The Energy Transition: Where’s the Money?

Transcript

The Energy Transition: Where’s the Money?

Lars Eirik:
we're sinking about $2.2 trillion into the system that is called energy. And about $1.5 trillion of those goes into what I would classify as clean.

Christian Egenhofer:
If we want to weigh ourselves off to Russian gas, currently we're importing still 14 % LNG from Russia, we need more gas from the US and Qatar.

Seb Henbest
If Thomas Edison were alive today, he'd recognise the vast majority of the grid. For every dollar invested in power generation, you need about 70 cents invested in the grid. Adding up to mid century, that's over 20 trillion of new investment required in the grid.

Tom Parker
hello, I'm Tom Parker and welcome to the Next Five podcast brought to you by the FT partner studio. In this series, we ask industry experts about how their world will change in the next five years and the impact it will have on our day to day. In this episode, we're looking at value creation in the energy transition, where the money is going and where it's to be made. Sat around our virtual table today are three experts ready to discuss this big topic.

Seb Henbest
Thanks for watching.

Tom Parker
I'm pleased to be joined by Lars-Iraq Nicolason, Deputy CEO at Ristad Energy.

Lars Eirik
Hey, Tom, good to be here.

Tom Parker
Seb Henbest, Group Head of Climate Transition at HSBC.

Seb Henbest
Hi, Tom.

Tom Parker
And Christian Eggenhofer, Associate Senior Research Fellow at the Energy Resources and Climate Change Unit at SEPS, the Center for European Policy Studies in Brussels. He's also Senior Fellow at the European University Institute in Florence and the Energy Policy Group in Bucharest. It's a very long business card there, Christian, but welcome great to have you.

Christian Egenhofer
Yeah, great to be here. Looking forward to the conversation.

Tom Parker
Well, it's a pleasure to have you all here. Lars, I'm going to start with you. Capital flows to the entire energy sector are set to hit $3.3 trillion in 2025, $2.2 trillion of which will find its way to renewables, nuclear, grid storage, low emission fuels, efficiency and electrification. And that's twice as much as the $1.1 trillion going to fossil fuels this year.
Could you give some context as to where capital is flowing now compared to say five years ago?

Lars Eirik
Yeah, absolutely. Let's go there. And so those headline numbers you alluded to there indeed suggests that the energy transition, as we keep on referring to it as, is well in the way with a higher share of capital flowing in that direction than towards fossil. That said, and those numbers you refer to are IEA numbers that I think many of us relate to. I just want to nuance it a little bit because including in that $3.3 trillion you referenced, as you also said, there's a decent chunk of that going into what is called efficiency and electrification.

sectors, which would be the end use infrastructure of energy. Now, in the IAEA data, there's no equivalent to that on the fossil side, i.e., where they account for investments into electric vehicles, as an example. They don't account for investments into ICE vehicles, combustion engine. So there's a little bit of an unfair comparison when you disaggregate the 3.3 into clean versus non-clean. So I tend to sort of alter that definition a little bit, go lower on the overall numbers that are being invested by removing that end

sector consumer of capital, if you will, because it's a little bit sort of an unfair playing field. Also, there's a lot to be said about another decent chunk of capital going into the grid. Is the grid a clean energy asset or is it a dirty energy asset? Well, it carries electrons, which could be either dirty or clean from the outset. So that's also a little bit ambiguous. But I will be joining the choir that grids is a very important asset class for the energy transition to function. So I will join that one.

In my definition, we're sinking about $2.2 trillion into the system that is called energy. And about $1.5 trillion of those goes into what I would classify as clean. And then I do include grids into that. So that's 64 % of investments going into the clean energy system. If you go back five years, which was your question, in 2020, we had about 55 % of investments going into the clean energy system. So still more than half. If you go one,

year further back in time to 2019, we were below 50 % going to clean. So a lot happened 2019 to 2020. If you go all the way back to 2014, i.e. before the oil crisis, when commodity prices for traditional energy started to tumble, we were at 33 % of investments going into clean. So over the past 10 years, there's been a fairly significant shift.

Lars Eirik
in how capital has flowed into this big system we call energy.

