With organisations looking to fulfill their net-zero pledges, as well as the continuing development of ‘new energy’, the race into clean energy markets is on. While the last few years have been macroeconomically turbulent, clean energy continues to grow as businesses shift their focus. One recent report forecasts “electric power, synthetic fuels, and hydrogen will represent 32% of the global energy mix by 2035 and 50% by 2050” (McKinsey: Global Energy perspective 2022), signalling a huge growth opportunity for companies ready to take the plunge.
“We know Clean Energy is a sound investment in the future, globally speaking, but recent developments in the market will position those ready to back the movement as industry leaders. The technology is there, once organisations supply the capital, the sky is the limit,” says Geoff Guerin, Strategy and Sustainability Director at IDEX Consulting.
Clean power markets have come a long way, renewable energy has become a focus for established electricity markets, moving into new domains. In America, solar continues to be the leading technology in the pipeline, “accounting for 59% of all clean power capacity in development” (American Clean Power: Clean power quarterly market report Q1 2023). Closer to home, we look at three trends spurring the growth of clean energy markets, and what investing in the sector promises in the next few years.
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Carbon market appeal
The rapid expansion of carbon markets can be partly explained by organisations looking to fulfill their net zero pledges. Nationally Determined Contributions (NDC’s), a climate action plan to cut emissions and adapt to climate impacts have been a useful aid. Each country participating in the Paris Agreement, for example, is required to establish an NDC and update it every five years. As a result, “80% of the G20 (the world’s largest economies that account for around three-quarters of global emissions) have submitted new or updated NDCs” (World Resources Institute: Making sense of countries’ Paris Agreement climate pledges).
The knock-on effect of such huge commitments has created opportunities for energy companies. NDC’s have spurred the compliance market, but voluntary carbon markets are also on a growth trajectory. Demand mostly comes from businesses aiming to compensate for their carbon footprints, corporations with sustainability targets, and those who see an opportunity to trade credits for profit.
New energy
The last few years have seen the emergence of ‘New energy’ commodity markets. Critical minerals and hydrogen are on a path to displace conventional hydrocarbons, particularly given “renewables are now cheap – cheaper often than coal, oil, and gas” (IPCC: Climate change 2022 Mitigation of Climate Change). The latest developments include huge improvements in hydrogen production technologies, particularly in efficiency and capital costs, with an example being steam methane reforming. The emergence of alternative production technologies such as electrolysers have added to this, with one recent study confirming: “these technological changes, along with decreasing costs of renewable power, are increasing the viability of hydrogen” (IPCC: Climate change 2022 Mitigation of Climate Change).
Not only can new clean hydrogen economics open avenues for renewable providers, they also present an opportunity for growth. Thanks to a $3 per kilogram tax credit, last year saw ‘clean’ hydrogen become price-competitive with higher carbon ‘grey’ hydrogen across much of America (Deloitte: 2023 renewable energy industry outlook), meaning energy companies committed to sustainability are paying less to do so. Deloitte go on to advise, “while challenges such as a lack of infrastructure still make hydrogen uneconomic for some uses, new IRA-driven economics may present pathways for renewable energy developers and producers to benefit in 2023”.
Across the UK, Carbon Capture, Usage and Storage (CCUS) continues to be “an important area of focus if the UK is to capture economic growth opportunities during its transition to net zero emissions” (LSE: 2023 What is the UK’s approach to carbon capture, usage and storage (CCUS)?). The CCUS value chain promises to deliver significant energy abatement, while also creating opportunities to export related technologies, products and services from the UK. This growing global demand presents an opportunity for comparative advantage in unlocking wider economic benefits from CCUS. Yet, aside from the significant economic opportunity, the CCC brand these technologies as “a necessity not an option for the UK to achieve net zero emissions” (Climate change committee: Net zero – The UK’s contribution to stopping global warming), spelling a double-edged incentive for companies to get on board.
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Convergence
While a global economy free of fossil fuels is the ultimate goal, progress is capped by supply, meaning the race to clean energy markets inevitably involves market convergence. Within the context of the net-zero agenda, oil and gas operators seek sustainability, given the importance of gas to complement renewable power generation.
McKinsey advise: “It’s important to acknowledge that hydrocarbons will be part of our energy mix for at least the next 30 years. Whether we like it or not, the reality is that mankind will need hydrocarbons for our energy needs for many more decades” (McKinsey: A new way to support clients through the energy transition). The goal, then, is to aid oil and gas businesses in decarbonising their operations, while also transitioning to other fuels. This will allow the continuous supply hydrocarbon-based fuels, but with far fewer emissions. The convergence of traditional oil and gas companies with newer energy models ensures a seamless transition from one to the other in the coming decades.
This convergence spells another growth opportunity within the energy sector. Businesses willing to underpin decarbonisation with capital will see real gain, particularly due to “the strong business case of renewables coupled with enabling policies sustaining an upward trend of their share in the global energy mix year on year” (IRENA: 2023 Record growth in renewables achieved despite energy crisis).
For insights on the market, or if you’re looking for support or advice with your hiring strategy or next career opportunity speak to one of our IDEX Energy & Commodities specialists.
Sources:
American Clean Power: Clean power quarterly market report Q1 2023
Climate change committee: Net zero – The UK’s contribution to stopping global warming
Deloitte: 2023 renewable energy industry outlook
IPCC: Climate change 2022 Mitigation of Climate Change
IRENA: 2023 Record growth in renewables achieved despite energy crisis
LSE: 2023 What is the UK’s approach to carbon capture, usage and storage (CCUS)?
McKinsey: A new way to support clients through the energy transition
McKinsey: Global Energy perspective 2022
World Resources Institute: Making sense of countries’ Paris Agreement climate pledges
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