233. To predict the future, “In BNEF we Trust” - Jun26

With Laurent Segal end from London and Gerard read from Berlin. This is redefining energy today. On redefining energy, Laurent, we've got to talk about I suppose the future, this energy transition, that's what we're going to do. We have a great guest who has been forecasting all those trends, all the investments, and that's Albert Chung, Deputy CEO of b ne EF.

But first of all, from my partner. A b Loco Energy is Europe's premier leaser of ten foot container mobile batteries built in Europe with COTL best LFP cells. A Bloco Energy serves fourteen European countries, including France, Germany and the UK. A Bloco's batteries can be leased for any duration between six weeks and six years, and they are monitored by the Dutch award winning platform school A block O Energy Make your life easier, make your business more flexible.

Back to the and great pleasure that happened. I'm actually surprised we haven't had them on before because listen, we've been following their work for I don't even know how long, it's fifteen years, at least. Twenty years in my case, even before there was the b So when Michael Levi created an EF, they've been providing the data which is the backbone of all the investment. Now we're talking about two trillion of investment.

I cannot see an investment committee, a credit committee where in the documentation there is not a data from bn EF. They've been so helpful because they bring something that there's so much noise, and they're bring trust and that is so critical. We're so happy to all him on the show. Let's bring him on.

Have a chart, Albert. It's great to have you on the show. Thanks for having me, Albert. First question, what is exactly b an EF Now, it's.

Good that you say now, because I know you know us from a long time ago when we were New Energy five. But BNF now is a global research provider covering energy transition and commodity markets. So we have four hundred experts around the world really tracking what's happening in the energy transition globally. We cover the technologies that are driving the transition, the underlying economics and how the costs are changing, how the competitive landscape is changing, and also, obviously very importantly, the policy that's driving transition around the world, and.

Of course at the difference of your peers like IA or I. Right now, you're not a political organization, so it's really a bottom up and not a bit of a top down totally. So we're fully independent, we own our own views, our own data, and we're really trying to provide an objective view of what's really going on and highlight the opportunities. Really, I think we've always come at the energy transition from the point of view of a kind of capitalistic view of highlighting the opportunities and the investment in the space, not from a kind of normative view of where we think the world should go or where it should be.

Well, obviously this is I've been also following you for years as well, and what I really love is the fact that once a year you put out this annual report which gives really a great view in terms of what's going on from everything from renewable installations to evs, and you've just published this report. Maybe just talk a little bit about the highlights of that. What really you find the most interesting thing of last year. Now, in order to spoil the conversation, I also downloaded the same report, but for two twenty and I put them side by side, and I can tell you you've been right on a lot of things, most of the things I think you're the best podcaster here, but also looking back into twenty there's a lot of things you were a bit too optimistic about.

And I'm going to summarize very simply. You're right on the electrons, you're wrong on the molecules. Okay. Interesting, So, Lauren, I have not gone back and compared to twenty twenty, so this is going to be a fascinating discussion.

Maybe just to rewind. So what is the report we're talking about? As we record this BNF we just published our a New Energy Outlook for twenty twenty six. It's our annual flagship publication which contains scenarios for the future of energy, and we come at this really from an economic point of view.

And we have a base case scenario called the economic transition scenario, where we assume that policymakers implement no further climate policy and they just deploy the technologies that are economically rational to deploy to meet energy demand in their countries over the next couple of decades. And we also have a climate scenario which is a high ambition, maximum effort climate scenario in line with the Paris Agreement. But that is also a cost optimization exercise, so we're not dictating solutions, We're asking the model to deliver a kind of least cost climate aligned scenario.

You know, what's really interesting this year is to think about the energy security implications of all of that, because we are, of course living through an unprecedented energy crisis as we record this, you know, the straightuform mus are still closed and a lot of countries are grappling with implications of that. So this year one of the focuses was let's think about what these scenarios mean for energy security, because frankly, people right now are much more worried about energy security, energy affordability, and climate is probably a third priority and in terms of the hierarchy of needs, And what we find is that if policy makers just pursue an economic energy transition, no additional cost, no additional effort, they can significantly reduce their exposure to international oil and gas markets and therefore reduce their energy security risk.