Tom Parker
Seb. Are there any industry sectors that you want to highlight when it comes to the flow of capital?

Seb Henbest
Well, I think let's keep talking about the flow of capital for transition. And I think there's really two distinct capital needs and we should think about these two pieces very separately. I mean, the first is about deploying mature technologies that we know work at scale, that have established supply chains and other things that we know most about and make most headlines. that's solar PV, wind, both onshore and offshore, lithium ion batteries.

electric vehicles, which in many ways are sort of a battery with wheels, and that grid infrastructure that we just started to talk about. And that's from a hardware and a software perspective, because that software is important to tie all these pieces together. And the capital needs to flow at a pace commensurate with the rate of decarbonisation needed to mitigate the worst effects of climate change. And that's at quite some rate.

I think the good news from a transition capital perspective is that today, over 90 % of all the transition capital that we see being invested is going to the set of mature technologies, the renewable or clean electrification ecosystem, the electro tech, if you want to call it that, is a term that's been coined relatively recently. And I think we can expect that to continue.

very strongly over the next five years. The second bucket is the capital that's required to support the innovation and scale those technologies that aren't fully commercial. So, you know, we're talking about new technologies, new business models, developing those, piloting them in the field. And that requires much more patient capital. It requires

investment with a longer term outlook. And so there we're talking about a lot of clean molecules. We're talking about biofuels and their derivatives. We're talking about clean hydrogen, ammonia, methanol, its derivatives, synthetic fuels. We're talking about the fuels that need to power shipping and aviation and industry. But I also include in that the sort of the clean molecule

Seb Henbest
that is created by sequestering the emissions from a conventional fuel. So that's carbon capture and we'd also put direct air capture into that as well. A lot of this technology has been deployed in different contexts, is more or less mature, but all of that is not yet commercial. It's not yet getting the big volumes of capital because it requires some sort of intervention, some sort of price.

to make it cost competitive. There is a little bucket of electric technologies, I think, that also fit in that. It's the electric technologies for high temperature industrial processes, which are also much more early stage. But it's not a bad way to think about it, to think of sort of clean electrons, clean molecules as these sort of two distinct capital needs.

Tom Parker
Christian, anything to add here? are there any sectors that have seen particular policy incentives or in fact been affected by policy reversals that need mentioned?

Christian Egenhofer
let me add one point on Lars-Erik's talk. You know, the numbers are even more impressive if you assume that five, six, seven years ago, a lot of this clean investment was driven by subsidies and hardcore regulation. This has now really given way to more private investment. So the reversal of which lies Erik.

I was saying was probably more important even. Now, where is the money going? And the question here in Europe is, is it going to Europe? Of course, the money is going where economic growth is happening and that's currently not Europe. We all know this. When you talk about the reversal, which is now very big in the political domain, reversal is a very politically charged term.

When you look at the European Green Deal, you see that the benefit that has been mentioned that we get in terms of economic growth and jobs, so the economic industrial benefits has not yet materialized. So Europe is taking a step back and sees what can be done or what should be done, and that's now captured in this clean industrial deal, which is conceptually now looking into what can we do to benefit of this.

flows which Lass-Erik and Sepp were referring to do. Also, there is a change in the global context, certainly for Europe, but everywhere has changed. If we want to weigh ourselves off to Russian gas, currently we're importing still 14 % LNG from Russia, we need more gas from the US and Qatar. And that means the Qataris and the US have made it very clear we need to change.

the methane regulation that's the regulation that tries to reduce methane in natural gas production, but also the due diligence regulation, which is about reporting on the ESG criteria. So there are reversals which are coming from the global context, which are unavoidable in a way, if you wish. And then, of course, there were also some exaggerations we had massively.

Christian Egenhofer
exaggerate the numbers for hydrogen investment and investors saw this is not really realistic, the grid is not there etc. So that is not happening. Renewables currently also, the big success story if you wish in Europe suffers from a slowing demand. As some of you mentioned, the electricity demand in Europe is not growing as fast as people expected. Obviously there will be less

investment in that sphere. we all know Europe is suffering from this productivity gap, high energy prices, red tape regulation. The Draghi report has outlined that. And after all, from a double demand shock from the US and China. So it's not much flowing here, but things have been changed in a way and we'll see how this will work out in the future.

