Speaker 1: This is Dana Perkins and you're listening to Switched on
Speaker 1: the BNAF podcast. It's January, and while we might have
Speaker 1: stopped wishing our friends a happy new year, many of
Speaker 1: us are still taking stock of what we learned in
Speaker 1: twenty twenty four and thinking about how to apply this
Speaker 1: to the future. As each of us do this, we
Speaker 1: find out if we are more of a glass half
Speaker 1: full or half empty kind of person, or perhaps for
Speaker 1: many of us who work in the clean energy and
Speaker 1: climate space, maybe we oscillate between them both. On today's show,
Speaker 1: we're going to bring you something different from our usual
Speaker 1: BNAF analyst interview. Albert Chung, bn EF's deputy CEO is
Speaker 1: going to read his recent note titled five Energy Transition
Speaker 1: Lessons for twenty twenty five. In it, he considers what
Speaker 1: lessons can be gleaned from the year gone by and
Speaker 1: how this should inform the journey ahead in just five points.
Speaker 1: If you like our show and want other people to
Speaker 1: be able to find it, give us a review or
Speaker 1: subscribe wherever you get your podcasts. B and EF subscribers
Speaker 1: will be able to read Albert's note at BNF on
Speaker 1: the Bloomberg terminal or at BNF dot com. Right now,
Speaker 1: let's hear Albert's five energy transition lessons for twenty twenty five.
Speaker 2: Five Energy transition lessons for twenty twenty five. To work
Speaker 2: in clean energy and climate is to live in a
Speaker 2: constant state of cognitive dissonance, stuck between good news and bad.
Speaker 2: On the good side, every year brings continuous growth in
Speaker 2: clean tech industries, record levels of investment and steady technological advances.
Speaker 2: This past year was no different. Record numbers of electric
Speaker 2: vehicles were sold in twenty twenty four, record amounts of
Speaker 2: clean power capacity were installed, New energy storage technologies gain traction,
Speaker 2: and when our investment totals are published later this month,
Speaker 2: we will hopefully see that energy transition investment hit a
Speaker 2: new record. To watch this space, Yet, despite years of
Speaker 2: continuous and rapid acceleration, it has never Each winter, BNF
Speaker 2: analysts spend weeks crunching numbers only to conclude that global
Speaker 2: energy transition investment is running well below the level required
Speaker 2: to get on track for net zero by mid century.
Speaker 2: This year, the story is likely to remain unchanged. Such
Speaker 2: is the relentless logic of being on a growth curve
Speaker 2: that sits stubbornly below the curve you want to be on.
Speaker 2: The dissonance is even stronger this year and has many
Speaker 2: contributing factors, including the incoming Trump administration, the slowing growth
Speaker 2: of evs, the struggles of Europe's battery sector, the limited
Speaker 2: progress on hydrogen and industrial decarbonization, ongoing difficulties in the
Speaker 2: offshore wind sector, and the COP twenty nine finance deal
Speaker 2: that left many countries underwhelmed. This sense of unease carries
Speaker 2: five important lessons that we should absorb as we begin
Speaker 2: a new year of work in the energy transition. One,
Speaker 2: the energy transition won't slow down because of the challenges above.
Speaker 2: The word slow down was never far from the lips
Speaker 2: of commentators and executives last year, but in reality, our
Speaker 2: latest estimates indicate that at twenty twenty four was a
Speaker 2: pretty strong year for clean energy deployment. Solar PV installations
Speaker 2: were up thirty five percent year on year, wind was
Speaker 2: up five percent, energy storage installations rose seventy six percent
Speaker 2: in megal hour terms, and EV sales gained twenty six percent.
Speaker 2: Note these are BNF estimates that predate the end of
Speaker 2: twenty twenty four, even stripping out mainland China, a market
Speaker 2: that can sometimes skew figures does not change the direction
Speaker 2: of travel, with most of these sectors continuing to grow
Speaker 2: in the America's and EMEA regions. Onshore wind outside of
Speaker 2: APAC is a notable exception, with installations down as permitting
Speaker 2: delays and grid connection queues remain a bottleneck. Newer technologies
Speaker 2: like clean hydrogen and carbon capture in storage or CCS,
Speaker 2: have had a tougher year, but here we still see
Speaker 2: growth on the way. Bnof's latest forecasts are for as
Speaker 2: much as sixteen million metric tons of annual clean hydrogen
Speaker 2: production capacity to come online by twenty thirty, up from
Speaker 2: nearly nothing today, and around two hundred million metric tons
Speaker 2: per annum of CCS capacity to be installed by then.
