#2 Is the energy transition for real?
Recent headlines suggest the world is going backwards. The reality is that the energy transition will happen whether you like it or not.
Welcome back to Power Econ—your guide to the intersection of energy, geopolitics, and markets. The world is undergoing a profound transformation, and energy is at the heart of it. The energy transition is happening faster than most realise in the power sector, not just because of climate policies but because it makes economic sense. But that’s only half the story. The real challenge lies in decarbonising heavy industry, where costs remain high and clean alternatives are scarce. In this edition, we’ll explore the compelling economics of clean energy but also the challenges, the investment trends shaping the future, and the geopolitical shifts that will define the global order.
The Economic Case for the Energy Transition
The numbers speak for themselves. In 2024, the International Energy Agency (IEA) estimates that global energy investments exceeded USD 3 trillion, with over two-thirds directed toward clean energy. Despite political noise and policy debates, this transition isn’t slowing down—it’s accelerating. The reason is simple: renewables, particularly solar, have become the cheapest way to generate electricity—by a wide margin.
Consider this: over the past decade, the levelized cost of energy (LCOE)—a complicated term that captures the cost of construction and operation of power plant over its lifetime—has plummeted by 89% for solar photovoltaics. In contrast, the LCOE for coal, still the world’s largest electricity source, has barely budged, declining by just 2%. Coal now costs roughly 2.5 times more than solar. Onshore wind tells a similar story, with costs dropping 70% over the past decade, now sitting at parity with solar.
A recent paper in Nature argues that a ‘solar tipping point’ may already have passed—where solar energy dominates global electricity markets without the need for additional climate policies. By 2030, nearly half of the world’s electricity generation is projected to come from renewables. The writing is on the wall: the future is green, not because of subsidies, but because the market demands it. The graph below tells you essentially all you need to know.
Investment Flows Reflect a New Reality—But Also a Geographic Divide
In 2024, more than USD 2 trillion was poured into clean energy investments, according to the IEA. But the distribution is revealing:
China leads the charge, investing $675 billion—essentially as much as both the US and Europe combined.
Europe follows with $370 billion, maintaining its ambitious climate agenda.
The US lags at $315 billion, despite the Inflation Reduction Act’s push for clean energy.
Beyond capital flows, these investments are driving real economic growth. In China alone, the IEA estimates that clean energy investments contributed nearly 1% to real GDP growth in 2023—accounting for a staggering one-fifth of the country’s (official) growth figures.
These are transformational numbers. But they’re still not enough. To hit ambitious Net Zero targets by 2050, the IEA estimates that global clean energy investments need to reach $4 trillion annually by 2030. The biggest gaps? The industrial sector, transport, agriculture, and climate adaptation.
The Hard Part: Decarbonising Heavy Industry
The rapid transformation of the power sector is the easy part of the transition. Why? Because the economics are already in favor of renewables. But the real challenge lies ahead: decarbonising heavy industry—sectors like steel, cement, and chemicals, which require immense energy and rely on fossil fuels for high-temperature processes that are much harder to electrify.
Unlike electricity generation, there is no cheap, scalable clean alternative yet. Without a strong carbon price, companies have little economic incentive to green these processes as existing technologies are simply not good enough to make it economically justified.
Europe has ambitious carbon pricing plans, notably through the forthcoming implementation of the Carbon Border Adjustment Mechanism (or CBAM) and the phasing-out of free carbon allowances to the industrial sector starting from 2030. In the absence of global cooperation, notably from the US, a rising carbon price will create a big competitiveness challenge for European industries. If carbon prices rise significantly in Europe but not in the US, businesses will have strong incentives to relocate, exacerbating Europe’s already precarious industrial outlook. This is particularly relevant given the stance of the new US administration which has not made a secret of its desire to attract European industries on its soil. Balancing climate ambition with economic competitiveness will be one of Europe’s defining challenges in the years ahead.
Why This Matters: The Geopolitical Power Shift
The world is changing in fundamental ways, from geopolitical fragmentation, technological innovation driven by AI, to the rising threat posed by climate change. Energy systems turn out to be at the center of it all. Energy doesn’t just fuel economies—it shapes global power dynamics. And as energy systems evolve, so too does the balance of power. This will lead to deep-rooted changes, the magnitude of which will be hard to grasp. You’d well inspired to subscribe to a newsletter that explores these questions from a macro and market perspective (just saying).
China’s dominance in clean energy is one of the most underappreciated developments in global geopolitics. China isn’t leading the clean energy revolution out of pure climate altruism—it’s a strategic play for energy security. As the world’s largest fossil fuel importer, China has every incentive to reduce its dependence on volatile global markets. Meanwhile, the US, as the world’s largest fossil fuel exporter, has been far more hesitant to accelerate decarbonisation. This all makes sense when looking at climate change through an energy dominance perspective. Yes, we all want to solve climate change, but the divergent economic interests are what will effectively drive the dynamics.
Beyond geopolitics, technological innovation in clean energy is now a key driver of corporate competitiveness. Companies that are active the clean energy supply chain will emerge as the big winners. This sector is poised to be one of the most dynamic in the global economy. But it will be a wild ride, with clear risks but also great financial opportunities for those that know how to navigate these developments.
I hope you’ve enjoyed this second edition of the Power Econ newsletter. The transition to clean energy is not a niche topic—it’s a fundamental shift in the global economy. From geopolitical realignments to technological breakthroughs, the implications are vast. Those who understand these trends early will have a significant advantage. If you did enjoy, please consider subscribing and increase the visibility by reposting this article. Cheers!
PE