Tom Parker
Given the recent geopolitical, economic and trade climate, how much has this affected current and future investments across the whole energy sector? Seb, let's go back to you.

Seb Henbest
Well, I think it's hard not to think about the of the geopolitics and sort of the trade politics, because it's all over the headlines at the moment. But I really want to stress that I think we're now at a point where the underlying driver of the energy transition is economics, not in every sector and not through every technology, obviously, but for the technologies that are now identified and understood as driving

70 % around, maybe higher of all the decarbonisation. These things are now cost competitive. They're less at the whim of political movements. so, I think we're going to see investment continue across the low carbon energy space and in fact, the entire energy space, because demand is going to continue to grow.

But I mean, that's particularly significant in electricity, right? So I think the numbers that we think about are that electricity is growing or expected to grow six times faster than total energy demand over the next 10 years. I think that's an IEA number. Part of that's driven by economic growth. Part of that's driven by electrification. So the electric vehicles or the heat pumps or the shift to electricity industry.

The air conditioning load in emerging markets is significant. And of course, know, the elephant that everyone has to talk about in the room, particularly in a US context is data centers and AI. So electricity demand is very, very strong. And of course, the cheapest way to meet that demand is using renewable energy, pretty much in every major market in the world. And what we've seen is a change in the economics where

Seb Henbest
you're going from sort of resource economics to manufacturing economics, where you've got modular production, production where you're producing the same thing over and over again with incremental innovation, competition that drives these learning rates that are incredibly strong. So I think, you know, the data shows that for solar PV, for example, which, you know, is sort of a silicon-based life form,

solar PV's learning rate is around 28%, which means for every doubling of manufacturing capacity, you get a reduction in the cost of around 28%. And the growth we've seen means the costs have, of course, been tumbling. And if you've got cheaper renewables and cheaper batteries, you can start to combine them together in clever ways to provide round the clock renewable energy.

in many markets. So what we find is that this deployment is happening increasingly in more and more markets because this is the cheapest new megawatt hour of electricity. Not just because there is a policy regime. And in every scenario we look at, whether it's a business as usual case, which is just looking at the economic competitiveness of different technologies to meet demand, or it's a normative climate scenario, you see this ongoing rapid growth in renewables pretty much everywhere.

as well as sort of batteries, EVs, grids. So I think this is part of the background transition. Policy matters, of course, it accelerates or it decelerates what's going on on the ground, but the technology fundamentals are compelling. And even in the US where we know there's been a lot of change in the policy environment over the last six months, we should expect that that market's gonna go slower, but it's not gonna go to zero. You've got electricity utilities with huge demand loads coming up in the future, huge demand growth faster than we've seen for the last several decades in the US. And how are they going to meet that? Well, part of it's going to be about optimizing what's there. And part of it's going to be building as quickly as possible to meet that growing demand, particularly the AI demand. And they're going to do that partly with renewable. So we're going to see these technologies be deployed. Last sort of point on this. And that is you've also got to remember

Seb Henbest
that this investment is happening worldwide. The Asia Pacific saw as much investment in the transition as the rest of the world combined in 2024. And that's been the case for like a decade. When you look at the US, it's just 10 % of renewables investment over that same period. when we look globally, there is a real clear vector of change that's underpinning

the technology deployment that we see. And one more point about Asia Pacific, and then I'll pause, which is with this change in the macro trade environment, we're starting to see an increasing fraction of Chinese manufactured electrotech being sent to emerging markets, so imported by emerging markets. So emerging Asia, the Middle East, Indonesia, Pakistan, Saudi Arabia, among many others, we're seeing this volume

of imported solar, wind, battery technology, EV technology, increasing year on year. And in fact, there's more of the Chinese manufactured technology going to these markets on a year by year basis. then, so what we're sort of seeing is some signs of that leapfrogging that people have talked about for a long time, where emerging markets go straight to clean energy, bypassing fossil fuel infrastructure a bit like we saw in telecoms.

where people went straight to mobile phones in many emerging markets, bypassing fixed line telephony. So, you know, policy matters, absolutely, but the underpinning economic signals are now strong enough to drive a lot of the growth in transitioning clean energy over the next five years.

