Looking back at DNV GL’s flagship ETO [Energy Transition Outlook, launched in 2017], what were the standout differences compared to the findings of last year’s report?

There will always be slight variations year-on-year, but overall if you look at the main findings from 2017 most of these can be seen in this year’s [ETO]. We do, however, believe that energy consumption overall will be 6% higher in 2050 than we forecast last year due to rising demand from manufacturing, production of good and services; and we do foresee there being less oil in the global energy mix and more gas by 2022-2023, and playing more of a role in the energy transition.

And then, of course, our headline figure: we do see a more rapid electrification – last year we said 40% and this year we think it will be more like 45% by 2050. There are variations, but the trends are the same.

Growth in electricity consumption will more than double its share of energy demand to 45% in 2050 driven by massive electrification of energy demand in all regions and sectors, particularly EVs [electric vehicles]. No one is underestimating the expansion of the EV market, but are the renewables industries taking EVs sufficiently into account as both a source of power demand and of energy storage in the energy transition?

I think last year when we released our first ETO, we stood out from the rest of the pack [in forecasting the growth of the EV market] and we continue to believe EVs will have a very important impact on the whole drive toward electrification around the globe. Of course, as we saw in our [2017] modelling, the expectation that EV batteries would make up 10% of storage in the total global power system is too conservative.

In the transport sector, the uptake of private EVs will continue to escalate rapidly, with 50% of all new cars sold globally in 2033 expected to be EVs, with Europe reaching that point [50% of all new cars sold being EVs] in 2027. So, what this will make up of overall energy storage capacity is yet to be seen.

The whole discussion around EVs and energy storage if moving a lot. And seeing how automobile manufacturers are changing their view of the role of EVs in the last 12 months and investments going into charging stations by different companies. The renewable energy industry will need to be more and more [cognisant] of the role EV batteries will have to play in the energy transition.

By the early 2030s, global primary energy supply peaks and ceases to be dominated by coal, oil and gas, and by 2050, the energy supply mix is split equally between fossil and non-fossil fuels. Are there any potential black swans here to your mind, either pro- or contra- the ongoing renewables build-out?

Our [ETO] reports are predominantly focused on the technical and technological aspects of the energy transition, but one of the central challenges we do have [in making the shift from fossils to renewables] is how government regulation is going to be adapted. We look at the levelised cost of energy [LCOE] but we don’t look at taxation, for instance. And how governments will have to address these matters in a way that allows renewables to take over from fossils gradually via the regulatory systems that are being adapted to this new world.

If we look at the energy transition from a technology point-of-view, things are running at full throttle – wind and solar LCOE going lower and lower, the cost of batteries dropping – but the ‘black swan’ really will be down to whether regulatory systems can be developed at a disruptive pace.

Electricity production becomes dominated by renewables, with PV, onshore wind, hydropower, and offshore wind together accounting for 80% of global electricity production in 2050. Will offshore wind be the fastest expanding of these sectors in relative terms? Could Asia’s nascent offshore wind market supercharge the sector’s contribution?

Offshore wind is starting from a much lower base [than onshore] but we are expecting an 85-fold growth in the offshore wind sector by 2050, which is a rate [of growth] equivalent to PV, and onshore wind growing significantly, but also significantly slower than these. After Europe, the US has a huge pipeline for offshore wind and Asia is difficult to read beyond our broad sense that the growth there will be exponential. Scaling [of offshore wind] will be self-reinforcing: the more you expand the better you are able to expand further [as a regional supply chain and port infrastructure is developed].

The costs of the world’s energy systems see a shift from operations spending (Opex) to capital expenditure (Capex), but despite major expansion of high-capital-cost renewables and electricity networks, total energy expenditures fall substantially as a fraction of GDP over the period to 2050. Is this chiefly down to ongoing reduction in LCOE of solar and wind? And is there a fear around general global investor sentiment interpreting this as a further ‘slow down’ in spending on utility-scale renewables?

There are a number of drivers here. For sure, we see the cost of generation of wind and solar [power] will continue downward – but it is important to remember that, as we forecast in the report, we do see energy demand peaking in 2035 and slightly declining in the following years, and at the same time continue to see GDP [gross domestic product increase].

And if one falls and the other grows, then obviously you are increasing the ‘delta’ of the two. This means more integration and higher efficiency and this, in turn, when it comes to renewables you will have not only higher usage but also higher efficiency, which will lower energy demand. So, it will be a lot about the interplay between these two. The rate of growth of investment in renewables will continue to grow, but in terms of GDP will fall.

One of the key unknown unknowns in the energy transition remains Big Oil. As the report notes, we are already seeing large investments – in relative terms – by the majors as they begin to transition from ‘oil and gas’ to ‘gas and oil’ and, eventually, to becoming ‘all-energy’ suppliers. But this capital spend remains only a few percentage points of their total investment in new energy resource production etc. What are your thoughts on the overall change to the energy explorer/producer/supplier landscape as oil companies begin competing with utilities (both as electricity network owners and as electricity suppliers) — which are also looking for new roles and business models — as well as with new players such as Google and Amazon?

Big Oil’s competences for scaling very large projects – such as offshore wind, for instance – will help them in their own transitions [toward being ‘energy’ rather than ‘oil and gas’ companies]. It is important to highlight that these companies’ overall knowledge and combination of systems – insofar as we still see gas as being an key bridge – will mean that they work across many sectors in the energy transition.

"We are still not on a trajectory where we will reach the Paris Agreement."

[For oil and gas majors] it is all about capitalising on these high-level competences and then determining how fast they can get [to a position where they are producing more power from renewables than fossils].

And then there is the energy storage question and its role in [oil companies' decarbonisation]. These companies’ ability to provide knowledge and capital, and work across the value chain, will be fundamental to their acceleration of the energy transition – especially because, as our report confirms, we are still not on a trajectory where we will reach the Paris Agreement [which targets keeping global temperatures to an increase of 2C over pre-industrial levels].

We are coming up short. We need all [oil and gas companies, utilities and heavy emitters] hands on deck to change this.

Transition

'The energy transition's "black swan" will be regulatory change'