12th December 2024 by Pranjal Dixit | Energy
It has been more than 52 years since the “first earth summit” and almost a decade since the Paris Agreement. The world stands at a critical turn in transition from fossils fuels to clean energy sources. This ambitious goal of killing our dependency on fossil fuels for energy and transition to cleaner sources, for a to save earth, depends upon the adoption and accelerated deployment of new technologies. These technologies might include renewable energy sources (RES), electrification technologies such as electric vehicles (EVs), and heat pumps.
Development of these technologies is a cornerstone in reducing the emission of greenhouse gases. Although in the recent years a sharp increase in adoption and deployment in the renewable sources, specifically in wind energy and solar energy has been noticed. But a significant gap has been emerged between the expected outcomes and actual outcomes. Only 10 % of total deployment of the renewable sources has been achived globally, that is required to for the net zero by 2050, deployment of these technologies is still not happening as fast as it is needed. Also, the whole process is facing a risk of shortage of proper resources and labour.
The main reasons behind these issues could be:
Because of these reasons the investors and corporates are hesitant in investing in these decarbonization technologies and hence, even after so much emphasis on the issue on a global the required investments are still lagging behind.
Although many countries have made advancements and commitments, still this everyone has to acknowledge this hard truth, and innovation and rethinking of policies is needed to tackle this situation.
How the world as reacted
Just a few years back, all of sudden, a huge number of net-zero commitments and the increasing obsession with climate action from all folds of society has been noticed.
On the policy front, NDCs are now a reality for all 195 countries that signed the historic 2015 Paris Agreement because they have all submitted what they call Nationally Determined Contributions, a sort of climate action plan. More than 70 countries today have net-zero targets enshrined in law or outlined in policy documents.3 More than 155 countries agreed to the Global Methane Pledge which is a plan to reduce methane emissions to 30 percent below 2020 levels by 2030.
In fact, industrial policy in many OECD economies is now anchoring climate technologies as a core pillar and great amount of public funds are made for setting up infrastructure for their development. Emerging industrial policy in both Europe and the United States was geared toward building up competitive cleantech value chains.
Via this European Green Deal, introduced in 2019, the EU hopes to become climate neutral by 2050, with intermediate Fit for 55 targets reducing GHGs by at least 55 percent by 2030 compared to 1990 levels.5 In the United States, the Inflation Reduction Act signed into law in 2022 amounts to a US$370 billion spending on ten years for climate investment, which is the largest ever for the country, and aims to bring down emissions to 40 percent below 2005 levels by 2030.6 In addition, the Infrastructure Investment and Jobs Act has allocated billions toward modernizing the energy grid, expanding EV infrastructure, and enhancing energy efficiency across sectors.
Cost continuing to improve, along with innovation, will lead to other policy initiatives that cumulatively cause progress. Globally, between 2010 and 2023, renewable energy installation capacity grew around 20 percent each year, while the adoption of EVs surged.
On the corporate scene, as much as 66 percentage of Fortune 500 enterprises have climate commitments, which they may either pursue carbon neutrality, net-zero, or science-based objectives. In all, more than 5,000 companies worldwide have endorsed the Science-Based Targets Initiative (SBTi): widely regarded as a gold standard for voluntary climate targets and set approved targets aligned with a pathway toward 1.5°. Public companies in Europe and the United States increasingly declare their impact on sustainability, as part of disclosure requirements in their financial reports.
These are however sprouting and look towards a broader horizon of cleaner energy and less-carbon emissions, but now realizing itself in a very complex and uncertain global energy space. Securing energy security, affordability, reliability and industrial competitiveness has become quite challenging when viewed summarily with sustainability, and consequently disbursement has become tougher.
Challenges
What remains most important is the world's much-needed commitments can turn into action. There is possible mismatch between climate ambitions and what is likely to be delivered in reality (at least at current scene and speed).
On the subject of NDCs, for instance, the UN noted, "Quality and ambition vary."
As far as the SBTi goes, most of the companies signing up have made pledges but are yet to show an actual clear path on how to get there.
Already, more than 900 green hydrogen or blue hydrogen announcements have been made in the US since 2015, but fewer than 12 percent had reached FID, suggesting a high failure rate on such projects. This gap between announced and realized projects after reaching FID is not a particularity of hydrogen-it holds true across most major energy transition technologies.
Very few of these projects reach FID; indeed, they are realized in very few cases. The analysis shows that many of the announced planned projects for key decarbonization technologies in the European Union and the United States did not experience the same level of achievement.
The extent of this shortfall differs from one technology to another, and from one region to another- renewable energy generation technologies are the ones closest to realizing the near-term goals, especially solar, while electrification technologies saw fairly robust periods of growth but appear to be going relatively slow paced now. Innovative technologies have ambitious project pipelines but are not yet scaled for deployment; many such technologies could be critical to decarbonization of "hard-to-electrify" sectors.