Lars Eirik
Yeah, I just want to join you on that one, Seb, in expressing a shared optimism and enthusiasm around the scalability of this electrotech part of the energy transition. I share everything you said there, including the underlying enthusiasm that came through when you talked. Also, I want to applaud the way you framed the energy transition from the very get-go, where you talked about the electrotech stuff that's going on on one hand, but then also just reminding us about

the fuels side of the equation where we're not seeing an as scalable set of technologies. And I think it's quite important to just remind ourselves about the magnitudes here, because if you look at final energy demand currently, 20 % of final energy demand is in the form of power, electricity. 80 % is still in the form of fuels. So while it is easy to get very excited about how quickly we are decarbonizing actually the power system, and I think that's

frankly, underappreciated. It currently addresses 20 % of final energy demand with 80 % still being fuels. That said, there is also a part of the electrotech technology umbrella that speaks to increasing the share of power from the 20 towards 30 and 40 % going forward. So there's forces at work there as well. But it's important to remind the audience about the relevance of power, which in the current system is 20%.
as opposed to fuels, which is 80. I just wanted to sort of put that in there.

Christian Egenhofer
Yeah, LASERIC maybe can come in here. But there huge differences in the electrification in different regions. Europe indeed is around 20 % of electrification, but in Japan It is already 30%. And if you look at China, it's at 29%. And China is adding each year roughly one percentage point on. So there it's really taking place and it's accelerating. think we need to make these differences worthwhile. But could I pick up on Seb's point?

on the resource economy versus the manufacturing economy. I think that's for me the fundamental issue we are having also in terms of economic development, certainly in Europe. Europe's business model in the past has been importing cheap energy and producing high added value goods. And that is now somewhat changed. Suddenly we have all this clean tech, the electro tech space.

which a lot of it is commoditized. So where is Europe's role in this? Are we just the importer? Where are the high added value products? And that's where we have this struggle with the electrical vehicles. know, where is the Europe space? Where is Europe's industry in this space? But let me maybe just add one point on the politics. Of course, and Lars-Erik, you're right, there is a lot of it is driven by the economics. But in the end of the day, we're also doing this because of climate change. here is the political worry, because we are nowhere fast enough adding on clean tech into the market to address the climate change issue. And we are just substituting. We are not yet substituting coal and gas. are just...

Christian Egenhofer
covering the marginal demand from a climate change perspective, we are not yet fast enough. So lot of new ideas like transition credits, etc. to get into the coal phase out will still be politically driven and it's not just by the economics. The coal phase out in South Africa, if you talk about climate change, will not be driven by the market economics on their own, it will remain political.

Tom Parker
Well, I want to now focus a bit on grid infrastructure, because in Europe, as of July 2025, renewable projects across 16 European countries were on hold due to capacity limitations in grid connection. Likewise, grid congestion and limitations and the necessary curtailment and redispatching of renewable energy generation could result in 50 to 100 billion euros in unforeseen additional cost by 2040. That's 20 times higher than in 2022. So what needs to be done here? And Is there enough investment going into grid infrastructure? And I don't know who wants to kick this one off. Maybe Lazaro, if you take this, Seb, you come in Christian after that.

Lars Eirik
Yeah, sure. No, first, let me just agree with your framing. The as an asset class is a key one to de-bottleneck, to bolster and to build out as a function of, or to facilitate for these new electrotech technologies that are scaling, including wind and solar. And we're not de-bottlenecking it. We're not investing in it at a pace that is supportive of anything close to a 1.5 degree type of trajectory or anything close to it happens to be that power consumption in the Western world has been stable, not growing over the past 10, 20 years. So there's not been that huge imperative in furthering, further building out the grid over the past 20 years. So in that period, what we did was to add a lot of red tape in a way to the processes of building out this type of infrastructure. So building out infrastructure that stretches out over big pieces of land in the Western world, whether in Europe or in the US, has become increasingly difficult and partly for very goodwill reasons, right? Because we've been coming at this from environmental concerns, like building out infrastructure can and have environmental impacts. And so for that reason, we've really burdened the process of building out such such infrastructure. Well, here we are in 2025 or since 2015, I guess you can say, and finding ourselves with this conundrum of really needing to build out this infrastructure called the grid and being held back by all the bureaucratic permitting processes that are associated with it. So would say that's a key reason. I mean, we've been making it hard for ourselves to build out this infrastructure and partly for very goodwill reasons.

