost – we simply must not limit the manufacturing location of technologies. According to the ruling of World Trade Organization, local content requirements are illegal and will only slow down the energy transition and add an unnecessary price tag – to industries, investors, and end-consumers. These kinds of domestic policies are usually not even needed as most renewables will come with very high natural (not forced) local content because of their technology nature. Insisting that the last 30-50% is local content is both rigid and expensive.  Therefore, the US and the EU should lead the way and create a transatlantic open market for green technologies.

These are my five wishes for 2023 – some of them have positive geo-political effects, others are just sensible measures at national and regional level. In these difficult times, I remain optimistic for the green energy sector and that we can turn ambition into action in 2023!

12/15/2022 9:00:00 AM