So, for example, markets like the EU and the UK can roughly have their energy import exposure as a share of GDP between now and twenty forty, just by doing the economic things that make sense for them in terms of energy transition. You know, in Asia there are economies that are three four five six percent of their GDP is energy import equivalent and they can see that, you know, similar benefits as well. So that's kind of one of the new things for this year, Laura. I'd love to know what you thought has changed from our outlook of the last five years and love to get into that as well.

You forgot the PT scenario put in Trump, which history will certainly remember that they were extremely good against their will for a naturally transition. Now looking back at two twenty versus now, you said sola becomes the cheapest power source in his story, solar plus win dominate new capacity editions. You said that six years ago, so bing, so you were spot on. You also predicted the fall of the price of batteries.

It was spot on. You predicted the rise of EV's. You said IV would reach twenty percent of global passenger sales by two or thirty who already reached this one? But I think you were a bit too optimistic on the adoption of EV's in the US.

And then when you get it totally wrong. Hydrogel you said green anddrogen is going to scale rapidly, you said ccs will grow. So overall very good in technology coscurve if you adoption sol A we need going to make supply chain and the weakness which is is more human than technology, you know, policy friction, geopolitical shocks, hydrogen and permittee. So that's it.

So overall it's pretty good. I would say I think we probably underbake solar back then, and again I haven't actually you've looked at our old older reports, But there was this huge acceleration of SOLO from about twenty twenty two to twenty twenty five. The last three years, you know, installations went from I think there were about one hundred and fifty gigawats in twenty twenty and then about six hundred fifty gigawats last year, so like, you know, more than a quadrupling over five years.

Let's say. You know that we've always been very bullish about the cost reductions in solar and you know, accelerating employment. But I don't think even we had that right. Went even faster than us, and obviously faster than some other agencies as well, so I think that was a surprise.

I do know that our electricity demand forecasts have risen as well over the years, and part of that as data centers, of course, which is now much bigger topic. And you're totally right that our views on hydrogen and ccs have have been revised. Now today we only include any significant amount hydrogen ccs in our climate scenario. The base case really doesn't have very much at all.

But even in the climate scenario, we have less hydrogen less ccs than we used to, and that's simply because we have got much better visibility on the true costs of those technologies compared to five years ago. We now know that they cost more than what everyone hoped that they would over these years, and so they've taken a bit more of a backseat, and we have more power, more electrification, frankly a bit more nuclear as well to power that electrification. If you want to really do the high ambition climate scenario, you've got to have nuclear, not nuclear, than ccs or something else.

I was going to just differentiate between molecules and electrons. For me, molecules is not about technology anymore. It's about geopolitics, and that's really difficult to predict well. Electrons.

A lot of it's now about technology. It's in other words, you're talking about solar, wind, batteries AI. They are all technologies, and I'm not surprised that you've done a good job there. I think the one on solar is quite interesting because what's really clear is just an exponential technology.

We've never seen the likes of it in the generation space or in the energy space. But you've done a much better job than nearly everybody else when it comes to solar and batteries. That's really interesting. I mean, on the point about molecules, though, one thing that we face is, you know, the doing these long term outlets many months.

It takes our team about nine months to produce this report and it comes out in May, and now just by chant, over recent years, multiple times that've been shocked to the energy system that happened in February or March, and so to accommodate those changes is actually really difficult, as you know, because that you know, the molecule's story changes very quickly when you have an energy shock, whereas the technology story doesn't change that much. So we have to adjust, we have to accommodate we have to really think about the energy security implications of these different scenarios.