Tom Parker:
Yeah, Seb, is there value to be made here in this sector?

Seb Henbest
Yeah, well, let me first say that the grid is, I think, a really big topic at the moment. I think there's an increasingly universal understanding that we have a lot of renewable energy generation technologies and storage technologies that are increasingly everywhere cost competitive and can get rolled out, but they've got to be connected through some sort of grid system to be used optimally.

And so the electricity grid really is the backbone of the clean electrification elements of the transition, which, as I said before, could be up to 70 plus percent of all the emissions reductions that we need to see to engineer a low carbon energy economy. But the technology hasn't changed much in the past 100 years. people say this all the time, but if Thomas Edison were alive today, he'd recognise the vast majority of the grid in 2025, very little progress really compared to other parts of the real economy has been made in the grid and grid technology. So the investment challenge is huge. Grids are aging, they're congested.and you would engineer it very differently if you were building it from scratch today. So if you look at the numbers that we look at in terms of the amount of investment that's required in the grid, the rule of thumb I always think of is for every dollar invested in power generation, you need about 70 cents invested in the grid. Adding up to mid century, that's over 20 trillion of new investment required in the grid.

How that investment gets paid for is a really, really important question. If the grid is incentivized in terms of the price signals it sees are about just building the grid out, then we'll get a lot of building of poles and wires, gold plating of the existing system. But if the incentive is to optimize the grid, to make it smarter, to enable it to integrate the variable supply, the more dynamic, shiftable demand then we're going to be able to integrate way more renewables, have a more secure system and ultimately pay less for the electricity. But the way that grids see their price signals and those who do the investment in grids is a really, really important topic. And it's going to be quite a big political topic to enable these cheap renewables to not just reach the end consumer in terms of the flow of electrons, but also to drive down prices. You've got wind farm, say in the UK running at zero marginal cost, it's free to run, but the end use sort of household or business never sees that price because of all the other costs in the system or the way that price formation is currently done. Then, you know, where's the benefit? And that's a really important political question. I think there is a lot of value that is gonna be created in the grid over the next five plus years as a lot more focus, a lot more capital, a lot more political intent is placed in that area.

Tom Parker
Christian, where can policy help here?

Christian Egenhofer
I think Lars, Eric really nailed it. The energy transition is essentially the story of electrification, even if we are not advancing as fast as we can. And the grid costs are really an important factor, you mentioned it. The commission.

Christian Egenhofer
put the number for grid investment in Europe until 2030 at around 600 billion. That may be a bit exaggerated, but we're talking about very serious money. There is a lot of things going on in Europe on the grid, exactly because of the congestion, Seb mentioned, etc. The key solution will be to have a more flexible grid to shave off the peak.

And on the back of the envelope calculation you can imagine that if we have a really flexible system where you charge your electrical vehicle not at the peak etc. you could shave off half of that investment cost. But then you need a really flexible system. So two main measures certainly from the European perspective but I guess they will be also globally usable.

Smart meters, flexible demand. You Seb, you mentioned it. You know, smart meters, incentives to charge the EV, avoid use of dishwashers, laundries, et cetera, et cetera. That's the key point. Whether you give a price signal through a market or somewhere else, that's up to a question. It will depend very differently. And the second one is very European issue, if you wish. We need more Europe in the grid. We need European, pan-European planning which we don't have, plan European rules of operation, grid codes that the power can flow from north to south, east to west, and we need European finance to really Europeanize that grid. The coordination which we have done on this one the last 30 years really didn't work. So we need to centralize that grid through planning, finance and rules.

Tom Parker
I want to look at the cyclical nature of finding value in various sectors of the energy market, because some years oil and gas will be hugely profitable and then it will switch to the green sectors. So I'm going to start with you, Lars Eyregg. Where is value to be found in 2025 and then where do think it might be in the next five years?

