“Fossil fuels will peak around 2030”

The World Meteorological Organization recently announced that global warming has reached 1.5 degrees above pre-industrial levels this year, at least temporarily. Were you surprised by that?

In the view of the IEA it is too soon to say that the 1.5 degree limit has been breached for good. In our modeling we still see a potential opportunity – albeit increasingly narrowing – for the world to change much more quickly and for global warming to stabilize at this level. Of course, we are still a long way from where we need to be.

Where are we in accomplishing the global energy transition – 30 percent, 50 percent or more?

I wish we were in the middle, but we are not. Although there are encouraging signs concerning renewable energy, we have not yet turned the corner on emissions. Clean energy met only about one third of the growth in energy demand in 2023, the remainder was covered by fossil fuels. So, we are still in a world where demand for all the major sources of energy is rising. Given this we cannot claim to be in the middle of an energy transition. However, we are close to some very important tipping points.

What kind of tipping points are you referring to?

The momentum behind the clean energy transition is now sufficiently strong that by the end of this decade we will see peaks in demand for each of the fossil fuels. Before that we expect to see a peak in energy-related CO₂ emissions. These will be incredibly important moments in energy history. But we are not there, yet. To reach these tipping points, deployment has to accelerate considerably.

Would you say the transition is irreversible now?

I would say the momentum is extremely powerful. The direction is clear, but we are not proceeding fast enough.

Is it fair to say renewables have developed in leaps and bounds in recent years?

Before the pandemic slightly more than two trillion US dollars were invested each year into the energy sector – split roughly equally between fossil fuels and a range of clean energy technologies. In 2024 we are probably hitting around three trillion US dollars of global spending on energy. Fossil fuel investment is about where it was, around one trillion US dollars. So, clean energy projects have seen a huge expansion and roughly doubled in just a few years.

What are the reasons for this change?

There are several factors, it is not just emission reductions that are pushing this. A large part is driven purely by economics: renewable energy is cost efficient and can now compete with fossil energy sources, especially in the electricity sector. We are using this clean electricity in sectors such as mobility, which used to run on fossil fuels directly.

How much of the growth is due to China?

China has been a huge contributor to these changes. Some of the cost reductions have come from the very large investments and economies of scale that China has created on the manufacturing side. They now account for 70 percent of the manufacturing of the key clean energy technologies that include solar PV modules, wind, batteries, electric vehicles, heat pumps and electrolyzers for hydrogen production. Plus, they make up for a large part of the newly installed capacities of renewables, well over half in 2023.

What about developing countries? Where are they in the transition process?

They have not yet undergone the same level of acceleration as China or Europe.

But there are countries like Kenya or Costa Rica that have progressed very quickly.

There are of course countries like the ones you mentioned or Brazil, India, Uganda, Senegal and a few others. Yet the majority are still at the beginning. However, economics is powerful. When there are cost-effective choices that are also clean and increase energy independence – that is very convincing. So now developing countries also want to get more clean technologies into the system.

What are the biggest hurdles for them at the moment?

Renewable technologies are relatively capital intensive up front. Once they are installed, they are typically very cheap to run. So really, it’s a matter of investment and finance.

Why is more not being invested in developing countries? Is it a question of financial means or a lack of policy frameworks?

Good point. The traditional OECD view is that good policies produce good outcomes. There is another school of thought, however, that says you need projects and first movers, proof of concept if you will. Then administrators will take notice. I think it’s a bit of both.

Are there other obstacles?

There are some energy sector risks which can be detrimental, like the specifics of power purchase agreements, land issues and unclear pricing to name just a few. We often hear that developers don’t feel confident they will receive payment for the power they produce, and this pushes up the cost of capital.

What about the grids?

The ability to secure a connection to transmission infrastructure is absolutely crucial. I truly believe that the world is moving into the age of electricity and hopefully sooner rather than later into the age of clean electricity. That will only work if the necessary infrastructure is in place. In fact, this is often the weakest link in the chain. We have identified 1,500 GW worth of renewable energy projects that are in advanced stages of development but missing the connection to the grid. That’s an awful lot. It’s roughly the equivalent of three years’ deployment capacities. So, in developing countries this really is the missing piece. And it is something where development banks can play a constructive role.

Does that mean the investment needs for grid infrastructure are greater than for renewable energy production itself?

We need to be spending roughly similar amounts on modernizing and expanding grids as we do on new generation. If the policies are right and the regulatory framework is there, then the private sector usually can take the lead in bringing mature, cost-effective technologies into the system. But what it needs on top of that is the enabling infrastructure, including grids and storage technologies. So, we are in fact entering a new phase here.

What about the significance of energy efficiency?

Unfortunately, its value still gets overlooked. It needs to be more in focus. The demand side is just as important as the supply side. Energy efficiency has been talked about for a long time but in reality, it is severely lagging behind.