Fundamental changes are taking place in the global energy system that will have significant geopolitical implications. These changes will affect almost all countries, and will have wide-ranging consequences on economies and society. The geopolitical balance will shift and the dynamics of relationships between countries will also be transformed. Major oil-exporting countries will have to review their economic models and what they mean for stability. On the other hand, many countries with great renewable potential – whether in solar or wind power – remain in the category of developing countries. How can the transition be made as smooth as possible?
Let us start with the question of what we mean by energy transition? At its most basic level, the new energy transition is a shift from a world order based on oil to one based on electricity. And the use of electricity is already surging. It provides about 20 percent of energy today, and will have to rise to 50 percent by 2050, if countries are to meet their climate commitments, according to the International Renewable Energy Agency (Irena). Electrification will be decisive for countries' economies to reach net-zero levels of carbon emissions by 2050.
The pace and scale of the transition has already shot past the most optimistic projections. We have reached a tipping point, and the conversation around clean energy is higher on the agenda than ever. Currently, 14 members of the G20 had announced net-zero targets by mid-century, covering 61 per cent of global greenhouse emissions, according to the 2021 Climate Transparency Report. How fairly and how fast the energy revolution happens is the biggest challenge of our time.
Properly designed and implemented, the energy transition will ease progress towards all 17 of the UN's Sustainable Development Goals – not just the goal that relates to universal, affordable and clean energy. It will enhance energy independence for most countries and, as a result, the number of energy-related conflicts is likely to fall. It will also promote prosperity and job creation, improve food and water security and enhance sustainability and equity.
For example, the US and EU’s plans for green recovery will give a boost to several clean energy technologies. The same can be said for China, which is investing heavily in renewable energy technologies and cross-border power connections.
As countries prepare for net-zero targets, some regions, such as the Middle East, are planning to trade more green fuels, including hydrogen and green ammonia. This gives rise to a whole new constellation of markets and bilateral trade relationships. We could see a new class of energy exporters emerge.
At the same time, the energy transition will generate new challenges. A rapid shift away from fossil fuels could create a financial shock. Workers and communities that depend on fossil fuels may be hit adversely. That is why we need to develop technologies to enhance a smooth transition.
In the new energy world, technology will be an important differentiating factor. There will be three ways for countries to exert influence in the new system. One is by exporting electricity or green fuels. Another is by controlling the raw materials used for clean energy technologies, such as lithium and cobalt. The third is by gaining an edge in technologies such as electric vehicle batteries.
How to transport this energy and ensure it reaches people in an efficient and affordable way is a big piece of the puzzle. Hence, trading power will also be on the rise, with an increase in cross-border electricity interconnection projects.
For example, engineers at Siemens Energy helped construct Nemo Link, the first high-voltage interconnector between Belgium and the UK, which can supply up to 1,000 megawatts of clean electricity. It is also one of several such transmission links connecting Britain’s electricity grid to the national grids of neighbouring countries. In the middle of this transformation lie power grids, the true enabler of energy transition.
To ensure the success of a global net-zero approach, there are a few important aspects to understand. First, Regions might take longer on the fossil fuel transition because of the specifics of their development or their energy landscape. Second, legacy energy infrastructure will need attention and adequate investment. And third, we also need to tackle socio-economic aspects, so we do not end up having winners and losers.
For regions such as the Middle East, which is blessed with natural resources, but also has abundant renewable resources, the transition could be an economic gift. We see many countries working to leapfrog technologies based on fossil fuels with ambitious economic diversification plans.
Another example from Siemens Energy of a project in the region that is helping to accelerate the energy transition includes the company's partnership with Dubai Electricity and Water Authority and Expo 2020 to construct the Middle East's first solar-driven hydrogen electrolysis facility. The project also sets an example in public-private partnerships. Siemens Energy has also joined forces Masdar, the Abu Dhabi Department of Energy, Etihad Airways, German Lufthansa, Marubeni Corporation and Khalifa University to produce aviation eFuel. This is in addition to other agreements recently signed in both Egypt and Oman to develop their hydrogen economies.
Despite difficulties, the energy transition will ultimately move the world in the right direction by addressing climate change, combating pollution, promoting prosperity, as well as sustainable development. But it requires new frameworks, cross-sector partnerships between public and private sectors and stronger international co-operation to underwrite our common journey.