Here, we look at the progress of each of these technologies and where they are falling short of targets.
Solar
Increased growth of solar photovoltaic in Europe and the United States has risen to approximately 150 gigawatts (GW) and 130 GW respectively since 2015-16
Despite the extensive growth, the entire infrastructure for solar in Europe has fallen short of the target for 2030: that is 600 GW of capacity. Of that less than 350 is expected to be injected into the grid before the end of the decade, leaving a shortfall of about 250. Then again, out of the nearly 114 GW of new solar capacity expected to come online over the next five years, less than 20 percent has received an FID. However, there remains a scope for "catching up" since other new solar capacity could be installed rapidly, i.e., within 24 months.
So, the annual additions to solar capacity in the United States will slow down after 2028 to about 220 GW capacity (operational and FID) because the industry flounders about firm longer-term commitments. About 60 percent of available announced capacity to come online before 2030 has not achieved FID, thus putting a huge proportion of planned solar at risk.
Offshore and onshore wind
Wind power projections are markedly different for each geography and mode of generating power through wind. Additionally, these wind projects usually show longer development cycle time which makes the entire “project pipeline” quite insecure. The wind energy pipeline is roughly on track in Europe for the 2030 targets, while the United States has proved to be less sure of its pipeline.
Europe currently has about 240 GW of existing onshore wind capacity, with another 106 GW in the pipeline. Fully realizing this would exceed the target for 314 GW of onshore wind capacity. However, unlike this last pipeline, these are not committed as only 17 GW (16 percent) of planned capacity has reached FID. A more challenging situation for the United States is that only about 39 GW of onshore wind will go online after 2025, with just 16 GW (41 percent of the total pipeline) already collecting FID.
On the other hand, Offshore wind development in Europe has only an 18 GW gap to meet 2030 target overall of 176 GW. This ought to be realizable although about 65 percent of the announced 124 GW of offshore wind capacity in the European pipeline is still pending FID.
Currently, the United States is about 1 GW of its installed offshore wind capacity-far from its national destination, which envisions 30 GW of offshore by 2030. The 17 GW of offshore wind capacity due to come online before 2030 still represents only 60 percent of this country's goal, with 90 percent of that total still in the pre-FID phase.
Electric vehicles
In order to meet its objective of 30 million EVs by 2030, the European Union would need to build almost twice as many vehicles over the next five years as it has on the road currently (around 11 million). The United States has to scale up almost at the same rate: it needs 26 million EVs by 2030 while currently only having around 5 million EVs on the road.
While the past two years' figures show no enthusiasm toward EV sales, many analysts believe that the numbers will continue to decline through 2030. Much need work still should be done to bring up consumer confidence for electric vehicles and other emerging technologies. One remaining challenge is establishing an adequate charging infrastructure.
In APAC region china sold more than 8.5 million EV in 2023, and EV market in 2024 has been evaluated to be worth more than 400 billion dollars. But there are less than 5 million vehicles on the road.
Heat Pumps
Heat pumps display a similar confused scenario which proves to raise a big challenge for the successful decarbonization of residential heat in different regions.
However, heat pumps have continued the upward trend since 2016 owing to various policy actions, such as
Energy Conservation Law: Japan has been a pioneer in heat pump technology, particularly in air-source heat pumps for space heating and cooling. The government offers various incentives, such as subsidies and low-interest loans, to encourage the adoption of heat pumps, particularly for residential and commercial use.
Smart Homes and Energy Efficiency: Japan promotes the integration of heat pumps with Home Energy Management Systems (HEMS), supporting more energy-efficient buildings.
Environmental Energy Strategy: Japan’s ongoing efforts to reduce carbon emissions include increasing the use of renewable energy, with heat pumps playing a key role in replacing fossil fuel-based heating.
Energy Efficiency and Green Building Policies: Heat pumps are integrated into China’s broader energy efficiency goals. The government has begun offering financial incentives to encourage the use of heat pumps in both residential and commercial sectors.
Subsidies and Tax Incentives: Heat pumps, particularly air-source heat pumps, are eligible for government subsidies and tax breaks as part of China’s strategy to reduce energy consumption and carbon emissions.
National Development and Reform Commission (NDRC): Heat pumps are included in China’s energy-saving product catalog, allowing for tax incentives and financial support.
Green New Deal: As part of its Green New Deal, South Korea is promoting sustainable energy solutions, including the installation of heat pumps, particularly in commercial and residential sectors. The government has set targets to improve energy efficiency and decarbonize the building sector.
Subsidies and Incentives: The government offers subsidies to encourage the installation of energy-efficient technologies like heat pumps in both residential and commercial buildings.
State-Level Incentives: Various Australian states, including New South Wales and Victoria, offer rebates and incentives for the installation of heat pumps, primarily focused on water heating and space conditioning.
