Energy Transition

Energy transition refers to the shift in the global energy sector from fossil-based systems of energy production and consumption(oil, natural gas and coal) to renewable energy sources like wind and solar, as well as lithium-ion batteries by the second half of the century.

Energy Transition Drivers

The incremental infiltration of renewable energy into the energy supply mix, the onset of electrification and improvements in energy storage are all key drivers of the energy transition. However, all these changes in the energy sector (sometimes referred to as the decarbonization of the sector) is fueled by the desire to reduce the effects of CO2 emissions on the climate. The structural changes to the market forces of energy sources also played a key role in the bid for clean, renewable energy. The energy transition is a trend that will not end anytime soon because more investors and companies now place a premium on environmental, social and governance (ESG) factors. 

In addition, given the current state of the climate, a focus on renewable energy and energy efficiency measures will serve to reduce carbon emissions and the effects of climate change. Digitization and other technological advancements like smart technology and information technology will also serve to facilitate this transition in the global power sector. Other tools like policy frameworks and market instruments will also play key roles in the actualization of the energy transition. The influence of societal pressure is also significant as the society is a fertile ground for the seeds of the need for a change in power sources started from.

The State of Energy Transition 

The drive to reduce energy-related greenhouse gas emissions via various forms of decarbonization is facilitated by a global need to curb global warming. Some 200 nations around the world have committed to reducing its effect by substantially reducing greenhouse gas emissions although the levels of meeting these commitments (like the formulation of regulations and their implementations) vary.

However, there is a marked reduction in the dependence on coal-based power generation because renewable energy sources have become a cost-effective and reliable source of energy. This has led to the growth of the renewable energy sector and has increased its potential for large scale power generation and a solid investment opportunity for the future.

It is estimated that between 2019 and 2024, the energy generated from renewable energy sources all over the world will increase by 50% (according to The International Energy Agency). While this rate can be hailed as welcoming, the levels of commitment to the shift in power generation have to be factored into the equation, especially in light of the current state of climate change.

Take Away

Nevertheless, the future of energy transition appears to be bright as major oil companies are diversifying into renewable and low carbon energy sources. This is in addition to large scale renewable energy purchases that have increased the demand for renewable energy and the increasing use of technologies to enhance energy efficiency. With the increase in the generation, storage and efficiency of renewable energy, the energy transition will soon speed up, and a global carbon-neutral economy will be a reality in the near future.

ESG Enterprise provides tool to assist with energy transition for ESG assessment and ratings.