Since our last new energy letter, the shift in focus has moved from the impact of the Covid-19 crisis, to how we recover – and how “green” this recovery is. I have growing confidence that the recovery will drive acceleration in some aspects of the energy transition. There will of course be major economic challenges ahead, and the energy sector is not immune to these - but the fundamental drivers of the energy transition remain unchanged. It is encouraging to see signs of a commitment to “building back better – and greener” from Brussels and in some European capitals. The decisions being made now will determine the speed and nature of the energy transition over the years and decades ahead – and as such, influence business models, strategies and opportunities for companies in new energy.
The most detailed glimpse so far of just what this recovery will look like, was revealed in the European Commission’s Recovery Plan to “repair and prepare for the next generation” – which sets aside €750bn for a Green Recovery (plus longer-term budget reinforcements). It clearly signals that this recovery should be clean, circular, competitive and climate neutral. So what does this mean for new energy? Five points catch my interest, which create fantastic opportunities for the energy industry, if it is ready to capture them.
First, the focus on a “renovation wave” in Europe’s buildings: Could this breathe life into the notoriously “difficult-to-decarbonise” replacement market, finally triggering replacement of the >100m remaining oil and natural gas boilers in European homes with lower carbon alternatives? I would say yes – if customers are put first.
Second, the shift to cleaner mobility, including a commitment to installing 1m new electric vehicle charge points across Europe: While we already anticipated strong public charging infrastructure growth, these proposals signal Brussels’ aim to drive sustainable automotive manufacturing and stimulate consumer uptake.
Third, improving and expanding connectivity: Connectivity has proved indispensable in today’s remote working environment. Yet it has a way to go if it should influence the way the majority interact with energy. Could this be the stimulus needed to tip connected energy into the mass market?
Fourth, the Clean Hydrogen Strategy: This can boost the industry’s confidence to invest in hydrogen production and distribution, and crucially shifts the market from local clusters to a more joined up European vision – enabling hydrogen to play a key role in the energy transition, from transport, to flexibility and storage, to heat.
Fifth, incentivising “green” investment - particularly from the private sector: This could be a game-changer if it enables not only financing of technology development, but of innovative energy services and propositions to bring new energy to customers.
I think that companies focusing on these areas will be wellpositioned to benefit from the “green” recovery – whether large incumbent players, or nimble start-ups. It’s exciting times!