Lars Eirik
Yeah, good question. 2025, value creation in the energy value chains in generally often starts with an appreciation of the price signal, which is ultimately the price being paid for energy. Very, very often companies verticals in the energy space is exposed to that. And it happens to be that in 2025, it's been a quite challenging year in that regard, because energy prices have actually come down both on oil, on gas, on power.

prices have come down. So it's not really from a cynical sort of investor standpoint and looking at those who owns the resource of energy. It hasn't been a very good year to sort of take away a lot of value creation, at least not if you look at it very clinically through stock appreciation, which is often again, a function of the kind of prices that you would collect. In 2025, I think some of the key beneficiaries in the key pockets of value creation has been on the on the services side, i.e. the people who provide equipment or services into constructing new energy projects, particularly actually offshore, Subsea has been a great place to be in a company like Subsea 7 has done tremendously well. There's a nice wave of new oil and gas projects being developed as we speak. So there's like tailwind on the project side that has benefited some suppliers that are exposed to that particular niche.

I guess the other one that comes to mind is the huge trend around data centers in the US, which has become a call and an imperative for natural gas power. And again, it's been the equipment providers, those providing gas turbine equipment, particularly, who's been the main beneficiaries. They've seen record order books coming up. They've seen a lot of pricing power, to the point actually where natural gas as a fuel for these data centers. And the competitiveness of that sourcing has actually come down because the equipment is so difficult to source, both from a lead time and the cost perspective. But again, from a cynical investor's perspective, where can I create value? It's been an amazing place to be, being a supplier of that kind of equipment. Next five years, like you said, this is a very, it's...

Lars Eirik
Energy is inherently cyclical. We tend to invest a lot in new energy supplies when prices are high. And then supply will follow as a function of that. And that in turn creates lower prices and which in turn creates less incentive to invest. And again, it's these price signals that often drives value creation for those owning the resource. I think that as we look five years out, there's probably going to be a new nice cycle for oil and gas. think prices for oil and gas will appreciate.

Towards 2030, there's probably a little bit of downside in the next couple of years, but there's another ups up cycle building. I think being in oil, uh, could be a good place, particularly being in gas in US lower 48 natural gas production. I think we'll be a, a very healthy place to be a lot of value to be created, uh, because, um, there's been going to be such a high draw such a high demand for that gas, both for data centers, like we talked about, but also for LNG exports out of the US. And then I think just generally, I think there's value to be created in power markets, of course. And I think that as a renewable energy provider, you can create a lot of value. However, what we are seeing, and this is that real conundrum, is that as a renewable provider of energy, solar and wind particularly, you're providing something that is intermittent, something that is variable.

And it happens to be that all the others around you are producing at the same time, because the sun is shining at the same time and the wind is blowing at the same time. So price cannibalization is the big issue for these companies. And so in five years from now, I think we're going to be in a world that has taken on a lot of these variable renewable energy supplies into these power markets, driving price cannibalization to levels where it makes it hard for solar and wind, electricity providers to recoup a fair price. And so for them to create value, they really need to complement their technologies with something that backs it up. For example, storage in the form of batteries. I think that's going to be key to capture value as a renewable energy provider in five years from

Tom Parker
Brilliant. Seb?

Seb Henbest
So I think it's a really good question about value. And even on the renewable side, it's not a slam dunk. There's lots of, you know, I think intervention that's required not to make the technologies necessarily any cheaper, not to fix the price signal in that respect, but to fix the market and the price formation so that those cheap technologies can play.