Speaker 2: So even the hard to abate sectors will start to
Speaker 2: make progress. And what about the Trump effect? Our updated
Speaker 2: EV sales forecast for the US now sees them accounting
Speaker 2: for one third of new vehicles sold in twenty thirty,
Speaker 2: roughly a tripling of today's market penetration. True, this is
Speaker 2: lower than the forty eight percent penetration expected by twenty
Speaker 2: thirty under Biden era regulations, but it is still growth.
Speaker 2: As for clean power. We would still expect more than
Speaker 2: nine hundred gigawatts of new solar, wind and storage build
Speaker 2: in the US by twenty thirty five under a scenario
Speaker 2: in which investment and production tax credits are fully repealed.
Speaker 2: This is down from our most recent forecast of over
Speaker 2: one thousand, one hundred gigawatts under existing incentives, but it
Speaker 2: is still growth. So our first lesson is simple. Clean
Speaker 2: energy technologies will continue to grow and the energy transition
Speaker 2: won't slow down, even if it feels hard at times two,
Speaker 2: this is the hard part of the journey. That the
Speaker 2: transition is starting to feel hard shouldn't come as aus
Speaker 2: Many of the easier opportunities have been conquered. Early adopters
Speaker 2: in richer countries have already bought evs and home solar
Speaker 2: systems and renewables developers have snapped up the best sites
Speaker 2: with the cheapest grid connections in the most economically and
Speaker 2: politically stable markets. These early movers played a critical role
Speaker 2: in driving down the costs of clean energy technologies and
Speaker 2: bringing them to scale, but achieving scale means that growth
Speaker 2: rates will start to fall. At the time of writing,
Speaker 2: our latest estimate is that EV sales globally grew twenty
Speaker 2: six percent year on year in twenty twenty four to
Speaker 2: seventeen point two million units, approaching a quarter of all
Speaker 2: new car sales. This is undoubtedly strong growth, but it
Speaker 2: is much slower than the sixty percent and thirty four
Speaker 2: percent growth rates in twenty twenty two and twenty twenty three.
Speaker 2: In fact, the growth is starting to look fairly linear.
Speaker 2: If our projection is right, the global ev market will
Speaker 2: have grown by a steady three point three to three
Speaker 2: point nine million units in each of the last four years.
Speaker 2: Confounding predictions that energy transition technologies always grow exponentially everywhere,
Speaker 2: we now think the solar sector will do something similar.
Speaker 2: Annual solar installations likely grew an impressive thirty five percent
Speaker 2: in twenty twenty four and have quadrupled since twenty twenty,
Speaker 2: but our team is forecasting just eleven percent growth in
Speaker 2: twenty twenty five and more or less linear growth thereafter.
Speaker 2: This is because several advanced markets are reaching high penetrations
Speaker 2: of solar. Greece and Spain, for example, likely drew more
Speaker 2: than a quarter of their electricity from solar last year.
Speaker 2: This drives down midday power prices, necessitating new revenue models
Speaker 2: and increased storage deployment to push penetration even higher. We
Speaker 2: know these solutions will come, but they require policy development
Speaker 2: to open a new frontier for the growth of solar
Speaker 2: in mature markets. Growth in emerging markets will be the
Speaker 2: bigger driver in future. India, Pakistan, Turkey, Saudi Arabia and
Speaker 2: Romania all posted more than fifty percent growth in solar
Speaker 2: installations in twenty twenty four by our estimates. However, many
Speaker 2: emerging markets still lack the regulatory market environment needed for
Speaker 2: large scale clean energy adoption. This next phase of the
Speaker 2: transition means tackling new problems, Unlocking storage and flexibility in
Speaker 2: mature renewables markets to drive to higher penetrations, developing renewables
Speaker 2: in markets that lack the proper technical and commercial arrangements,
Speaker 2: getting charging infrastructure right to support mass market drivers and
Speaker 2: truck fleet operators switching to evs, as well as driving
Speaker 2: demand for clean energy and fuels in aviation, shipping, and
Speaker 2: heavy industry. Progress is being made on these challenges, and
Speaker 2: solving them will create new opportunities and stimulate the next
Speaker 2: cycle of growth in the transition.
Speaker 1: Three.
Speaker 2: Be careful not to misinterpret the data in a space
Speaker 2: as complex and a motive. As the energy transition, real
Speaker 2: challenges can often be accompanied by exaggerated ones. Let's take
Speaker 2: the EV sector again, where misinformation or at least to
Speaker 2: misinterpreted data is common. The EV slowdown story in twenty
Speaker 2: twenty four was largely focused on the EU, where sales
Speaker 2: growth did indeed slow down. While most headlines put the
Speaker 2: blame on consumers not wanting evs, the truth was more nuanced.
