Rising prices & energy transition

When I consult with businesses about various different new trends or emerging technologies in energy transition, there’s always the inevitable question of costs and when they will come down. For greener fuels in particular, there’s always the cost comparison against the usual fossil fuels. At the same time, for green electricity, there’s always the comparison against the grid.

I’d remind them that we have to be prepared that despite the learning curves and technological improvements, the cost may not come down sufficiently. In other words cost of the new greener technology may not be able to match the current cost of the traditional, more carbon-intensive technology.

But yet they might reach parity for other reasons. First, carbon price through taxes or emissions trading can raise the cost of the more traditional technology. Second, as players start switching towards the greener technology, there may be a reduction in scale economies for the traditional technology that also increases its costs. Finally, the producer of the legacy technology may also diversify their business towards the greener technology in face of public pressure which would make it costlier for those who need to find replacements for legacy components or parts.

Or there may be other problems and external issues that upset the current economics. The best example is the energy crisis around the world now with shortage of natural gas. It is almost artificially created but not any less real. And people are scrambling in fact to develop more solar capacity; and also faced with rising costs because of global supply chain bottlenecks.

Surprising but energy transition is being accelerated by rising prices.