And yet if you look through all that noise, some things actually don't change that much. So, for example, oil peak in our base case scenario doesn't move around that much from one year to the next. It's always between about twenty twenty nine and twenty thirty two. And it's obviously quite a flat peak, as you know, it's not a sudden kind of drop off, but it's a bit of a plateau.

So does that plateau begin in twenty nine or twenty thirty doesn't move that much, and this year is the same, so you know, we're not moving the peak around very much. It's twenty twenty nine this year, and then that drops down towards twenty fifty. Gas also, I mean gas is probably the most interesting think and most controversial of all the molecules, because for oil, you can see that the plateau coming. For coal, you can see it's going to drop, and maybe it's extended a little bit with the current energy crisis, but it's going to drop.

With gas. In our two scenarios, you have this k shape where if you just do the economics, just follow the economics of a rising global energy demand, growing power system. Even with renewables dominating that power system, you still see gas growing because of the overall rising energy demand, whereas in the climate scenario, the that zero scenario, obviously gas demand tails off is cut very quickly towards twenty fifty. So that's where you have real controversy.

I think that's why the discussions about what is the role of gas and the energy transition are so real and so vital, because it really depends what is your view of the energy transition. Is it more kind of economic driven or are we really serious about accelerating towards climate goals and frankly towards energy security goals as well. Yeah, if you push more energy security, yeah, of course you can accept higher prices. Now, if you look at your up feeling these tanks, three years after Ukraine, they've become very complacent.

You thought that after Ukraine they would still think energy security. They thought for two years and the third year they say, okay, what the heck, there is surplus coming from the US Katar. Everything's going fine. Cut us the doubling capacity, So they totally forgot.

So I'm always afraid that just people are very short memory there is to go back to their old ways the moment they see the prices going down, or they can anticipate prices going down. So maybe it's the second shot. Maybe they're going to learn this time now. Guess now you can do all this you want at three five dollars, even six seven dollars, membt.

Yes there is a future for gas, but if people need to import it at fifteen or twenty, forget about it. That's that's pretty much it. Do you see Differently? Ailron think that the second crisis that we're living through now is going to change the world forever.

And I'm going to like in that the second oil crisis. Nothing really happened after the first oil crisis. The second oil crisis came along and suddenly France built out nucleer like nobody's ever bailted. That was Norway drilled, drilled, Baby drilled, and so the whole all of other countries, and they reacted really quickly.

And I think we're in that moment. And let's be clear, as we record here May June of twenty twenty six, this strait of Hormo's crisis could get worse, and you have real shortages coming into September and then you know, we're living in a really crazy world. I agree with that. Two things we have to watch really closely well three.

The first thing you already mentioned is how long does this crisis go on? For two other things. One is we see demand destruction happening right now around the world, particularly in Asia. The question is how much of that demand destruction is temporary and it's you know, things like people are working from home more and the crisis ends, they'll get back in their cars, or temporary rationing of things.

And how much of that demand destruction is structural, you know, people switching to buying evs, people buying induction stoves. And I think the longer the crisis goes on, the more you have the structural demand destruction, which is durable in the long term and really does lead to a change. The second thing to watch, and I think this is still emerging, is what really is the policy response going to be, particularly in the Asian markets that are most impacted by the current crisis, Because right now, most of the policy response is just trying to cushion the impact on consumers tax breaks and subsidies and things like that.

Do we really see a policy response when the crisis is over that is durable, that says we are now going to insulate ourselves from these rolling fossil fuel crisis which do happen every four or five years by accelerating electrification and renewables. There are glimmers of that, but I don't yet feel that that's really solid. I think we're still waiting to see countries really grasp that opportunity. Look, if you have gas underneath your feet and you get shape, you use it in the power sector.

But I cannot see gas in any future scenario in the power sector. If you need to import it, then maybe you're going to say yeah, But the Japanese are doing yeah. Maybe that's the exception. But for the rest, gas is out of any important country in the litricity sector.