Energy Efficiency Programs: Australian initiatives aim to increase energy efficiency across all sectors, and heat pumps are promoted as part of this push to reduce energy consumption and reliance on fossil fuels.
Energy Efficiency and Conservation Authority (EECA): New Zealand offers financial incentives and subsidies for heat pump installations through its EECA, especially for residential and commercial energy efficiency projects.
Building Code and Standards: New Zealand's building code increasingly encourages the use of heat pumps in new constructions, supporting sustainable energy systems and reducing reliance on fossil fuels.
The Middle East has been slower to adopt heat pumps, but there is increasing interest in energy-efficient and sustainable technologies due to the extreme temperatures and energy demands for cooling.
Energy Efficiency Strategy: The UAE is focused on reducing energy consumption and diversifying its energy mix. Heat pumps are being promoted in the context of reducing electricity demand for cooling purposes, particularly in residential and commercial buildings.
Dubai’s Green Building Regulations: These regulations encourage energy-efficient building practices, and heat pumps are considered an alternative for cooling and heating, reducing dependence on fossil fuels.
Dubai Clean Energy Strategy 2050: The UAE has ambitious plans to shift towards renewable energy, and heat pumps are part of the strategy for reducing energy usage in buildings.
National Energy Efficiency Program (NEEP): Saudi Arabia’s NEEP aims to reduce energy consumption in the building sector, with heat pumps being identified as an energy-efficient technology to replace traditional HVAC systems, particularly for cooling.
Green Building Codes: Qatar and Kuwait are adopting green building codes that include energy-efficient technologies like heat pumps for cooling and heating, helping to reduce the growing energy demand in these hot climates.
Europe is one of the world leaders in promoting heat pumps as part of its broader strategy to achieve energy efficiency and decarbonization goals.
Renewable Energy Directive: The EU aims to increase the share of renewable energy in heating and cooling. Heat pumps, especially those using renewable electricity, are a key component of this strategy.
Energy Efficiency Directive: This directive encourages the use of energy-efficient technologies, including heat pumps, to reduce overall energy consumption.
Green Deal & Fit for 55 Package: Under the European Green Deal, the EU has set ambitious goals for reducing carbon emissions by 55% by 2030. Heat pumps are seen as a major tool in decarbonizing the building sector.
Horizon Europe Program: This program provides funding for energy innovation projects, including those that focus on improving heat pump technologies and expanding their use.
Heat and Buildings Strategy (2021): The UK has set a target to install 600,000 heat pumps annually by 2028 to decarbonize residential heating. The government offers incentives like the Boiler Upgrade Scheme (2022), which provides grants for replacing fossil fuel boilers with heat pumps.
Clean Growth Strategy: This strategy aims to reduce greenhouse gas emissions across various sectors, with a significant focus on decarbonizing heating using heat pumps.
In North America, the U.S. and Canada are increasingly adopting heat pump policies to reduce carbon emissions and promote energy-efficient solutions.
Inflation Reduction Act (IRA, 2022): This legislation includes significant incentives for energy-efficient technologies like heat pumps. It offers tax credits of up to $2,000 for homeowners who install heat pumps, making them more affordable and appealing.
State-Level Programs: States such as California, Massachusetts, and New York have strong programs encouraging the installation of heat pumps. California, in particular, offers significant rebates through programs like California Public Utilities Commission (CPUC) for heat pump water heaters and space heating systems.
California’s Building Standards: California has aggressive energy codes that encourage heat pump installations over conventional heating systems in new and retrofitted buildings.
Greener Homes Grant (Federal): Canada offers incentives through the Greener Homes Grant program, which helps homeowners offset the costs of heat pump installations, with a focus on improving energy efficiency.
Provincial Programs: Provinces like British Columbia, Quebec, and Ontario have their own rebate programs to encourage the use of heat pumps, especially in residential applications.
Carbon Pricing: Canada’s carbon pricing framework helps make heat pumps more economically attractive compared to fossil fuel-based systems, as the cost of carbon-intensive heating technologies rises.
Some sectors (heavy industry, aviation, shipping, long-distance road transport, agriculture, waste management, residential heating in colder climates, and high-temperature manufacturing) are, by their nature, hard to decarbonize. Decarbonization will need massive deployment of electrification technologies, perhaps in concert with renewable technologies, and newer technologies like CCUS and hydrogen.
Most are not yet proven at significant scales, and FID levels on these technologies are the lowest among all decarbonization levers. Project delays or cancellations could impair the sustainable fuels and other essential ingredients needed by the energy transition and, subsequently, the energy transition targets.
Hydrogen
Clean hydrogen has garnered considerable attention for becoming the fuels of the future, with most of countries taking part in the agenda.
