Thought Leadership

Stock taking of Clean Tech and Clean Power in 2023 - an expert interview

We kick off the reflection process covering the past six months with an interview of our senior leaders from Clean Tech and Clean Power research.

Artem Abramov (Partner, Head of Clean Tech), Gero Farruggio (Partner, Head of Renewables & Power), and Carlos Torres Diaz (Senior Vice President, Renewables & Power Solution Manager) are answering key questions on the status of the energy transition and clean power, and what challenges remain. In the interview they also touch on key policies and global geopolitical factors shaping the energy transition.

Stock taking of Clean Tech and Clean Power in 2023 - an expert interview

We kick off the reflection process covering the past six months with an interview of our senior leaders from Clean Tech and Clean Power research.

1. What is the current status of the energy transition and clean power, and what challenges remain?

Carlos Torres Diaz: Solar PV and wind generation capacity has been growing at an exponential rate over the past few years. The current growth trajectory suggests that the world could be reaching more than 3,000 gigawatts (GW) of installed solar PV capacity and more than 2,000 GW of wind capacity by 2030. This capacity could generate enough power to help displace a significant amount of coal power, helping lower carbon emissions from the sector and tracking our 1.7 DG Celsius scenario. Countries around the world, and specifically in Asia, will need to implement stronger policies for the decommissioning of coal capacity to ensure we meet climate objectives.

Artem Abramov: In a broad sense, the average cost of abatement has never been lower than today. The adoption of electric vehicles and exponential growth in solar capacity globally are no longer the only overachievers in the decarbonization space. We finally observe tangible abatement tactics for many hard-to-abate industry sectors, with the list of measures ranging from carbon capture utilization and storage (CCUS) and use of low carbon molecules for process energy, to electrification and innovative production technologies with lower energy intensity. It is all about the speed of deployment and policy support to create appropriate investment climate now. We need to remember that policies are critical to speed up the influx of capital into low carbon tech as we no longer have time to wait if we are serious about Paris Agreement’s temperature goals.

Gero Farruggio: It is fair to say the energy transition has accelerated in recent years. This year will see double the amount of solar PV installed compared to pre-pandemic levels, and 50% more wind capacity – presenting new opportunities and challenges. Do we have the supply chains, skills, and grids to continue at this pace? Solar and wind once relied on incentives, but these have been slowly coming down as costs continue to fall. New policies are being introduced to drive investment in securing domestic supply chains, permitting lead times and skills development. The advancement of efficient energy storage systems and smart grid technologies are crucial to overcome today’s challenges and ensure a stable and reliable power supply.

2. What are some of the key policies driving the energy transition towards cleaner sources of energy?

Gero Farruggio: The European Union was first mover, adopting a green recovery post-pandemic and more recently with the REPowerEU plan to rapidly reduce dependence on Russian fossil fuels by 2027. The strategy aims to bring online 320 GW of solar PV by 2025 and 600 GW by 2030, displacing 9 billion cubic meters (Bcm) of gas demand. An ambitious target, but does the EU have the skillset and systems to deliver this?

The US Inflation Reduction Act – which sees $400 billion in federal funding towards clean energy – sent shockwaves across the industry and globe. Welcomed by the industry for using “carrots, not sticks” to drive investment, but resented by some countries, fearing its impact on free-trade and their ability to compete. It will be fascinating to see how the US industry evolves and how other countries react. The EU already responded with its new Green Deal Industrial Plan, which aims to fast-track permits for climate tech production facilities.

Feed-in tariffs and renewable energy subsidies continue to be essential policies to promote the growth of newer renewable technologies, like offshore wind, hydrogen, and storage. Making it more economically viable for businesses to invest in these technologies as they scale and traverse the learning curve.

Artem Abramov: The Inflation Reduction Act in the US is still making global headlines and there is a good reason for this. The magnitude of funding the industry will get from the Act’s provisions (along with related Department of Energy funding programs) is unheard of. We observe an increasing number of countries looking at the US energy policy framework as a success story that can be replicated. The purpose of these replicas is surely two-fold. On one hand, there is growing preference towards “get paid for doing this” versus “pay if you do not do it” policy framework in energy space. On the other hand, domestic energy sovereignty is on top of the agenda for most governments globally these days – hence, domestic tax credits are needed to hedge against adverse Inflation Reduction Act impacts (reduced capital availability for domestic energy spending).

