One of the concerns that the IPCC has in its report issued this week is that things are not happening fast enough and the Ammonia analysis in the chart below would support this view. Most of the capacity addition comes post-2030 in large part because project planners cannot see a way to enough cheap power to generate the green hydrogen needed until that time. In our view, since COP26 the transition part of the energy transition has been overwhelmed by advocates of green technology and renewable pathways without much thought about how practical they might be today. Those suggesting transition options are being given very little airtime and as a consequence, we see broad hostility towards anything that is not truly green, regardless of whether the costs or time frames make any real sense. If we do not embrace bold transitionary steps including the use of hydrocarbons with aggressive abatement targets we will not meet any of the shorter-term goals that the IPCC highlights and we are putting hope in renewable and technology development which may come up short. Related to this we see the LNG dilemma in Europe, with the current and medium-term needs very apparent, but a reluctance to sign up for longer-term supply because of an expectation that if all things renewable come to pass, the LNG might not be needed. The Europeans will need to make the longer-term commitment if they are to persuade the US and other potential exporters to build new export terminals.
Source: Wood Mackenzie, April 2022
In our ESG and Climate report today we focus on renewable power and the challenges that the wind and solar industries are facing in their attempts to keep up with demand. We expect a bidding war for materials and components and higher power prices as a consequence – lower than the peak prices shown above, but much higher than in earlier plans. This should make other forms of renewable power more attractive – fuel cells, hydro, waste to energy, geothermal, etc. – and this might be what is needed to get the necessary step-change in renewable power investment – relying on more than just wind and solar.