The Energy Transition: The Market Outlook

The world of tomorrow will be a world without fossil fuels. Climate change and geopolitical crises have accelerated a global push for clean, renewable energy sources resilient to economic volatility and instability across global supply chains. The current crises involving Ukraine and Russia, or China and the United States, have pushed questions regarding energy supplies back to the fore. Not only gas and oil, but also hydrogen and batteries. But opportunities can be found in all crises, and the energy transition is one bandwagon that entrepreneurs are jumping on with enthusiasm. 

In short, the global energy transition refers to the transformation of the global energy sector from one based on fossil fuels – oil, natural gas and coal – to one based on renewable energy sources with a low carbon footprint – wind, solar, hydrogen or lithium-ion (for batteries). This transition has been accelerated due to the explosion in energy prices following the war in Ukraine and the post-Covid economic recovery. This explosion has had a huge impact on the economy, affecting both households and businesses alike.  An energy shock rattled Europe in 2022, fuelling inflation and the risk of recession, and the instability of the global oil and gas markets continues. Even though prices are beginning to fall to pre-war levels, the search for robust, more competitive and more virtuous energy alternatives is well on its way. 

Furthermore, the urgency of the crisis facing humanity due to global warming and climate change is becoming critical. A simple energy transition away from fossil fuels to renewable energy sources will not suffice to reach the 2100 goals set by the Paris Agreement. It is crucial to also begin removing carbon from the atmosphere. This means a structural move towards a completely decarbonated energy system, as the energy sector remains the biggest global emitter of C02.  

A new-look energy system 

Tackling these burning issues means a global rethink of our approach to energy supply chains and our over-dependence on fossil fuels. A period of energy austerity is inevitable as Europe weans itself off Russian gas and a Chinese economic revival once again threatens to squeeze global markets. This will fuel calls for a new energy system able to resist global economic crises and begin the decarbonisation of the atmosphere.  

According to international lawyer and founder of Kouros Investments, Alexandre Garese, the entire energy system needs to be rebuilt on new, decarbonised foundations through total collaboration between the public and private sectors. “The need to finance the energy transition between now and 2050 has been estimated by IRENA, the International Renewable Energy Agency, at more than 131 trillion dollars. The decarbonisation of energy therefore requires the involvement of both the public and private sectors. The public sector has the tools (regulations and subsidies, for example) to guide the energy sectors and stimulate innovation. The private sector has the tools to finance innovation and the deployment of new infrastructures for the production and distribution of decarbonised energy,” he said.

Of course, there is a certain amount of uncertainty when it comes to the green transition and building a new energy system. Investors will be worried about profitability, tight regulation, price caps and windfall taxes on generators. These, introduced by many countries in 2022, might be off-putting to many would-be investors. “The necessity of profit is not incompatible with responsible investing. But over the long term, we must protect profitability from blind and short-term speculation. What the energy transition demands from investors is the reintroduction of the variable of extended time, with the integration of the sustainability variable into the calculations of an asset’s profitability,” said Alexandre Garese.

Opportunities in hydrogen

This is an opportunity for both investors and entrepreneurs. One area which has been of particular interest to investors in the energy sector is hydrogen. Batteries and hydrogen are complementary solutions, and Europe is unlikely to reach its energy targets without serious investment in both. Investment in the hydrogen economy is therefore on the up, with investors, entrepreneurs and existing utilities companies collaborating on new infrastructure in what Marco Alverà of Tree Energy Solutions described as “the best business opportunity I’ve ever seen.” An increased focus on ESG from investors is also driving this trend.

The development of green energy hubs across Europe is well underway, with companies like TES building such centres with green hydrogen import terminals, storage facilities and an oxy-fuel combustion power plant. LNG imports will transition to synthetic methane made from renewable hydrogen over time. According to Andy Marsh, president and CEO of Plug Power Inc., “When you think about how you move wind power from Northern Denmark into Central Europe, hydrogen pipelines are the most effective way to do it. The cost is about 50% less to move the same level of energy.”  

For Alexandre Garese, hydrogen has proved a successful investment venture. “Eager to concentrate on heavy mobility, Kouros has focused on hydrogen and developed substantial expertise over the past 4 years (with 6 investments and the creation of 2 hydrogen companies). Kouros notably founded Hyliko, the first fleet decarbonation service for trucks, which offers transport and logistics companies a packaged solution with leasing and maintenance included for hydrogen trucks, and a hydrogen supply originating from bio waste with a negative carbon footprint. This unique solution will enable the acceleration of decarbonisation for trucks,” he said.

The long-term success of the green energy transition will become clearer over the next decade or so. Investors are well aware of the potential for value creation in this fledgling sector, but are also aware of a push back from the fossil fuel industry, creating short-term solutions that are damaging the climate long-term. Certain sections of the energy sector seem still to be resistant to innovation and the new world. They are passing up on a great opportunity…