John with Laurent Toltali in this absolutely yeah. And I think when you look at those markets in Asia and most of them, the economic competition is between coal and renewables. Like for the future of those power systems, that's the contest. It's coal and renewables, and of course our viewers that renewables will dominate in the long term.

The economics of coal won't be very good. Actually, globally we get to kind of two thirds renewables by twenty fifty, so I kind of agree with you. There are going to be markets where gas continues to play roll. Obviously the US is a major example of that, but for most of these Asian markets that are facing the jury crisis right now, gas isn't really a big vector in the power sector.

Let's move to electrification in general. EVS. You forecasted EV pretty well. Are you still as bullish for the rest of the decade and after?

We can go into the past center heating and other things, But let's talk about transportation first. So on EV's about a quarter of the world's car sales last year were electrified, either pure electric or plug in hybrid. I think it's worth just pausing for a moment to consider the achievement that that represents given where we were five ten years ago, that is an incredible achievement. China's far ahead above fifty percent already.

Europe has at about the global average about a quarter and leading other markets. So if you think about where the US is, Japan, India, other markets are far behind. We absolutely see that continue to rise and there's no real slow down in the EV story that we see aside from in the US. So we have reduced our forecast for USV adoption, but on a global level, the numbers keep going up.

Now, the growth isn't what it used to be. If you look at twenty twenty eight, twenty twenty one, you're talking one hundred percent growth in the EV market. You're on year sixty percent growth and that keeps dropping. So it goes to forty twenty ten, and it's still above ten percent growth today.

But that's kind of what maturity looks like in the market. So you have linear growth. Now. That's the bit that we need to grapple with is there's a narrative out there that says everything's always exponential.

Everything in the energy transition is always exponential. You apply a kago and it just keeps going and going and going. Actually, the lived experience is not that. And with EV's we're going to go through a linear period of growth that's deep part of the S curve.

It is an S curve, and then eventually it tails off. So we feel optimistic about EV's, but the growth rate simply isn't going to be what it was. I will also take this opportunity to plug. We have our annual ev outlook coming out in a few weeks time, so please keep a lookout for that, and that's going to have all the updated numbers for.

You, Alberta. On a transport thing, I'd be very interested to hear your thoughts moving beyond the automobile, in other words, moving into trucking and other forms of transport, receiving trains, actually moving to batteries. What's your view going forward on the bachelorization. Of other parts of transport.

We have a team that looks at commercial transport, both road and also shipping and aviation. Just taking vans and trucks for a minute. You know, the economics for electrifying vans for urban and shorthol duty cycles are already really good, and we see the beginnings of really good adoption in different markets around the world. And the issue there is going to be the same as in passenger where you know, do you have the infrastructure and is it usable and all of that.

For heavy duty and long haul it's a slightly different story. We have line of sight to a point where electrification will be TCO positive for heavy duty. Like it's close, it's getting there, but not the case everywhere, and the infrastructure is going to be a challenge. So kind of long haul you need the highways and so on, and there's good work being done to set up corridors and different markets for that.

One of the big issues though, is that between the OEMs and the fleet operators and the shippers and you know, the financiers of these assets, because they are financed assets, is there's still a perception of certain risks that has to be managed. So one is utilization risk if you're thinking about the overall kind of charging and truck ecosystem. One is battery residual value risk, which still needs some work. There's still fear of after a certain number of years the value of the battery in the truck is is diminished and therefore it's difficult to finance.

So I think what's needed there is to build experience, to build up the data set that shows two investors and to the financiers that you can finance these assets. The batteries last. I think they do. We just need to have the proof points in the data and the real life operations to make that case.

Well. On this one, I think you're too perish the trucking industry. It's going to be absolutely phenomenal because once you have the test lessony that's out and a lot of things happening in China, and the price of diesel for me, it's going to go much faster. Look, I'm going to give you an example.

