The energy crisis is forcing society to rethink the strategic role of energy and the fuels and systems it previously relied on, but the disruption is also accelerating exciting new collaborations between energy companies and different industries. Together, they are tackling one of the biggest challenges of our time: how to progress towards a net zero economy while building energy abundance and ensuring that households and businesses have access to clean and affordable energy.

The ‘hard to abate’ industries, including transport, aluminium, steel, cement and concrete, which account for some 30 per cent of global emissions, have been impacted in particular by high energy and raw materials prices and the need to invest in decarbonisation. These are energy-intensive industries, where the decarbonisation pathways may be harder to achieve than straightforward electrification and require carbon capture technology or emissions management.

“There is a strong incentive for us to look at decarbonising our energy sources as a good way to reduce emissions in our operations while mitigating our exposure to fossil energy and future energy spikes,” says Nicolas Chretien, head of sustainability and environment at Airbus.

The energy transition of hard-to-abate industries will rely on a range of energy sources, fuels and technologies, including renewables, energy storage, green methanol, hydrogen and carbon capture, utilisation and storage (CCUS). However, many of these are still not commercially viable or available at scale, or are lacking the foundational infrastructure they need to operate.

Renewable energy is the simplest way to reduce scope 1 and scope 2 emissions, but in Europe its supply is still limited. There is a lot resting on the North Sea and transforming legacy oil and gas infrastructure to accommodate the next generation of clean energy, such as wind power. One important part of that process is building up the grid connection with power converter stations and interconnectors.

“Society will become increasingly electrified,” says Manon Van Beek, CEO of European grid operator TenneT. “Using electrons directly is always the most efficient solution. If you want to realise the energy system of the future even faster, you just have to look at the North Sea and to grow that into a North Sea powerhouse. Not just for the Netherlands or Germany, but also for the whole of north-western Europe. We have to really start thinking differently and scale up.

“Although I am responsible for electrons mainly, it is also important to say that the energy system of the future goes well beyond electrons because not all industry will be able to electrify. That is why I strongly believe in a future that is a mix of electrons, in the form of electricity from offshore wind, and molecules from hydrogen,” says Van Beek. “It is really important that [governments] have a roadmap that integrates electrons and molecules. And that we have a view on the infrastructural backbones for electricity and hydrogen, but also for heat and for carbon CO2 storage.”

<h4>There are opportunities in partnerships</h4>

Retrofitting natural gas pipelines for hydrogen, embedding CCUS in industrial processes and oil and gas value chains, and developing hydrogen or battery storage systems in combination with renewable energy are a few of the types of projects that will create new decarbonisation pathways. But they require new partnerships and ecosystems, often including the government or public sector organisations, to de-risk the large infrastructure investments needed for the energy transition and provide technology expertise, policy and permitting support and financing.

Renewable energy generated by wind power in particular will underpin many new types of clean energy ecosystems. Mads Nipper, CEO of Danish offshore wind power developer Ørsted, says there is potential in offtake agreements for green hydrogen.

Ørsted has formed a strategic partnership with German steelmaker Salzgitter to create closed value chains by bringing together the two companies’ capabilities for low-carbon steel, offshore wind power and renewable hydrogen.

“The wind typically blows more at night when there is not a lot of demand,” says Nipper. “It would be obvious to make hydrogen through electrolysis during that time, or on a very windy day when wind farms are curtailed and forced into lower production. That's a waste. If we had an electrolyser right next to it, we could use that intermittent power to generate hydrogen that can be used at any time.”

<h4>Power purchase agreements have potential</h4>

Many industrial companies are also forming partnerships with energy providers through power purchase agreements, which are long-term contracts to buy wind or solar power in large volumes at stable rates, with the option of feeding excess energy back to the grid.

Airbus, for instance, has signed a contract with GP Joule for 3.85GWh of solar electricity per year to power a helicopter production site in Germany. “We have the capacity and the capability to do this for Airbus,” says Chretien. “But we also see potential in making power purchase agreements more accessible within our supply chain, specifically for lower-tier suppliers.”

