Things are really starting to heat up…

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I’ve just sat down to write this blog in the sweltering London heat, having just heard on the radio that our neighbours in France can this weekend expect a record-breaking heatwave in terms of the earliness in of the year in which it is due to occur.

This report followed on from a story about developing nations registering their disappointment with the leaders of the developed nations, namely the US and the EU, for going back on their promises to pay the poorer nations for the ‘loss and damages’ that have been felt as a result of climate change.

All of this coming the day after the Fed raised its base interest rate by 0.25%… I think it’s fair to say that it looks as if we have some tough times ahead.

When has that ever stopped us humans before, though? Adapt to Survive. That’s what got us here in the first place, and that’s what is going to get us over the hill this time, too.

I feel like words aren’t very useful at this point. We just need action. This action needs to come in the form of policies being put in place by world leaders, as well as investments being made by the private sector too. As I stated in my first blog post, change brings about new opportunities, and with those new opportunities come winners and losers.

I’ve carried out a bit of a deep dive into the energy sector in order to analyse our transition towards a sustainable energy industry alongside analysis the push towards ‘Net Zero Carbon Emissions’. This has helped me understand what has been happening since the start of the great transformation began, which will in turn provide me with more understanding about what determines which companies ultimately become those winners and losers.

Check it out below and please let me know if you have any feedback as it will be massively appreciated.

I started by looking at what we’re actually aiming for when we refer to ‘Net Zero’…

The term Net Zero has now widely been accepted as the name for the eventual point whereby an equilibrium has been reached between the amount of Greenhouse gases (GHGs) emitted into the atmosphere and the amount of GHGs removed from the atmosphere. Put more generally, when the quantity of GHGs we contribute to the atmosphere equals the amount taken away, that is the point we are all aiming for. That is the point when we will have reached Net Zero. This goal of reaching net-zero GHG emissions has become arguably the main component of government and industry promises to combat climate change, with new net-zero policies and pledges being announced on a weekly basis.

Many countries have set a goal to achieve the net-zero of GHGs by specific dates, with a large number seemingly zeroing in on 2050 as their target. I’ve looked at a couple of examples to see how progress towards these goals are going…

Renewable energy’s contribution to US electricity output has doubled in just ten years was 10% in 2010 and 20% in 2020. Wind and Solar energy accounted for the vast bulk of that expansion, with compound annual growth rates of 15% and 84%, respectively, throughout the decade. Despite these increases, the US will need to pick up the pace dramatically if it is to meet its clean energy targets. The country had more than 100 gigawatts (GW) of solar and 122.5 GW of wind power capacity at the end of 2020, but will need to build as much as 70–100 GW of new solar and wind capacity every year between 2035 and 2050 to fully decarbonise the power industry.

Looking at things from a more general perspective, a lot of developing nations (as well as some developed ones) continue to use fossil fuels to produce energy, increasing the global temperature. A lot of the decision-makers around this sort of thing will say they have no choice but to continue with current practices. In my opinion, the countries with the financial power to support those without, should be doing so. Not doing so effectively forces the poorer nations to continue using the cheaper sources of energy, thus hindering the work of the richer nations who are fortunate (?) enough to be able to have one eye on the development of renewable sources.

Without wanting to get too political, I’m of the opinion that all countries should have both eyes firmly fixed on the development of renewable sources, with cross-party policies implemented that go over-and-above the four-/five-year leadership terms that seem to have hindered our long term progress towards net zero.

According to a recent report from the Intergovernmental Panel on Climate Change (IPPC), the recent increase in temperatures could be stopped and possibly overturned if global emissions are cut in half by 2030 and net-zero by 2050. The 26th United Nations Conference on Climate Change (COP26) in November 2021 provided a critical opportunity to refocus efforts towards our combined goal, however there was little progress made at the conference. The seven months since COP26 has seen Russia invade Ukraine, leading to economic sanctions being imposed across the globe which in turn caused the supply of energy within the market to shrink massively. Consequences of this have been as extreme as the consideration of coal mines being re-opened in the UK.

I personally am too young to have experienced the social struggles surrounding coal mines, however this doesn’t mean I don’t understand how desperate things must have gotten for solutions as drastic as this to be being considered.

One example that a number of developed governments could do with following the lead of is that of the Australians, who some could say have been flying the flag for the transition to a green energy sector. According to the 2020 ‘Integrated System Plan’, renewable generation could meet over 90% demand for electricity on the Australian electricity network by 2035. This would be higher than their current aim of a 26% reduction in GHGs emissions by 2035 compared to 2005 levels.

Here at Masterplan Lending Advisors, we’ve seen our short tenure filled with enquiries relating to the great energy transition. I would class myself as a Disciple of Adam Smith and a believer in the power of The Invisible Hand, but biases aside, it is fair to say that the various global governments don’t currently seem to be doing the job sufficiently. Therefore, once again, it falls on the free market to make the changes that are necessary in order for the human race to survive.

We have a sprawling network of investors across the globe, a great number of which are looking to invest their capital in companies and projects that contribute towards our collective strive towards the ultimate goal of Net Zero. You might be reading this as a stakeholder for such a company or project – if so, please get in contact today for an initial consultation whereby we can determine whether or not you’ll be a good fit for Masterplan as a client.