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Energy transition is at tipping point

Delay and less support for energy transition. Read the FD article.

The energy transition seems to be stalled. Where previously it was thought that political pressure and international agreements would provide sufficient guidance, we now see delays and support that is crumbling. The recent tender for a Dutch offshore wind farm threatens to fail, even though this is one of the biggest pillars of the energy transition policy.

The challenges are piling up. High interest rates and inflation make investments in renewable energy increasingly difficult to calculate. At the same time, there is less political support for climate policy. While the urgency for sustainability increases, confidence in the government is actually decreasing. "The energy transition cannot be stopped, but if we do not act, calamities will increase," warns Ronald van Rijn, managing partner at JBR. In his day-to-day practice, the strategic consultancy sees how companies struggle with the question of whether they should invest in sustainability now, or whether it would be better to wait.

An urgent situation

Recent research for Invest-NL and TKI Offshore Energy shows that the offshore wind sector is facing major problems. The situation is urgent: now that new tenders can also fail, offshore wind and renewable energy targets are in jeopardy. The European market share in turbine assembly has dropped from 58% to 30% in five years, mainly due to Chinese competition. Financing innovation and scale-up is proving challenging on three levels: the business case of companies, the broader offshore wind ecosystem and the financing landscape itself. "We see that the 'race to the bottom' has reached its limit," said Eliane Blomen, the JBR expert in energy transition. "The sector urgently needs new financing models. The current tender system no longer works well, we also see this outside the Netherlands - for example, Denmark recently withdrew a 3 GW tender for subsidy-free offshore wind to reform due to too few bids."

One solution may lie in spreading risks better. Investors often view offshore wind innovations as risky because of unfamiliarity with the sector and high capital requirements. Better coordination between innovation subsidies and private financing is needed. "You hardly get time to recoup innovations, because the next one is already arriving," says Ronald van Rijn. "It's like sometimes with iPhones - they follow each other too quickly to recoup the old version."

The financial puzzle is complex

"The risk is now disproportionate to the return," Ronald van Rijn explains. This is especially true in the maritime sector, where shipping companies face huge investment decisions. "You build a ship for 30 years, with historically high yard prices, of which you don't know if you'll ever recoup. Should you invest in a ship that is metanol-ready, or rather in batteries or hydrogen?" wonders Rick ter Maat, partner and responsible for JBR's maritime practice.

The problem is compounded by lack of infrastructure. Ports are not yet prepared for alternative fuels, and grid congestion makes even shore power a challenge. "If governments would help more with infrastructural solutions, the market will naturally move in that direction," says Rick ter Maat. These infrastructural challenges require a coordinated approach in which both public and private parties must play their part. Better cooperation between governments, port companies and the maritime sector is crucial to accelerate this transition.

The materials transition poses an additional challenge. Europe depends on other countries for many crucial raw materials, while those materials are essential for renewable energy. China has strategically invested in this sector over the past 20 years, while Europe has lagged behind. "We not only want sustainability and low CO2 emissions, but also no human rights violations," Eliane Blomen emphasizes. "With new legislation like CSRD and CSDDD, companies are forced to look deeper into their value chains and critically evaluate their dependencies."

Future scenarios

Scenario thinking is becoming increasingly important to meet these complex challenges. "We look together with companies at how legislation may develop, what happens if infrastructure does or does not become available in time, and how the electricity price may develop," Eliane Blomen explains. By calculating different future scenarios, companies can better anticipate changes in the market and adjust their investment decisions accordingly. This approach also helps identify new opportunities and develop robust business cases that can withstand different market conditions.

Still, they remain optimistic at JBR. "We already have 50 percent renewable electricity. The train is unstoppable. We see pension funds becoming increasingly active in offshore wind projects, for example in financing submarine cables. This 'patient capital' is exactly what the industry needs for long-term infrastructure investment. Despite populism and political headwinds, the energy transition will continue - there is no turning back," Ronald van Rijn concludes.