Hydrogen Strategy for a Climate-Neutral Europe (2020): The EU aims to produce 10 million tons of renewable hydrogen by 2030 and establish a hydrogen backbone infrastructure across the continent.
Hydrogen Shot (2021): The U.S. aims to reduce the cost of clean hydrogen to $1 per kilogram in the next decade to make it competitive for industrial and transportation use.
Japan
Basic Hydrogen Strategy (2017): Japan plans to become a global leader in hydrogen, aiming to produce 3 million tons of hydrogen annually by 2030 and use it in transport, industrial, and residential sectors.
Hydrogen Economy Roadmap (2019): South Korea aims to become a global hydrogen leader by 2040, with plans to produce 6.2 million hydrogen vehicles and 15,000 hydrogen refuelling stations.
Hydrogen Development Roadmap (2021): China aims to develop a hydrogen economy, with a focus on clean hydrogen production, aiming for large-scale hydrogen production by 2035.
National Hydrogen Strategy (2019): Australia aims to become a major hydrogen exporter, targeting a hydrogen export industry worth $1.7 billion by 2030.
Hydrogen Strategy (2021): The UK aims to produce 5 gigawatts of low-carbon hydrogen by 2030, focusing on hydrogen for industry and transportation.
Middle East (e.g., UAE, Saudi Arabia)
UAE Hydrogen Strategy: The UAE is aiming to become a global hub for hydrogen production, with plans to export clean hydrogen by 2030.
National Hydrogen Mission (2021): India aims to become a global hub for green hydrogen, with a target of producing 5 million tons of green hydrogen annually by 2030.
The European Union intends to have a clean hydrogen supply of 20 megatons (Mt) by 2030, comprising 10 Mt produced and 10 Mt imported.23 The United States targets a production of 10 Mt of clean hydrogen by that same year.
It will require producing clean hydrogen approximately 25 times more in Europe and around 20 in the USA over the next five years to be able to meet those targets by 2030. Current project pipelines are projected to meet about 90 percent of European and 70 percent of US targets, but only around 11 percent of Europe’s and 15 percent of US announced project pipelines have reached FID. And, while Europe’s clean hydrogen project pipeline anticipates steady capacity addition until 2030, the US project pipeline already shows a sharp decline after 2028.
Sustainable bio fuels
1. European Union
2. United States
3. Brazil
4. Japan
5. India
6. China
7. Australia
8. United Kingdom
9. Middle East (UAE, Saudi Arabia)
Factors affecting market performance
The numerous policies and regulations adopted and enforced worldwide sure has accelated the transition and put the world few steps towards the goal “to reduce the dependency on fossil fuels”. But to achieve the targets, a lot more is required weather it is new innovations or revision and restructuring of policies. Some of the factors which affect the project pipeline are:
Troublesome macroeconomic panorama: The financial and priority setting issues encountered by green projects due to the economic uncertainties and inconsistent investment climates. Even with lots of initiatives and policies, increasing inflation and interest rates have made capital expenditure-heavy projects much less affordable, likely leading to cancellations.
Maturity of the business case and technology: CCUS, clean hydrogen, and some of the sustainable fuels are the most important decarbonization pathways of many geographies and corporations. Most of the new technologies have not been tested at alarge scale and thus present uncertainty concerning their effectiveness and reliability, making them unattractive to investors.
Long processes: the fact that, the different projects rekated to energy transition are often vigourous ,long and requires strong commitments, is making investors and businesses hesitant in investing. In many instances many projects are struct in permitting phases, and different regulations and implication of different regions makes the situation worse.
Specialized labour shortages: shortage of skilled workers is there which has been delaying the installation of all possible systems and their maintenance at various stages of the supply chain, across geographies and levels of technology. The number of jobs requiring green skills increased by 24.4% between 2022 and 2023, but the workforce only increased by 11.3%. For newer technologies such as sustainable fuels, there is a pretty big lack of available engineering-procurement-construction contractors with the necessary experience to develop the technologies.
Raw material shortages: The availability of raw materials is constantly affecting supply chains such as those of batteries, solar panels, and wind turbines. Lithium-ion batteries necessary for EVs are very vulnerable because there is much demand for lithium, cobalt, and nickel. Future shortages may drive costs further up and delay manufacturing, with possible adverse effects on the future deployment of EVs. Similarly, neodymium and dysprosium, whose supply chains are vital for future wind energy projects, are needed as important ingredients in the magnets used in wind turbines.
Geopolitical uncertainty: Supply chains become stressed and technology and raw materials become less available for critical purposes because of international supply chain tensions between countries and trade disruptions. This is especially crucial for technologies whose raw materials or production capacities are highly concentrated in a specific region.
Required steps
The global acknowledgement of the issue and active adoption of new technologies and policies across the globe has put the world forward. Some steps are discussed below that are important to accelerate the pace.
Associate - Research
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