Speaker 2: For example, in summer twenty twenty four, EV sales in
Speaker 2: Germany slipped by double digits from the year before, but
Speaker 2: news reporting failed to point out that there had been
Speaker 2: a surge in sales the year before, triggered by the
Speaker 2: ending of a subsidy regime. What's more, the European Environment
Speaker 2: Agency has now confirmed that ninety eight out of one
Speaker 2: hundred and one automakers met their binding CO two emissions
Speaker 2: targets in twenty twenty three. The three that didn't are tiny. Crucially,
Speaker 2: the EU wide targets have remained the same from twenty
Speaker 2: twenty one to twenty twenty four, so it is somewhat
Speaker 2: likely that these automakers will have met their targets again
Speaker 2: in twenty twenty four, and EV sales were roughly flat
Speaker 2: in Europe in twenty twenty four, not down. In other words,
Speaker 2: the auto industry is already selling enough evs in Europe
Speaker 2: to comply with the only meaningful emissions policy they are
Speaker 2: subject to. Those emissions targets will tighten up to a
Speaker 2: new level in twenty twenty five, remaining flat again until
Speaker 2: twenty twenty nine. Given this policy design, a perfectly rational
Speaker 2: automaker strategy would be to work wait until twenty twenty
Speaker 2: five before launching new, improved, competitively priced evs, while doing
Speaker 2: the bare minimum to push EV sales in twenty twenty
Speaker 2: four and deferring price cuts even as battery prices fail
Speaker 2: to a new record low. I believe that in retrospect
Speaker 2: we will see that the EU EV slow down in
Speaker 2: twenty twenty four was baked in from the start. It
Speaker 2: was a feature of European emissions policy design, not a bug.
Speaker 2: Lesson learned, Be careful not to misinterpret the data. Four.
Speaker 2: A successful transition is a profitable one. It may be
Speaker 2: a blindingly obvious point, but the past year has reminded
Speaker 2: us that the energy transition will only succeed if clean
Speaker 2: energy investments generate risk adjusted returns that meet the requirements
Speaker 2: of companies and their investors. There is no world in
Speaker 2: which public or concessional capital alone can solve the climate
Speaker 2: mitigation challenge. This truism has reared its head in the
Speaker 2: hydrogen sector, where costs are rising, not falling. Our estimates
Speaker 2: for levelized costs of clean hydrogen are thirty five percent
Speaker 2: high on average than two years ago, at three dollars
Speaker 2: seventy five four to eleven dollars seventy per kilogram, depending
Speaker 2: on geographical location and other factors. An ammonia auction by
Speaker 2: Germany's H two Global Foundation last year priced green ammonia
Speaker 2: imports at double the price of gray ammonia in Western Europe,
Speaker 2: and there are now very few places in the world
Speaker 2: where we expect clean hydrogen to compete with the gray
Speaker 2: variety by twenty fifty. So for prospective industrial users and
Speaker 2: producers of hydrogen who must make multi decadal investments to
Speaker 2: adopt greener molecules, meeting any return expectations will depend on
Speaker 2: regulations such as carbon pricing and subsidy for the foreseeable future.
Speaker 2: Governments that are serious about driving hydrogen use in sectors
Speaker 2: such as fertilizers chemicals and steel must make sure that
Speaker 2: long term incentives, regulations, and demand side policy are in
Speaker 2: place to support companies and investors down this road. The
Speaker 2: benefits can be counted not only in terms of carbon emissions,
Speaker 2: but also enhanced energy security. The offshore wind industry offers
Speaker 2: a contrasting but equally relevant example. The emergence of zero
Speaker 2: subsidy offshore wind projects in Europe in the late twenty
Speaker 2: tens led to a surge in interest across the world,
Speaker 2: with new opportunities arising in the US and Asia, National
Speaker 2: and state government agencies set up auction processors to award
Speaker 2: the cheapest power purchase contracts to the most aggressive bidders,
Speaker 2: and in many cases those developers were also made to
Speaker 2: bid competitively for seabed leases or offer other non monetary
Speaker 2: benefits to make their bids more attractive. This ultra competitive
Speaker 2: approach has delivered impressively low clean power prices, but has
Speaker 2: also sown the seeds of other problems. Even before the
Speaker 2: inflation surge of twenty twenty two to twenty twenty three,
Speaker 2: wind turbine manufacturer's margins were being squeezed by their over
Speaker 2: ambitious customers and pressure to invest in ever larger turbine platforms.
