It is estimated that the cost of the energy transition will exceed $100 trillion by 2050. In fact, according to the calculations of the Energy Transition Commission, which is made up of business leaders, it will cost $110 trillion.
This translates to 3 per year$5 trillion, or 1 percent of the projected global GDP for the same period3%。As a percentage of GDP, this figure doesn't look particularly impressive or scary, with Deloitte estimating the cost of transformation at $5-7 trillion per year.
There are a lot of estimates of the cost of transition and different outlooks for global GDP, but it's safe to say that when we talk about transition, we're talking about the trillions of dollars that need to be spent each year. It seems that many investors and most ordinary consumers are reluctant to take on this burden.
Ahead of this year's COP28, which began in Dubai last Thursday, Reuters reported that transition advocates are concerned about high interest rates, which will make the cost of capital more expensive and potentially dampen the enthusiasm of potential funders for the transition.
Gauri Singh, deputy director-general of Irena, told Reuters: "I am very worried. The interest rates that used to be calculated at LIBOR plus 50 (basis points) or LIBOR plus 100 are no longer applicable. ”
In fact, higher interest rates have been blamed by wind and solar companies for higher costs and growing economic problems, especially in the offshore wind sector. They have also been blamed for companies demanding higher subsidies and higher electricity prices, with higher rates challenging the profitability of many of these projects.
The issue of capital will be discussed extensively at COP28. There is still a great deal of uncertainty as to whether the parties involved in the discussions will be able to reach an agreement. At the same time, the different wheels of transformation seem like the wheels of a defective shopping cart.
In the U.S., automakers are losing money on electric vehicles due to weaker-than-expected demand. In Europe, the industry is optimistic that EV sales will surge due to the introduction of many new affordable models. On the other hand, Germany's gradual reduction of subsidies for electric vehicles from January 1 has led to warnings of a decline in electric vehicle sales, with Consumer Reports just publishing a report finding that electric vehicles are not as reliable as ice cars. Both can affect the sales outlook.
As mentioned earlier, there are many troubles in the field of offshore wind. For several years, there has been a great deal of interest in more expensive forms of wind power from the transformation-oriented**, not least because project developers promise to provide cheap electricity. This is no longer the case. Instead, offshore wind developers are booking billions of dollars in impairments, cancelling projects or, as mentioned, more demanding**.
It appears that higher interest rates and expected shortages of some key materials will have a greater impact on the wind and solar industry than on oil and gas. At least oil and gas executives are also complaining about rising interest rates in the US, but despite this, they seem to have managed to squeeze out record oil field production.
The list of examples is long. In short, the cost of this shift is higher than most people can afford. For investors, the above developments are worrying from a return perspective. For consumers, switching from ice to electric vehicles isn't really something they're willing to do until these cheap EVs roll off the assembly line. When you see news stories like this one that German grid operators will be able to limit the power supply to heat pumps and EV chargers, the shift starts to look even less appealing.
Speaking of the above report, since the grid is not large enough, it must be limited**. Grid investment is a major factor in the transformation** label. There is already opposition to new transmission lines, and there is evidence that the transition will create problems in other ways than being expensive.
By putting financial or implicit pricing on free resources (climate), the transition increases production costs, but there is no guarantee that these costs will eventually be offset by a reduction in energy costs, and the investments it requires do not increase production capacity, but must be financed. Wall Street quoted French economist Jean Pisani-Ferry, a senior researcher at the energy think tank Bruegel. Pisani Ferry added in a recent report that the end consumer would be worse off if switching to electric vehicles and heat pumps to support the transition would cost more than its hydrocarbon version, and if taxes were raised to pay for heat pumps and electric vehicle subsidies. In such a situation, it is difficult to generate enthusiasm for transformation.
Even more challenging is convincing investors that climate policy will not change as the ** changes. So far, at least in Europe, the evidence points in the opposite direction. Sweden's new ** has violated the climate pledges of the previous edition**. Elsewhere, the Conservatives are growing in popularity, especially in their anti-climate policy rhetoric. Champions of the transition period do have their own work to do. (Compiled by Xiao Chen).
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As LNG becomes a global commodity, U.S. residential consumers are no longer as isolated from global** fluctuations and supply and demand as they were a few years ago. (Compiled by Xiao Chen).
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