Some energy and industrial companies are already shifting to low- and zero-carbon sources of energy and are creating the infrastructure and technologies that will support them and their suppliers. But it is sharing resources, combined technology expertise and a common goal that will form an ecosystem that fuels a future net zero economy. Lasting change will come through energy intersections: the critical meeting points between energy companies and industries, transport and cities.

Singapore-based Sun Cable is looking to add to the Asia-Pacific electricity grid with its Australia-Asia PowerLink, subsea power cables that will funnel about 2GW of clean, solar energy across Indonesian waters from Australia’s Northern Territory to Singapore.

The A$35bn project will be the world’s largest solar energy infrastructure network and a huge step in the region’s renewable energy transition. By the time the link reaches full capacity in 2029, ‘the green power corridor’ could reduce Singapore’s emissions by 6mn tonnes of CO2 equivalent per year.

In early 2022, the project completed a series B capital raise of A$210mn. “The capital raise was 100 per cent funded by our existing shareholders, all taking up their entitlement,” says David Griffin, founder and CEO of Sun Cable. “So that was a really positive outcome and showed great confidence from our existing shareholders in how the Australia-Asia PowerLink is progressing.”

A final investment decision is slated for 2024, and construction will start across Australia, Indonesia and Singapore. Sun Cable’s solar generation site in the Northern Territory will also house the world’s largest battery energy storage system. It can provide the city of Darwin with 800MW of power and transmit supply to Singapore along high-voltage direct current (HVDC) subsea cables. At more than 4,000km, the cables will be the longest of their kind in the world.

“With a project of this nature, there are obviously myriad challenges,” says Sun Cable CEO David Griffin. “Think of the project as three technology groups: solar, storage and transmission. All three are being carried out at massive scale, which means that we are motivated to find every efficiency gain we can by optimising the design of the system and its components.” “We do see there is huge opportunity to improve the delivery of solar and storage projects in Asia, and that being at scale is what triggers this opportunity.”

Artificial intelligence has proved invaluable in the design phase, particularly in the complex specifications of the transmission cable system. Today, the world’s longest subsea power cable is the 720km North Sea Link; Sun Cable’s will be nearly six times as long and will pass through the Singapore Strait — one of the world’s busiest waterways.

<h4>New networks are encouraging cross-border trade</h4>

Sun Cable wants to do more with the Australia-Asia PowerLink than break records. The company hopes that it will mark the start of a new renewables export industry in Australia, while positioning Singapore and other Asian countries as renewable energy centres for Southeast Asia.

The company has partnered with several corporate and research institutes to establish the Asia Green Grid Network (AGGN) to support an interconnected renewable power grid in Asia. By combining its expertise, the consortium hopes to boost collaboration, innovation and education across the region, to accelerate cross-border renewable energy transmission.

“An interconnected green grid in Asia can flourish with support and collaboration between research, corporate and government institutions,” says Dr Fraser Thompson, Sun Cable founder and chief strategy officer. “Sun Cable is spearheading this to help educate, coordinate, and innovate, including with our R&D investments in key areas like storage and system optimisation.”

The AGGN’s mission builds on recent Sun Cable research that estimates that with greater interconnectivity, cross-border electricity trade in Asia could amount to between 2,150TWh and 3,225TWh by 2040.

“Our vision for the Asia Green Grid Network is to drive the innovation that’s needed for a connected electricity grid across Asia, tackling issues ranging from transmission through to storage,” says Dr Thompson.

PwC Australia is a key member of the Integrated Project Delivery Team for Sun Cable project, delivering equity and debt advisory, legal, procurement, contract administration and project assurance services.