Speaker 2: Rising costs have since led to failed auctions in various
Speaker 2: countries and a spate of canceled projects in the US
Speaker 2: and other markets. Only now are lessons beginning to be learned.
Speaker 2: As recently as December, an offshore wind auction in Denmark
Speaker 2: failed as developers were expected to pay for the right
Speaker 2: to develop their power plant with no revenue contract on offer.
Speaker 2: The risk adjusted returns were simply not there. Against this backdrop,
Speaker 2: it is no wonder that a number of all oil
Speaker 2: and gas companies have moved to limit their exposure to
Speaker 2: offshore wind. This may even prove to be a positive
Speaker 2: for the industry if it reduces competition and demonstrates that
Speaker 2: policy regimes still need to attract private sector investment. The
Speaker 2: same logic applies to financial institutions and their role in
Speaker 2: the transition, and here we are at an exciting juncture.
Speaker 2: A growing list of banks, including JP, Morgan City and RBC,
Speaker 2: have committed to publish their ratios of clean energy financing
Speaker 2: to fossil fuel financing, and BNP Paraber has set a
Speaker 2: target of ninety percent, or a nine to one clean
Speaker 2: to fossil financing ratio for twenty thirty by focusing on
Speaker 2: the solutions building clean energy and not only the problem
Speaker 2: fossil fuel emissions. These types of metrics are a big
Speaker 2: step in the right direction and will likely form a
Speaker 2: key part of banks transition plans. However, the banks cannot
Speaker 2: achieve these ratios on their own. For these aims to
Speaker 2: be realized, the conditions in the real economy must exist
Speaker 2: to allow attractive risk adjusted returns on energy transition investments,
Speaker 2: and only government can create those conditions.
Speaker 1: Five.
Speaker 2: Geoeconomic competition has become the biggest complicating factor in the
Speaker 2: two decades that benef has been around. The overarching narrative
Speaker 2: around multilateral climate action has shifted twice, first from sacrifice
Speaker 2: to opportunity, and then more recently, from opportunity to competition.
Speaker 2: During the twenty tens, the narrative of shared sacrifice, where
Speaker 2: countries look to limit their own responsibility for climate action
Speaker 2: while pushing more onto others, was replaced by a new
Speaker 2: narrative of opportunity and leadership. As the twenty twenties began,
Speaker 2: countries race to show their seriousness about climate action, announcing
Speaker 2: zero targets and more ambitious nationally determined contributions NDCs and
Speaker 2: implementing more clean energy policies. Narrow self interest seemed to
Speaker 2: give way to enlightened self interest. A second shift is
Speaker 2: now in full swing toward hard nosed calculations of how
Speaker 2: much economic value and national security benefit countries can capture
Speaker 2: from the clean energy transition, and how they can compete
Speaker 2: in these new industries against geopolitical and economic rivals. The
Speaker 2: narrative of opportunity has not gone away, but it has
Speaker 2: had a strong dose of realism and competition injected. This
Speaker 2: shift is understandable and possibly inevitable. For example, there are
Speaker 2: several major economies in Asia whose large incumbent steel industries
Speaker 2: are predicated on access to cost competitive coal resources. Some
Speaker 2: of these countries may never be cost competitive hydrogen producers,
Speaker 2: so the shift from coal to hydrogen based steel may
Speaker 2: permanently alter their competitive position in a global industry. These
Speaker 2: are complex considerations which have not featured in the power
Speaker 2: sector transition, where competition is mainly domestic. In the clean
Speaker 2: tech manufacturing industries, especially solar and batteries, many countries are
Speaker 2: now trying to gain a foothold. However, a massive wave
Speaker 2: of investment in mainland China in twenty twenty two to
Speaker 2: twenty twenty three has led to significant over capacity globally,
Speaker 2: with nameplate capacity outstripping demand by more than double in
Speaker 2: twenty twenty four. For both technologies, Prices of key technologies
Speaker 2: have fallen to new lows, speeding the pace of the
Speaker 2: energy transition but bringing pain to manufacturers. Electoralizer manufacturing sector
Speaker 2: could be about to experience a similar supply glut, and
Speaker 2: wind in China has suffered the same fate under these circumstances.
