The analyst sees the market making a big mistake with the energy transition

The speed of change in today’s world is often rapid and dizzying. Technologies that seem to be an integral part of our lives can suddenly become redundant and irrelevant.

Energy is a sector where innovation and new ideas matter a lot as countries and companies try to find ways to move to a society based on renewable energy sources like wind and solar rather than fossil fuels like coal, oil and natural gas.

During a panel discussion at the World Economic Forum last week in Davos, Switzerland, one analyst expressed his fear that the market does not seem to have learned from other technological revolutions.

Thomas Hohne-Sparbort, Head of Sustainability Research at Lombard Odier, highlighted the huge changes taking place in the field of low and zero carbon technologies and, more generally, in society as a whole.

“We’ve seen past industrial revolutions, including past energy transitions,” Hone-Sparbort said. “What we’re really seeing now is the complete transformation of our entire economy.”

“The demand side of our economy, the way we power vehicles, the way we heat our buildings, the way we use energy in industry – all of that needs to be transformed.”

We were, Hone-Sparbort said, “looking at trillions of dollars of investment needs.”

As far as the energy transition is concerned, the amounts being talked about are truly significant. Last year, the International Energy Agency’s World Energy Outlook 2022 report said clean energy investment could be on track to exceed $2 trillion annually by 2030, an increase of more than 50% compared to today.

The analyst talks about clean energy, the speed of change and the lessons the market can learn from history

As the Davos discussion, which was moderated by CNBC’s Joumanna Bercetche, progressed, Hohne-Sparborth was asked if clean energy was already available at the scale needed.

The answer to that question was, he replied, “it’s changing very quickly, and today I would say, yes, it has become the cheapest source of energy.”

“What I think the market as a whole is underestimating is just the pace at which this transition is happening,” he added, explaining that lessons can be learned from history.

“We’ve done some work looking at past technological revolutions, whether it’s the adoption of steamships, cell phones — any part of a major kind of new infrastructure technology.”

All such transitions, Hohne-Sparborth argues, “have tended to follow a very similar pattern. They develop very slowly … and then the transition is complete within 10 to 20 years.”

“Yet if you look today at what the market expects — how long it will take us to electrify our buildings, electrify our fleets — the time frames there are still much longer.”

For Hohne-Sparborth, it doesn’t seem to get past that, “when a new, superior technology comes along that becomes cost-competitive, that deployment can happen very quickly.”

Dramatic change

Also on the CNBC panel was Andres Glusky, CEO of the energy company AES.

“What we’re facing … is a dramatic change,” he said, adding that renewables now represent “the cheapest form of energy in most cases.”

“The issue is capacity—how to keep the lights on 24/7—and that’s where you need to use lithium-ion batteries on a daily basis.”

Expanding his perspective, he went on to emphasize the importance of embracing different technologies.

“To really get to full decarbonization, we’re going to need green hydrogen, we’re probably going to need small modular nuclear weapons, etc.”

“And I also very much agree that what we need is for renewables to be more than competitive – just better, to keep costs down, [and] equal in quality.”

“And frankly, the corporate sector demands a lot, and so do a lot of consumers.”

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