Look, behold what mankind can achieve when it’s not sat in its pants, watching Netflix.
Vaccine in ten months? Easy – here are three.
Climate crisis? Put in an order and I’ll be right back.
What is it you need, sir? Few more solar panels? Affordable green hydrogen? Low-carbon oil and gas production, and no more coal? Coming right up sir!
Seriously though, what does the vaccine mean for the energy transition?
Today, Denmark has announced that it will stop all new oil and gas exploration in the North Sea.
Denmark is the largest oil producer in the EU – which doesn’t include the UK, or Norway.
But it has one of its most stringent near-term targets, to reduce emissions 70% by 2030 (compared to 1990 levels).
The climate crisis is becoming incredibly real.
2030 is not far away, and 70% is a lot.
But when you consider the way the medical profession has responded to the crisis this year, we are reminded of the incredible ability of humanity to adapt and respond to challenges.
A decade ago, very, very few people anticipated the incredible cost reductions of solar and wind power, and batteries – whose cost curves now look like this:
Spot the runt of the litter there – coal. Dirty, polluting, lung-damaging coal. Both solar and wind are now dramatically cheaper to build and operate than coal plants.
In some places, even if the coal plant is already running, it would be more economical to destroy it and build solar/wind (+storage) instead.
Here in the UK, we are starting to really step up to the challenge. We have become the first country to approve a vaccine, and on much reflection, conversation and research, I have realised that this is something we should be really celebrating.
But in the energy transition, we are also doing impressively well.
The famed “dash for gas” and the world-leading wind-down of coal power generation has left the UK as top dog in the decarbonisation table.
Forget Brexit and the hapless mismanagement of the lockdowns, there is still good news out there.
Since 2013, the UK has reduced the carbon intensity of its power generation from 775 tonnes of CO2e per GWh of power produced, to just 113 (which was itself a 50% reduction on 2018).
Out of the frying pan, and into the fire
The vaccines are here, and normal life will slowly return next year. The tragedy will remain for many in lost loved ones, but it will soon be possible to put 2020 firmly in the rear-view mirror.
As we re-focus our gaze on the decade to come though, a greater wave is approaching. If Covid-19 was a flash flood, the climate crisis is an all-too-literal tsunami.
But the way we have responded to this year’s crisis fills me with hope and optimism for the next one.
I am in the privileged position though, as an energy transition investment analyst, of being able to tell my friends and family when they ask, that it’s all going a lot better than they think. People are mostly very unaware of the extent of incredible progress that has already been made.
What are the basic frameworks for the energy transition?
The first is that the world needs energy. Currently we use around 70,000 TWh (terawatt hours) of it.
Second, that energy demand needs to grow, not fall, predominantly in the developing world which uses only a fraction of what we do in the developed world.
Thirdly, we need to lower the carbon intensity of the production and consumption of energy across all sectors. It’s not just transport and power – it’s everything.
We need to grow the energy system and clean it up at the same time.
The developed world currently uses most of the energy produced, and the developing world uses a tiny portion, per person.
Population and economic growth will together mean that the world will most likely consume upwards of 100,000 TWh of energy by 2050.
But remember – we are trying to get to net zero, not just “zero”. We don’t have to completely get rid of oil and gas – in fact, doing so would deprive many poorer parts of the world of energy, which is the last thing we want.
Reducing the use of fossil fuels a bit, lowering the carbon intensity of their production, and meeting all the new growth in energy demand with renewables is a pretty optimal core strategy.
It allows developed nations to continue using decarbonised oil and gas (fossil fuels produced efficiently, with lower emissions from the production process), while lowering the overall global emissions.
It’s crucial to bear in mind that global energy demand is going to grow, driven by the developing world.
It’s not just that we can’t deny growth and opportunity to those people, we must try and drive it forward as quickly as possible.
So it is not as simple as shutting of the oil and gas wells.
Moving from coal (1 tonne of carbon emitted per MW of electricity) to gas (0.3 tonnes emitted per MW) is going to be one of the most effective ways of lowering carbon emissions.
That’s how the UK has been so successful – the combination of coal to gas switching and building out of renewables has enabled us to meet growing demand and drastically reduce our emissions at the same time.
But getting to net zero needs more than just coal to gas switching and our current renewable technologies.
It also needs new technologies.
Hydrogen is a key one, which is generating unprecedented excitement in the political and investment worlds.
But in the energy space there is a recognition that the technology has a long way to go – in terms of price and performance.
It can get there, but it needs all the technological advances it can get. Some of those, we believe, lie in the stocks recommended in Exponential Energy Fortunes.
Nuclear fusion is another one – eternally on the cusp but never achieved. Apparently, the UK has decided on the first fusion site – with the hope that something might happen on it in 20 years’ time.
Denmark needs 70% reduction in emissions in ten years – so that’s simply not going to do.
Batteries will crucial. There is a huge amount of excitement in this space, and a frenzied action which is set to push global demand for lithium higher.
Planting trees, easily ridiculed, actually turns out to be one of the cheapest forms of balancing human activity. Deforestation accounts for about as much CO2 emissions per year as all cars, or the whole of China. It’s an extraordinarily powerful force, and replanting trees seems a crucial part of any transition to net zero.
Then there are things like algae, drones, floating wind, perovskite solar, energy efficiency, geothermal, heat pumps, fuel cells, night-sky cooling… a veritable plethora of incredible advances.
And beyond those, hundreds more projects, breakthroughs, experiments, approaches and technologies, all driven by the same increasing sense of urgency which delivered three vaccines in nine months.
The incredible success of the medical community in delivering our salvation, plus the incredible work already being done on the energy transition… It all points in one direction, a successful mitigation of the climate crisis.
I for one think there is no better place to invest for the next decade or two.
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All the best,
Editor, UK Uncensored
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