Carlos Torres Diaz: Policies have been moving in the right direction with major economies around the world setting clear objectives for reaching carbon neutrality. Most countries have set a target of reaching carbon neutrality by 2050 and have clear goals for installed renewable energy capacity to achieve this. Implementing a carbon pricing mechanism or carbon taxation across the world should help speed up the decarbonization of the power sector whilst ensuring a fair competition within regions that already have a carbon price. Greater tax incentives for new clean technologies could also help decarbonize the power sector. The integration of hydrogen and battery energy storage systems in the power sector has been slower than expected as these technologies are still expensive compared to conventional power sources (such as coal and gas). Therefore, subsidies could help fast-track the development of these nascent technologies which could displace fossil fuels from the power sector at a faster pace.

3. How are current global geopolitical factors, such as energy security and supply chain vulnerabilities, shaping energy scenarios?

Artem Abramov: The events of the last 18-24 months probably reduced the likelihood of us hitting 1.5 DG Celsius temperature goal. While we saw structural degradation in long-term natural gas consumption outlooks in several regions (e.g., Europe), global supply chain disruptions and political tension resulted in a wave of economically irrational decisions if you think of the global energy system as a single entity. We have around a decade of emitting at the current pace until the P50 carbon budget consistent with 1.5 DG Celsius global warming is depleted. In the current environment, it is not difficult to imagine that we will spend most of this remaining time establishing regional energy value chains in major economic regions. The pathway at present does not suggest more than a 20% decline in fossil CO2 emissions rate until the end of this decade. On the other hand, a combination of independent industry actions and recent policy deployment has already imposed global warming ceiling of around 2.5 DG Celsius based on our recent research. In other words, we have already done a lot to redefined Business-as-Usual or Status Quo scenario as 2.5 DG Celsius compared to the legacy 3-4 DG Celsius thinking.

Gero Farruggio: Traditionally, global geopolitical factors significantly shaped energy scenarios. Now, energy security and supply chain vulnerabilities do. From a global solar production capacity point of view, the supply chain is robust to meet the 1.5 DG Celsius target, according to our energy scenario. There is however one problem – during the last decade the solar PV value chain has become more and more centralized in China, accounting for 94% of polysilicon production, 96% of wafers and ultimately 81% of solar modules.

To limit supply chain vulnerabilities and to ensure supply meets domestic demand, the US, India, and Europe have all come up with manufacturing incentives in the form of the Inflation Reduction Act (US), Production-Linked Incentive Scheme (India), and the Green Deal Industrial Plan (Europe). While we have seen major expansion plans announced in these regions following these incentives, most expansions are within the “lighter” manufacturing segments such as module assembly, and to some degree cell assembly, leading to very top-heavy value chains – which still are reliant on imports of earlier value chain commodities, either directly or indirectly, from China. More recently, President Biden vetoed legislation passed by the US Senate and House to restore tariffs on solar panel imports. Will tariffs return in 2024? Watch this space.

Carlos Torres Diaz: Currently, there is enough manufacturing capacity to keep up with the strong installation rate of solar panels at a global level. However, more than 90% of the manufacturing capacity is located in China. The current geopolitical instability could affect global trade of solar panel components and delay the deployment of capacity outside of China. The location of wind turbine manufacturing is more diverse but also dominated by China. Increasing geopolitical tensions could result in a slowdown of renewable energy projects and an increase in costs. It is therefore key for the supply chain to diversify geographically to enable a continued supply of power generation equipment across geographies at a competitive cost.  

4. Let's challenge the transformation of the power sector a bit and look at the intermittency of renewable power: What happens if the sun isn’t shining, or the wind isn’t blowing?

Artem Abramov: The answer to this question will vary a lot with the grid, policy framework and magnitude of learning curve for different storage tech and energy carriers in future. Lithium-ion short-term battery energy storage (BESS) technologies have been gaining particularly strong traction in recent quarters. Annual BESS market size is increasing from ~10 GWh in 2020 to ~70-80 GWh this year. Our research indicates that we will get to at least 400 GWh in annual installation by 2030 (i.e., comparable to battery demand from passenger electric vehicles last year). The market growth is driven by a combination of structural improvements in BESS costs, improving business case and growing popularity of standalone BESS storage projects, and increasing average duration of utility-scale BESS initiatives (from 1-2 hours average in early years to the dominance of 4+ hour projects few years down the road).