Seb Henbest
a bigger role and find that value. One other thing I'd say about sort of energy cycles and commodity cycles, and it goes back to what I've talked about at the beginning, which is we're getting a shift now from resource to manufacturing economics. And what that does is sort of fundamentally challenge the commodity cycles. If you think about what we just heard that, you know, as you have a situation of you high demand, high demand, you know, pushes up prices, higher prices enable more supply to chase those higher prices. And as supply increases, get a reduction in price, it's like you get a reduction in price, and you get this cycling around. The thing about manufactured technologies is you don't have the same cycle. The prices, generally go in one direction. Now there's noise and complexity to that, and I'm simplifying it. But if you look at the price curve for renewables, for example, or batteries, they're not cycling around, they're going straight down on an almost exponential or hyper exponential curve over some periods of time. And that doesn't sort of go back. So once these technologies get cheaper, I think they fundamentally disrupt the the fuel commodity cycles that we've been living through since the Industrial Revolution. And I think we need to watch that very carefully as to when those signals start to signpost a change in where the value is. And I give you one really, really big example of this, which is everybody knows electric vehicle sales have been growing worldwide. think we're over 20 % of all the new vehicle sales globally over the in 2024. I think we're probably on track for another record this year.

We know in China, it's close to 50%. In Europe, that number's well over 20 % up towards 25%. It's lower in the US. Even in Southeast Asia, we're almost at 10%. And what all that electric vehicle deployment does is it starts to undermine the demand signal for liquid fuels, which is a barrel of oil displacement. And this is slow going, but I think now roughly the numbers I saw from Bloomberg suggest

Seb Henbest
we're roughly displacing 2 million barrels of oil a day with electric vehicles at the the penetrations we have at the moment. By 2030, that might look like 5 million barrels a day, which seems like a small number. But what that ultimately does, depending on how fast you think demand for oil is growing, is it starts to plateau that demand signal and ultimately send it into decline. And if the future outlook for oil is flatter and we're into decline, that's a different value proposition than if it's always growing, which it has always been growing you know, for the last 100 years. So that's something to watch as well, I think, is the electric vehicle story, the disruptive economics of the manufacturing technologies intersecting with commodity markets and how that changes value.

Tom Parker
Thanks Seb, Christian. Let's bring you in here.

Christian Egenhofer
Yeah, since the energy transition started around 2000, there is the discussion about where is the value. And we haven't really found it, but I think we are now getting to understand that the value is most likely there, as Seb said, the software meets the hardware. Now, the interesting thing in this discussion is a software can be very, very disruptive. And if you're changing the flexibility aspects, suddenly your storage assets or other grid assets are not performing any longer. So we have a lot of long term capital investment in the energy sector generation, nuclear renewables. This is, you know, just basically capital investment. Grids, storage is all capital investment and no operational costs.

And then here comes the software, which has real potential to disrupt the flows, the use, and also where the value is. So that will be a very interesting area to watch. There will also be a lot of value being destroyed. Maybe let me add on one more point, going a little bit more upstream in the energy equation. We see now that a lot of energy intensive activity, which we had in Europe, being farmed out.I think the best example is sponge iron, that's primary steel. have been deals between European industry and Australia that you produce that sponge iron, where there is cheap electricity, where there is cheap hydrogen, and then you put it on a boat. It's easily transportable, it's not too heavy. there are projects in Mauritania, Sweden, etc. So you could see that lot of the energy added value will be in the value chain integration with the industrial sector.

Tom Parker
Great, thanks Christian. Well, look, we're coming to the end of the episode now, Lazarik, what are your biggest predictions for the next five years?

Lars Eirik
Yeah, listen, I think, first of all, I think we're going to see high deployment rates of some key energy transition technologies that we've talked about today, probably common denominator being electrotech, solar, batteries, also wind. think those who in 2025 thought that the energy transition was dead is going to be proven wrong over the next five years because the scalability of these technologies are underappreciated. And that's what we're going to wake up to over the next five years.

Secondly, like I've alluded to already, I think we're going to see a beneficial commodity cycle environment for some of the legacy fuels, natural gas and oil. And so I think it's going to be a good place to be also from a value creation. And then thirdly, I think that this concept of power systems becoming more and more hybrid is going to in earnest impact the way we think about value creation in power. I alluded to this earlier, but I think it's going to be an imperative to complement variable renewable energy, i.e. solar and wind, with some kind of storage medium in the form of a horizontal integration business model or vertical integration that you become your own off-taker for these electrons or some other lever to pull. But there's a business model conundrum around the current sort of energy-only model as a solar or wind supplier. It doesn't work as power markets become too hybrid.

And that means surpassing 25, 30 % of total generation in any given system being VRE, i.e. solar and wind. When you surpass that, you're in a hybrid system. And then you need to think differently about your business model as a energy producer of solar and wind.