<li>The Australia-Asia PowerLink will bring together the world’s largest solar generation site, its largest battery energy storage system and its longest subsea cable transmission system.</li>

<li>Construction is projected to start in 2024, with the project coming online progressively later this decade.</li>

<li>Energy demand in Southeast Asia is growing at an average of 6 per cent per year and is forecast to grow by 60 per cent by 2040.</li>

<li>For Australia, the Australia-Asia PowerLink project is expected to bring A$8bn of investment, an estimated 14,000 jobs and approximately A$2bn in annual export revenues.</li>

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Dr. Barbara Buchner, Managing Director of the Climate Policy Initiative, believes the energy crisis has highlighted that investment in clean energy is the fastest road to resolving issues such as price stability in energy markets and energy access and independence for countries. But critically, capital must be mobilised, especially public finances in emerging and developing economies, to start matching the huge capital requirements needed for the energy transition.

In this audio interview, Buchner joins Megan Wright, Head of Audio at FT Longitude, to discuss how the energy transition can be financed and capital flows directed effectively to where they will have the most impact.

Climate finance has increased at a cumulative average annual growth rate of about 7%. But I think what that does not show you is that current levels of increase are unfortunately not on track to meet a 1.5 degree Celsius or the internationally agreed temperature scenario. And what we need to make happen is to really ensure that we get to scale very quickly. So, just looking at the latest information, we need an increase of at least 590% or 4.3 trillion US dollars in annual finance flows by 2030, in order to really meet internationally agreed climate objectives and avoid the most dangerous impacts of climate change.

Barbara Buchner

Dr. Barbara Buchner is a leading voice in global energy transition finance. With experience advising leaders on climate, energy, and land use investments around the world, Barbara was named one of the 20 Most Influential Women in Climate Change by the International Council for Science. Today, Barbara combines her finance and policy expertise as Global Managing Director of the Climate Policy Initiative, an independent, not- for-profit organisation, that helps governments, businesses, and financial institutions drive economic growth while addressing climate change. Barbara also directs the Global Innovation Lab for Climate Finance, which has mobilised over 3.3 billion US dollars for action on climate change and sustainable development. I'm Megan Wright, and I'm delighted to have Barbara joining me today. Has the energy security crisis in Europe impacted on how you're advising governments, businesses, and financial institutions on their transition strategies?

Megan Wright

I think the business case remains the same, that transition might look a little different. So, we need to be realistic and realising that in the short-term we will be maybe using more of some of the traditional energy sources, because we obviously need to put people at the centre and make sure that we are having a just and sustainable energy transition. The average cost of really climate action, but not only climate action, of really a real transition of energy security and energy access, is just lower by really focusing on the opportunities that we see of renewable energy and clean energy more generally. So, while there might be a short-term implication, I think ultimately, the energy security crisis makes the overarching argument and the approach even stronger.

And actually, natural resource rich countries are now experiencing windfall profits from oil and gas again. The IEA just said that we'll see peak oil in this decade. So, is this the last chance to make the most out of oil? Are oil-rich countries effectively reinvesting profits in the energy transition?

We really need to have better transparency and disclosure of all that is going on at the moment, and then really making sure that you are coming up with revenue models that really ensure that whatever profits there are actually going back to more investments in research and development on the clean energy side. So I think the point on just being much more transparent and having a much better understanding of how financial institutions and governments are currently basically, both factoring and disclosing climate-related transition physical risks, but then also how their investments and their overall portfolios are aligned with specific sustainable development goals, and using taxonomists that are already existing or using, developing those for the specific regional needs. It's really the whole financial ecosystem that needs just to be stepping up and being better on being transparent and being clearer on how they can be implementing some measures that are addressing the risks or better balancing or manage some of the risks.

Do you think then we need to be more realistic about the necessity of using fossil fuels in the near-term? Or perhaps about how quick the transition can actually be, even if everything does go right?

