Energy transition: signs of strong acceleration

In 2022, several figures show that the Energy Transition is in a phase of strong acceleration. Year-on-year, capacity increases in solar power are up 40%, as are capacity increases in nuclear power. Sales of electric vehicles are up 59%, and growth in heat pumps is following its ambitious trajectory. Finally, for the first time, the size of solar power projects planned up to 2030 is compatible with the objective of limiting global warming to 1.5°C.

This is just the beginning, as the budget plans that accompany the Transition are just getting underway. In the United States, for example, the IRA (Inflation Reduction Act) is the most important event since the signing of the Paris Agreements in 2015. Nearly $400 billion in grants and subsidies are available to businesses to accelerate the Transition. Since the plan was launched in January, there has been a veritable explosion of projects, all aimed in one way or another at limiting global warming. Even if the European equivalent of the IRA has made less noise, is considered less ambitious and more complex to implement, in Europe too the acceleration of projects is extremely strong.

Some trends are very encouraging. According to Bloomberg, by the^1st quarter of 2023, _C02 emissions in Europe were 13% lower than in 2022, and lower than in 2020, when the economy was partly at a standstill due to COVID. This unexpected result is due to the high price of fossil fuels and the sharp increase in renewable energies. We can also see it in the companies in our portfolio. Most of them are demonstrating their ability to grow without increasing their emissions. This is one of the two key parameters of the Transition: reducing the energy intensity of GDP growth. The other is to switch from fossil fuels to renewable energies.

Two main factors are behind these promising trends. On the one hand, companies are stepping up their investments and R&D spending, as they have greater visibility on end demand and tax incentives. On the other, governments are continuing to strengthen their commitments in line with the ambitions of the Paris Agreements. For the first time, their targets even seem compatible with a warming scenario limited to 1.8°C.

This favorable environment is necessary because investment needs remain very significant. In electricity grids alone, for example, it is estimated that we will need to spend twice as much each year to cope with a much more fragmented energy capacity as a result of the rise in wind and solar power, even though investment has stagnated since 2016.

Although the Transition is accelerating, there are still obstacles to overcome that are holding back companies' investments and worrying shareholders. The most important of these concerns permit regulation, which is still not up to the challenge. In the United States, for example, 60% of new decarbonized energy projects are appealed by local associations, and 30% of projects over $200 million have been abandoned. In Europe, conditions are even less favorable, and many environmental laws are used to slow down new projects.

This situation needs to change quickly if investments are to be sustainable. Now that the diagnosis of global warming has been accepted, the legislative framework is in place and tax incentives are available, we need to let capitalism do its work. As in the past, it is free enterprise that will ensure speed of execution, enable innovation, attract talent and funding, and make the Transition a true collective success.

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