Tom Parker
Seb?

Seb Henbest
I think we're going to see a lot of growth in the mature renewable sector that will vary geographically.

There'll be some areas that are slower, some that are faster, but I think that continues at pace. I agree that there is going to be an increase focused on the flexible elements of a low carbon power system, the stuff that enables demand to be met at all hours. And whether you need some sort of carbon capture, hydrogen, geothermal, better demand side response, better batteries, et cetera. I think there's a lot of technologies vying for this space at the moment. It's not clear which will emerge with the most competitive economic proposition. But I think over the next five years, that field will get narrower.
Again, staying with electricity explicitly and echoing again what we just heard, I think, you know, a real focus the next five years on the grid and the market design that goes along with it. And I think market design questions and price formation has been kicked down

Seb Henbest
the road, how do you integrate a lot of zero marginal cost renewable energy, an increasing amount of that into a system that's designed to pay people based on their marginal cost of production. So that price formation is fundamentally incompatible with a whole bunch of renewables. And I think governments are going to have to really tackle this. And we've kicked it down the road with, you know, by the emergence of options and a growing power purchase agreement market between buyers and makers of electricity, but ultimately this needs to be a market solution. I think that's gonna be big.

Another prediction is, I think, is ongoing growth in sort of East-East electrotech trade, which will help accelerate some of the energy transition development in emerging markets. The Chinese sort of manufacturing hubs that produce the vast majority of electrotech are looking for markets. And there are number of emerging markets with high energy demands putting their hand up. And we're going to see that.

we're going to see that more and more. And I think that's a really interesting development in geopolitics and energy trade. And maybe I'll finish with, you if was looking for one big signal that the energy transition was well underway and was continuing at pace, it's looking for the impact of electric vehicle sales on the oil demand outlook.

Seb Henbest
And at the moment, there's many researchers who suggest that, you know, that point where we hit a stop in growth into a plateau and a decline is happening in the next five years. I wouldn't want to bet on it because these things are very hard to predict. But if I was looking for a signal to say, hey, this thing is now moving into the new into a new phase, I'd be looking at oil demand and electric, electricity, electric vehicle growth and, and trying to work out where to place my bets around that dynamic because I think that's a very significant one.

Tom Parker
Great, thanks, Seb. And Christian?

Christian Egenhofer
Yeah, I mean, I think I have a safe bet if I can say we are in for surprises, but that doesn't really help you a lot. But let us just look back 20 years ago when the energy transition took place, everybody predicted we're replacing centralized fossil production in electricity by centralized, you know, low carbon, know, nuclear CCS and also offshore wind, you know, massive offshore wind parks and, know, what we have seen was very, very different. you know, then we all seem to thinking a little bit too linearly, but nevertheless, let me try. Now, I would imagine we are, I'm fairly certain that we see an increase in electrification also on the industrial side, you know, heat for 150 degrees or up to 200, you can relatively easily electrify the technologies exist. Currently, the regulatory framework is not there and that will make a big difference. Storage and batteries will play a role, but as I said before, the elephant in the room is IT and artificial intelligence, which could be a real disruptor and probably will be a disruptor. Yeah, the market design will be important and I would imagine that governments do a lot of errors. It will be trial and error.

We're trying this and it doesn't work, we fix it, etc. So it won't be plain sailing. Maybe finally, just let us remind us what is going to happen if there is a major blackout somewhere. Governments will take control. Governments will not rely on markets any longer. So we might see reversal at least in the short term.

I would expect one or the other blackout to happen in Europe and that will really change the political debate at least for a little while.

Tom Parker
Great, well it's been a fascinating conversation. and it's been a pleasure speaking with you all. I'd love to thank Lars-EIraq Nicolaeson.

Lars Eirik
Thanks, Tom. It's been great.

Tom Parker
and Seb Henbest.

Seb Henbest
Thanks, Tom.

Tom Parker
And finally, Christian Egenhoffer.

Christian Egenhofer
Thanks for having me.

Tom Parker
Well, it's been great. Thanks everyone for being here and thanks everyone for listening. Bye for now.