How investors, policymakers and companies can foster the technologies needed to move beyond fossil fuels and build a more sustainable future

From fully electric planes to the latest improvements in batteries, there seems to be no shortage of innovations for the energy transition.

But with these innovations comes great responsibility. To make a lasting impact, leaders need to consider what should be done to implement new technology, overcome challenges such as antiquated power grids and regulatory and financial hurdles, and bring traditional energy workers into the transition.

“Climate change is a threat, and investing in solutions that enable the energy transition is key,” says Alexandre Tavazzi, head of the CIO office and macro research at Pictet Wealth Management.

Climate change is a threat, and investing in solutions that enable the energy transition is key.Alexandre Tavazzi
Head of the CIO office and macro research at Pictet Wealth Management

CRITICAL DEVELOPMENT AREAS

Translating new technologies into commercial, scalable products is a crucial part of the energy transition. Investment is fuelling this development in areas such as energy production and storage, smart grids, and buildings.

1. ENERGY PRODUCTION AND STORAGE

Now, more than ever, we need more clean, reliable and affordable sources of energy, as well as ways to store it for future use. The cost of energy from renewable energy sources, including wind and solar, has already fallen below the price of fossil fuels.¹ However, falling prices can actually impede development by reducing incentives to invest in new projects as investors struggle to realise returns without corresponding declines in labour and materials costs. This makes regulatory and financial incentives critical for continued progress.

2. SMART GRIDS

Many electricity grids are decades or even a century old, which makes it difficult to keep up with the demand for more power and accommodate new installations of renewable energy projects. This is where smart grid technology comes in to help meet these needs. Modern software, including artificial intelligence, can help to ease the strain by modulating electrical loads to prioritise always-on devices and allowing interruptible equipment, such as vehicle chargers, to operate as supply allows. Software can also provide financial incentives for continued investment, for example, through pricing that responds to real-time production and demand.

3. EFFICIENT BUILDINGS

Updating buildings is also necessary. Mr Tavazzi says that 80% of buildings in Europe are not up to date with green energy regulations. Buildings also account for more than 50% of global electricity use, making them a leading contributor to greenhouse gas emissions. ² More can be done to increase building efficiency through existing technology, including sensors that turn off lights and adjust climate control in empty rooms.

Innovations in hardware and software can help companies, investors and citizens to meet these technological challenges, among others needed for the energy transition.

TECHNOLOGY FOR THE TRANSITION

SmartGridz and ConnectDER are two start-ups advancing technology for the energy transition, one at the grid level and one in individual homes.

SmartGridz’s software, currently in development, models entire power grids to manage electrical loads from renewable sources, storage and other elements. It also optimises financial transactions by adjusting pricing according to real-time demand and supply data. According to innovation director Rupamathi Jaddivada, SmartGridz enables automated grid management that responds to technical and economic inputs to help everyone, from local governments to entire countries, meet their energy and carbon reduction goals.

“Our software captures the power grid model in its entirety and is physics-based,” Ms Jaddivada says.”It thereby provides accountability and reproducibility, which is seen as essential by utilities.”

Closer to home, ConnectDER makes hardware for connecting solar arrays and electric vehicles (EVs) to residences. A key for adoption, according to Daniel Falcone, vice president of product at ConnectDER, is affordability. Instead of paying thousands for new service and new connections, he points out that you can add ConnectDER’s product for several hundred dollars.

ConnectDER’s meter socket adaptors, which are available in North America, sit between an electricity meter and the rest of a household’s electrical system. They monitor electrical consumption and manage demand in real time, prioritising essentials such as refrigerators and heating systems, while powering distributed energy resources (DERs) such as EV chargers, as needed.

“Technology isn’t a barrier because it’s here already,” Mr Falcone says. Instead, he and others see speed of utility adoption and financial and regulatory challenges as the main roadblocks to the energy transition.

OVERCOMING ROADBLOCKS

Incentives to invest in renewable energy projects often fall as technology improves and production becomes more efficient. Recent economic headwinds, including supply chain challenges, rising interest rates and the consequent increase in financing costs, have also had an impact on renewable energy projects. New regulations can address these problems by helping to ensure a sufficient return on new energy production through financial incentives.

The typically inefficient permitting process for approving new technology and infrastructure can be another barrier. A law enacted in the US state of New Jersey in 2023 could provide a model for regulation. It directs electric utilities to let customers install meter collar adaptors without first testing each model, as long as they meet safety standards for home electrical devices.³

Another bottleneck will be the impact on jobs. According to the International Energy Agency, the energy transition will create 9m jobs in the energy sector—more than enough to replace the estimated 5m jobs that will be lost in the fossil fuel industry by 2030.⁴ A skills shortage in the clean energy industry points to a solution: education and reskilling for traditional energy workers.

Despite the challenges, Mr Tavazzi is optimistic about the world’s ability to adopt new energy technologies quickly enough to head off the worst impacts of climate change and consider renewables a long-term asset.

“With many new technologies being developed, it is difficult to predict which one will lead over the others,” he explains. “So, we look at a selection of new companies and technologies that, in the end, will make energy transition possible. We need a diversified portfolio approach as it remains difficult to identify winners at the early stage of a new technological development.”

References

• ¹Forbes, “Renewable Energy Prices Hit Record Lows: How Can Utilities Benefit From Unstoppable Solar And Wind?,” 21 January 2020.
• ²Project Drawdown, “Sector Summary: Buildings.”
• ³ConnectDER, “ConnectDER Lauds New Jersey for Boosting State’s Solar, Storage and EV Charging Choices,” 3 October 2023.
• ⁴International Energy Agency, “The importance of focusing on jobs and fairness in clean energy transitions,” 6 July 2021.

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