Speaker 2: Policies in the US, India, Europe and other markets which
Speaker 2: aim to protect and grow domestic manufacturers, face an uphill struggle,
Speaker 2: and it doesn't seem like they're getting everything right. In
Speaker 2: Western markets, where battery factory projects are struggling, evs are
Speaker 2: still not fully cost competitive. This is despite global battery
Speaker 2: prices falling twenty percent last year to a new record low,
Speaker 2: driven by declining battery metal prices and intense competition especially
Speaker 2: among lithium iron phosphate battery producers in China. In the
Speaker 2: US and India, developers continue to pay over the odds
Speaker 2: for solar equipment because of trade tariffs and other barriers.
Speaker 2: Like the US, the EU is trying to use tariffs
Speaker 2: to slow imports of Chinese made evs. It is also
Speaker 2: taking steps to protect its wind sector and its fledgling
Speaker 2: electoralizer industry from Chinese imports. Policymakers are knowingly or not
Speaker 2: choosing a costlier transition with the expectation that this will
Speaker 2: reap economic, security and political benefits. This choice is rarely
Speaker 2: discussed explicitly, and the phenomenon goes beyond the US and Europe.
Speaker 2: In twenty twenty four, Turkey, Brazil, and Canada also raised
Speaker 2: or introduced tariffs for clean tech imports. Chinese and other
Speaker 2: Asian companies have built a clear lead in new energy
Speaker 2: manufacturing industries, not only in terms of scale and cost,
Speaker 2: but also in terms of technology and knowhow. Yet the
Speaker 2: reality is that many of these clean tech manufacturers are
Speaker 2: nursing their wounds over low or negative margins while searching
Speaker 2: for new overseas markets that won't shut them out. For
Speaker 2: the sake of a successful transition, policymakers around the world
Speaker 2: should be focused on limiting excess investment in specific oversupplied technologies,
Speaker 2: while also looking for other investment opportunities where their countries
Speaker 2: may possess competitive advantage. Not every country needs to be
Speaker 2: a solar cell and battery maker, and diversifying supplies for
Speaker 2: security purposes does not have to mean onshoring. At the
Speaker 2: same time, they must remain focused on creating supportive policy
Speaker 2: regimes for the transition itself, per lesson number four above,
Speaker 2: to create demand for clean tech. Shutting out foreign companies
Speaker 2: will raise the cost of the energy transition for the
Speaker 2: end user and prevent the spread of much needed technical
Speaker 2: know how and innovations At a time when both energy
Speaker 2: security and climate outcomes are at stake. Policy makers would
Speaker 2: be better off working out how to productively bring the
Speaker 2: expertise of the world's leading companies onto their shores, whether
Speaker 2: through joint ventures or intellectual property arrangements, and making sure
Speaker 2: that they foster a dynamic local industry for installation, operations, maintenance,
Speaker 2: and end of life management for energy transition technologies. Finally,
Speaker 2: many countries remain heavily dependent on fossil fuel imports that
Speaker 2: carry significant geopolitical and energy security risks. As they transition
Speaker 2: to a cleaner mix, these risks will recede even if
Speaker 2: key energy transition technologies are imported. Remember that the lights
Speaker 2: stay on even if clean tech imports are slowed. Geoeconomic
Speaker 2: competition may be an inevitable feature of the energy transitioned,
Speaker 2: but policymakers have a choice in how to address it.
Speaker 2: Those choices, more than anything else, will shape the energy
Speaker 2: transition in twenty twenty five and beyond. So there you
Speaker 2: have it, our five energy transition lessons for twenty twenty five.
Speaker 2: One the energy transition won't slow down. Two, This is
Speaker 2: the hard part of the journey. Three, be careful not
Speaker 2: to misinterpret the data. Four A successful transition is a
Speaker 2: profitable one, and five geoeconomic competition has become the biggest
Speaker 2: complicating factor. Very best of luck to all those navigating
Speaker 2: the complexities of the energy transition in twenty twenty five.
Speaker 1: Today's episode of Switched On was produced by Cam Gray
Speaker 1: with production assistance from Kamala Shelling. Bloomberg NEF is a
Speaker 1: service provided by Bloomberg Finance LP and its affiliates. This
Speaker 1: recording does not constitute, nor should it be construed as
Speaker 1: investment in vice, investment recommendations, or a recommendation as to
Speaker 1: an investment or other strategy. BLOOMBERGINNIF should not be considered
Speaker 1: as information sufficient upon which to base an investment decision.
Speaker 1: Neither Bloomberg Finance LP, nor any of its affiliates makes
Speaker 1: any representation or warranty as to the accuracy or completeness
Speaker 1: of the information contained in this recording, and any liability
Speaker 1: as a result of this recording is expressly disclaimed