Well, I think we do need to acknowledge that there is a little bump in the road. Again, I do think having this focus on people, having this focus on a just transition is extremely important. So I think we need to be, yes, realistic just to acknowledge we will not be able to change all our energy systems within the next year or so. But I think we can really put in place a plan and with clear milestones to make everyone basically accountable for getting towards the transformation, still in the fastest way possible. And I think another piece of the solution here is about how we can better use domestic capital. So I think half the financing that is needed at the moment for an energy transition, in emerging and developing countries, could come from domestic resource mobilisation, and that would require incremental public resource mobilisation efforts, which are relatively small compared to then the GDP of these countries. It's less than 3%.

The FT recently reported that between 2019 and 2021 there were only $14 billion of so-called climate-blended finance deals. So structured deals that use public money to de-risk green investments for poor countries. How do you think governments can help to de-risk large energy infrastructure projects or new energy technologies?

I think public funding for clean energy innovation plays really a crucial role in helping new technologies. I think there are a lot of needs to cross the valley of death between prototype stage, so where there’s very high investment risks, to early commercialisation, where there's lower investment risk until really the private markets can take off. So this funding, funded by the public sector, I think, could be of help to ensure that the startups have enough working capital to continue their development. But also, we really see that grants for small demonstration pilots or even public-private partnerships for first-of-its-kind large projects, like the infrastructure projects that you mentioned, could be really important. The risk sharing and re-managing the risk in the best way to really allocate the risks to the ones who can take them on, depending on their particular type of capital, I think, is just really important. So I think there, public funding will be key just to drive this next phase of innovative technologies, and to really help, in a way, also build the capacity in emerging and developing countries. So really have more of a focus on technical assistance and making sure that there are the right project developers or entrepreneurs, that then can really focus more also on the domestic capital mobilisation that I mentioned. So I think you mentioned also blended finance. I think scaling up of spending that needs to happen is certainly unprecedented, but I think it's feasible through strategies. There's one called the grant match financing strategy where you basically have ambitious investment programmes, but they're supported by robust policy frameworks and a balanced mix of both domestic and international finance. So really thinking about how can you work together with different types of financiers across the ecosystem and use public finance, both the international one, but also domestic one most effectively to really take on basically the right types of barriers and really ensure that you create the enabling environment in country and you build the market knowledge and expertise in country that can then really enable a transformation of the energy markets.

Thinking then about all those different organisations and sectors that you work with as well as your experience, obviously mobilising across borders, what do you think are the biggest blockers to action today when it comes to driving the policy change that's really needed?

The climate finance growth outlook is positive, but there's major differences between where the investments are needed and where they're flowing at the moment. And I think the key barrier that we have seen is, while there is this significant potential to develop clean energy in emerging markets, the cost of capital for clean energy projects is very high due to a number of real but also perceived investment risks. And they include political risk of specific countries, but actually very often also across the board they include foreign exchange risk as very often some of these, the larger projects in particular are still done in hard currencies like in US dollars, but then paid back in local currencies but they also include credit risks. So just as some more concrete information here, the cost of capital for solar PV projects in 2021 in emerging and developing markets is on average at least two to three times higher than in advanced economies and it can be up to seven times as high. And that obviously is a huge key barrier just to really get into scale quickly and that is a problem.

Thinking about the next decade ahead then, how do you see this playing out over the coming 10 years?

I think it's a challenge, but also it's a huge opportunity for investors to really scale up their action on clean energy, on climate. I think hopefully that is something that we can demonstrate more. I think we all see just strategy, renewable energy investment, clean energy, just as the clearest path towards most of the issues and the domestic agendas such as price stability, energy, independence, and energy access that I think the current energy crisis certainly has highlighted more.

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<h5>“Is</h5> 1.5 degrees C on life support?” asks Dr Angela Wilkinson, secretary general of the World Energy Council (WEC). According to research by PwC our current decarbonisation efforts need to happen 11 times faster if we are going to reach the targets of the Paris Agreement.

New measures are essential to strengthen energy markets against supply disruptions and price spikes. But the world also needs to continue to move towards the goals set by the Paris Agreement — and doing so will require going well beyond temporary solutions. To ensure the long-term focus remains on net zero, energy companies, wider industry, governments and consumers must come together.

