The Energy Transition.

 

What is it?

The Energy Transition is a long-term structural change in how we produce, transmit, store and consume energy. It’s the newest in a line of historic energy transitions — such as the invention of the steam engine in the 18th century, and the discovery of oil in the 19th century. This Energy Transition is primarily about the systemic shift from fossil-based energy to decentralized, renewable power.

It coincides with an explosion of emerging technologies, innovative manufacturing processes, and new ways of using existing capital stock that enable us to produce more with less, decreasing environmental impact. We call this the Efficiency Revolution.

The Energy Transition and the Efficiency Revolution are creating historic investment opportunities. But this transition will also challenge traditional business models, and be fatal for industries unwilling or unable to adapt.

 

Five themes to watch

We’ve identified five themes investors should consider now:

 

1. Renewable energy expansion

Renewable energy technologies have improved dramatically. For example, the cost of solar PV has decreased by 75% in the past five years and is now cost-competitive with coal and gas in many parts of the world. Meanwhile, the costs of finding and extracting fossil fuels — plus fees for pollution and emissions — are generally increasing. 60% of added electricity generation capacity over the next 25 years is predicted to be renewable. The Energy Transition will take years to complete, but the logarithmic expansion of renewable energy is certain.

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2. Electric grid transformation

Almost every part of our aging electric grid can be improved to make it more efficient. Sensors and information technology can be combined to identify underperforming assets, regulate voltage levels, balance production and consumption more evenly, and identify other inefficiencies. Line losses can be reduced by transitioning high capacity transmission lines to high voltage DC. Finally, new power generation can be distributed reducing distances to consumption. We see tremendous investment opportunity in the so-called smart grid.

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3. Efficient transportation

Almost a third of total global energy consumption is used for transportation, about half for commercial uses and half personal. Shipping managers have been implementing efficiency technologies like logistics software and GPS based routing for over a decade. And auto and truck sharing companies are improving our utilization of existing rolling stock.

What’s now exciting is the ability to actually reduce the energy required for each kilometre travelled: the introduction of lighter materials, hybrid drive trains, stop-start technologies, electrification and other cleaner fuels that promise to make our cars, trucks and trains more energy efficient. Car and light truck fuel efficiency is now growing at 7% per annum. We predict the average car will exceed 50 miles per gallon within 10 years.

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4. Smarter buildings

Buildings also use about a third of all energy consumed. About 60% of that goes into heating and cooling. Industrial buildings can now be constructed using combined heat and power cogeneration that are 95% energy efficient. Advances in lighting, smarter thermostats and more efficient HVAC systems can already reduce residential energy consumption by 30% or more. Modular design, power integration, and renewable building materials are emerging to reduce the cost and energy required to construct future buildings.

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5. Smarter manufacturing

From the appliances we use at home to the factories that make them, electric motors are everywhere. Manufacturing accounts for 40% of global energy consumption, and 65% of electricity consumed in manufacturing is consumed by electric motors. New highly efficient variable speed motors can reduce energy consumption by over 20% and promise to significantly change the energy intensity of manufacturing.

In certain segments of the petrochemical industry, natural sugars are being processed into functionally equivalent products that offer both economic and energy savings versus the petroleum standard. Examples today include latex, paper coatings, insulation, and binding agents. Demonstrated savings run as high as 20%.

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