This week, the International Energy Agency (IEA) reported that the goals set for expanding wind and solar capacity at COP28 are “within reach.” However, this optimism comes with a significant caveat: the rapid development of energy grids and storage capacity. Without these advancements, the entire transition to renewable energy may face serious setbacks.
Consider electric vehicles (EVs). Recent sales data reveals a mixed picture. In China, EV sales surged by 42%, contributing to a global increase of 20%. Conversely, sales in Europe plummeted, dropping more than the increase in China, at a staggering 44%. North America saw only modest gains, far below what advocates of the transition had hoped for.
Turning to solar energy, the United States is witnessing unprecedented additions to solar capacity. Yet, many companies in this sector are struggling to stay afloat, with some going bankrupt. SunPower, a leading player in the solar industry, filed for bankruptcy last month, highlighting the challenges the sector faces.
Wind power, despite generous government support in Europe and North America, is also encountering difficulties. A recent incident involving a turbine blade breaking and spilling debris into the ocean has raised concerns about the environmental credentials of wind energy. This event led to the shutdown of the entire wind installation while an investigation is underway.
Moreover, the rapid increase in wind and solar capacity is causing negative electricity prices in Europe. As countries expand their renewable energy sources, there are more instances where production exceeds demand during peak hours. This surplus is driving wholesale market prices below zero, forcing generators to pay grid operators to take their electricity. This situation is not sustainable and complicates operations for generators and investors who expect returns. There are calls for governments to intervene, raising prices even as they market wind and solar as more affordable alternatives to gas and coal. Many consumers are beginning to express skepticism about these claims, as reported by the Wall Street Journal.
The WSJ also noted that European governments had previously assured voters that the energy transition would lower costs. However, as subsidies run out, citizens are being faced with the financial burden of this transition. High-profile political figures are now calling for increased investment in energy transition efforts, causing public frustration and casting doubt on the future of these initiatives.
Politicians are trying various strategies to address the situation. In Germany, the government, after cutting EV subsidies last year and seeing a drop in sales, has decided to reintroduce a form of subsidy for car manufacturers. In the UK, Prime Minister Keir Starmer acknowledged that the situation might worsen before it improves, amid a cost-of-living crisis affecting many citizens. While Starmer’s government remains committed to green goals for now, this may change if energy costs continue to rise.
In the United States, transition industries are anxious as elections approach, with candidates who are less favorable to subsidized wind and solar potentially gaining power. This concern prompted President Biden’s climate chief, John Podesta, to highlight the growth in oil and gas production over the past four years, framing it as an economic success.
In addition to rising costs and the end of subsidy funding, there is increasing discontent among consumers who were promised cheaper energy but are now facing soaring bills. This issue is compounded by a surge in energy demand, particularly from the Big Tech sector, which is expanding its use of artificial intelligence and requires constant electricity supply.
Big Tech has acknowledged that it cannot rely solely on wind and solar for this round-the-clock power. Analysts predict a rise in gas demand as a result, while nuclear energy is re-entering discussions as a reliable low-emission power source.
Despite the IEA’s assertions that the energy transition is imminent, the ultimate verdict lies with the market. And for now, that verdict is a resounding “No.”
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