“The complexities we face are so great that we need sectors, regulators, policymakers, digital experts and capital providers to work together to speed up the race against climate change,” says Jeroen Van Hoof, global energy, utilities and resources leader at PwC. “Sector convergence is critical — collaboration between energy companies and chemicals companies, for example between producers of batteries and electric vehicles. That all needs to happen in sync with the right policy support at the same time. This will not be done by start-ups only; it will require the capabilities of large companies in energy and their expertise.”

<h4>Technology is crucial, but it needs support</h4>

A shift to clean energy relies on a range of energy sources and technologies and the infrastructure to support them. Battery storage systems, hydrogen production, grid integration and carbon capture, utilisation and storage (CCUS) must all be scalable and commercially viable.

Elisabeth Brinton, corporate vice president of sustainability at Microsoft, says there is a role for evolving consortiums such as the Northern Lights project, where Microsoft collaborates with Shell on carbon capture and sequestration as a service to bring technology benefits to the wider market. “New business models that are cleaner and greener can create a tremendous amount of value — it is not a zero-sum game.”

For Angela Wilkinson of the WEC, it comes down to a ‘social transformation’: access and incentives as part of a just transition on a global level. “For the next decade we don't have a shortage of technologies, we don't have a shortage of money — we have a shortage of absorptive capacity,” she says. “There's plenty of money around, but how do we create an enabling environment for new technology? A lot of work is being done at the level of big projects and micro projects, but what’s missing is the middle scale.”

<h4>Policymakers step in to speed up progress</h4>

Collaboration between the public and private sectors is now crucial, and in some countries new climate policy and regulation is starting to bring them together. For example, the US Inflation Reduction Act of 2022 earmarks some $369bn for energy security and climate change programmes over the next 10 years, prioritising initiatives in disadvantaged communities. According to Teresa Mattamouros, managing director at EQT Partners, the act is already driving investment.“In practical terms, there was a lot of private capital waiting on the sidelines to invest in hydrogen, carbon capture and other technologies, but the numbers just didn't make economic sense,” she says. “With this bill it makes economic sense, so we are starting to look at a lot of projects with different eyes. We’re hoping that it's a good example of how policy can accelerate the transition and improve energy equity at the same time.”

“In practical terms, there was a lot of private capital waiting on the sidelines to invest in hydrogen, carbon capture and other technologies, but the numbers just didn't make economic sense,” she says. “With this bill it makes economic sense, so we are starting to look at a lot of projects with different eyes. We’re hoping that it's a good example of how policy can accelerate the transition and improve energy equity at the same time.”

In the EU, meanwhile, a €140bn windfall tax on fossil fuel producers is designed to help fund member states’ transitions to green energy.

Ben Wilson, chief strategy and external affairs officer at National Grid, supports reform of energy regulation and markets to deliver the energy transition. “We need regulation that allows networks to get ahead and invest,” he says. “And we need planning regimes that allow us to invest more in the local communities that host this infrastructure – and we need those regimes to deliver in a few years rather than a decade if we're going to hit our targets.”

<h4>Renewables are starting to become the most attractive option</h4>

Considerable investment is still needed to integrate electricity grids with renewable energy sources — about the equivalent of every dollar spent on zero-carbon generation before 2050, according to Wilson. But he says we are seeing the beginnings of a “self-accelerating energy transition,” whereby the cost of renewables makes them the most commercially attractive option.

“Typically, we've talked about a trilemma of reducing emissions, maintaining affordability and preserving security of supply,” says Wilson. “But if you look at the current situation — certainly in the UK and Europe, but also in the north-east of the US where we operate — renewables are now by far the cheapest source of electricity generation. All levers point in the same direction, which is more and more renewables.”

This is a reason to be optimistic, but is it enough? “The diversity in energy systems has increased globally, and there’s no one-size-fits-all solution,” says Wilkinson. “To form the new energy system, cities, communities and regions all need to be involved, with a regulatory environment that enables their voices and choices to be understood.”