Seven Challenges for the Energy Sector

Nothing will have greater significance for long-term energy prices than the energy mix decision, particularly with respect to onshore windfarms and nuclear power

Economic growth requires secure access to energy resources – at a given time and place, and at the correct price. Ten years ago, costs still seemed to be the only challenge. Recent years, however, have shown that physical access is another: a major share of global resources sits in politically unstable locations. Even if we are successful in securing energy sources elsewhere, the timing may not be as expected, and the price might not allow for sustainable development. The energy crisis and its impact on the gas market (affecting the power market, in turn) was an example of this. Once we add climate issues, and the resulting full rolling economic costs, into the mix, the scale of incentive systems thrown in for good measure, we can only conclude that building an effective energy market under such conditions is exceedingly difficult, making regulatory backing necessary.

The current energy transition will require a reformulation of the regulatory trilemma: how to reach something akin to an equilibrium while satisfying energy demand, integrating lower-emission technologies, and securing universal access to energy at affordable prices. The solution will either encourage or discourage investments at certain locations and vital investments are anything but minor. Global energy transition outlays in 2022 have been estimated at around USD 1.1 trillion. In the meantime, reaching zero net emissions – the goal adopted pursuant to the Paris Agreement – will compel the world to spend over three times that amount, or USD 3.5 trillion to 4.1 trillion by 2050. Such exorbitant spending translates into a pessimistic forecast for delivering emission-related targets. While energy transition is rolling along at a faster pace than originally expected, the tempo of change is still insufficient if global warming is to be kept at the targeted 1.5°C level.