Carlos Torres Diaz: Power grids in Europe and the US are already experiencing major stress as a result of the large intermittency of renewable power generation, especially wind power. Gas power plants have been the main source of flexibility in both regions helping provide stable supply to the grid. Even when BESS are expected to gradually be able to back-up renewable power generation to a larger extent, it is likely that gas power plants will continue to play an important role in the medium term, especially to help cover the large seasonality in power generation experienced in the northern hemisphere. Given that the utilization of gas power plants will decline with time, but the capacity needs to remain available to back-up the system, a capacity payment will be required to incentivize plant operators to keep plants available.

Gero Farruggio: Well, it doesn’t, we know this and are getting better at predicting it. But it often does somewhere, driving the need for investment in interconnectors and mega-grids to address local intermittency. Scale and overgeneration can also address this challenge. Cost drivers will determine whether this route will be cheaper than energy storage. Intermittency presents economic challenges as well as technical, such as negative pricing which can limit solar investment without storage solutions. Batteries are not the only option but remain a key component to unlocking further solar and wind into our grids. The average battery size will double by 2025, as bigger utility-scale batteries are deployed. I will be watching the Big Tech firms, as they break new ground towards zero-emissions targets. The likes of Google, Amazon and Facebook are pursuing new moonshot technologies to solve intermittency and grid-scale energy storage.

5. How are these recent market developments reflected in our product enhancements/ developments for the first half of 2023, and any teasers for the second half of the year?

Artem Abramov: In the last six months, we have paid significant attention to the slowdown in voluntary carbon markets on the back of regulatory uncertainty and the economic downturn of 2022. Not only quantity, but quality of credits is becoming a major focus area for interested corporate players, hence, our recently launched carbon removal dashboard is designed to identify key opportunities in the emerging market of engineered removal solutions. We observe continuous demand for more comprehensive hydrogen and clean fuel economic tools and in response, we launched our upgraded hydrogen and alternative fuels cost model, which provides clients with full flexibility around assumptions and parameters. In the second half of 2023, we will further enrich our hydrogen solution with comprehensive methanol and sustainable aviation fuel project coverage.

Our Battery Solution subscribers urgently need to model costs for lithium-ion batteries or various downstream applications (e.g., battery energy storage systems). Enormous swings in raw material prices (e.g., lithium) in the past two years, boosted demand considerably for accurate and timely cost modeling. In response, we upgraded our cost model tools offering full flexibility for the choice of input parameters.

Addressing the climate emergency requires coordinated global efforts, and decarbonizations tactics vary significantly from country to country. Our new regional Energy Transition Compass reports series along with upcoming regional historical and future energy mix data in the EnergyScenarioCube is designed to accommodate for various client workflows.

 Gero Farruggio: As the transition gains momentum, so will our product evolution – Our data tools are uniquely positioned to provide clients with the most granular data and help them make better decisions in these volatile times. Our team of global analysts is expanding throughout the Americas, EMEA and Asia – providing clients with proprietary insight into regional challenges and opportunities. Our integrated Renewables & Power solution now includes analytics and data on renewable energy supply chains, as well as project and corporate analysis, in the context of the complete power mix. We believe this is unique and tailored to our user’s needs, as key industry events continue to shift along the value chain.

Our renewable asset valuations and M&A deal analysis are quickly establishing themselves as the industry standards. Rystad Energy’s renewable energy economic model is a client-led development allowing our users to evaluate (using our base-case or their own assumptions) the impacts of new policies, hyper-inflation and volatile power prices. Watch this space as we launch a web-based version later this year.

RenewablesCube will soon include all power assets, allowing clients to identify opportunities in a country or company's energy mix and analyze how this evolves over time. We will be delivering more regional Renewables & Power solutions, offering a deeper dive into regional power markets: energy demand drivers, price forecasts and market signals.

Carlos Torres Diaz: We have recently integrated our Renewables & Power offerings into one solution to help clients analyze under one service the macro trends in the power sector, and the economic and supply chain details for renewable energy. In our products, clients are able to identify how much solar, wind and utility-scale battery capacity is needed for each climate scenario, and the investment opportunities this will represent. We are also launching new solar and wind dashboards that can help track the growth in capacity from these sectors together with details on the supply chain to help clients understand how much growth is feasible.


Gero Farruggio

Partner & Head of Australia & Global Renewables

Carlos Torres Diaz

Senior Vice President & Head of Gas and Power Markets Research