One of my company portfolio is using batteries. Okay, so we get called from the EV chargers or are not making a lot of money, but they need more power for their IV charging station, and of course they can't get grit upgrade for months or something, so they would like to rent batteries to give more hoomph. For whatever reason, my batteries were too small. So I called one of the guys Big Motorway and he said, oh, yeah, yeah, we bought a sun Grow Power Titan three points zero.

And then I called another guy, say yeah, I call my colleague, which is my competitor, and we bought the sun Growth. You know, they didn't even make any tender analysis. The guy say, oh you bought this battery. Does it work?

Okay, boomer, there's a silent revolution. And then in your report you're going to see in a few months or years, oh my god, every EV chargers have put some row batteries or you know, competitors. There are other good products out there. It's going to be like Pakistan all of a sudden, nobody talks about Pakistan and now everybody to, oh my god, they put ten gig of solar and nobody saw that coming, I tell you, And that's totally anecdotal, absolutely no numbers.

But what I hear when I talk to clients is that ev charging is going gangbuster right now and trucks are just behind. I think that's right. And by the way, in China where this is really taking off, as you referenced, you know the HTV is there that are being electrified. Some of them are actually doing battery, which you know in Europe.

You know, all three of us live in Europe. We have memories of when that was a thing and it went away, so it's really interesting to see China now doing that for heavy duty. Yeah, Albert, I think I just I'm going to back up Lauran and what he's just said there, and I think the exponential change and batteries is the real real driver of change going forward. And it's going to stay expanential.

I'm happy to agree with you on that in my role heading up BNF, obviously travel around the world a lot and spend a lot of time with clients in different parts of the world, and quite often when I ask our clients, hey, what's the number one thing that you think BNF should be focusing on right now, they will say batteries and energy storage, that's the number one thing. And I think it's partly because the costs just keep coming down, and it's in this phase where that as the costs come down, more markets and more applications are becoming possible, and so really the sky's the limit.

Last year talking about stationary energy storage for a second, last year was the first time that more than one hundred gigawatts of energy storage was deployed globally twenty twenty five, an amazing milestone. Solar was there, I don't know, sometime in the second half of the last decade. So let's say it's a seven or eight years behind. Solar that's now going to grow massively over the next few years.

I reckon it's going to double probably the side of the end of the decade, maybe twenty thirty. That's say, it's going to double again, and the cost will keep coming down and there's no shortage right now of energy storage equipment if you want to go to market and get it. There are some volatility in the metals prices this year, so we've seen lithium, cobalt, nickel up a bit this year, but it's not at the moment having a really meaningful impact, and I think long term the cost will keep coming down.

So I'm happy to agree with you both on the potential energy storage. Albert, you put the scenarios on gigawat or turn offs, you two or, but do you put numbers behind them. We obviously have the gigawats and the extra duals and all of that, but from our perspective, one of the big important units is dollars. We do track all of the investment and the costs under these scenarios, both the base case and the Netzerio climate scenario.

So just to level set where we are today, last year we tracked two point three trillion dollars on investment and spending into the deployment of clean energy technologies globally two point three trillion in our base case scenario. That figure rises by about a third over the next five years, so average is about three trillion over the next five years, which is a third higher than what we saw last year. Essentially, what we're saying is growth continues. Okay, it's not as exponential as it was the last few years, but the growth of the energy transition is going to be resilient.

It's going to keep going. Now, if you compare that to the net zero scenario, the climate scenario, which is our high ambition trajectory, it's not up a third, it's actually double. So it's four point seven trillion every year for the next five years to get on track for that more ambitious scenario. A doubling sounds quite scary, and when I tell people we need to double investment to get on track for net zero, oftentimes they'll say, okay, but that's not going to happen, is it.

But that gap is actually closing. So each year that we do this, the gap has gotten a bit smaller. It used to be three x, than it was two point five x. Now it's two x.

On some level, we start to track more into the right direction. That's just investment. There's also a question of overall costs, right, So overall cost is investment plus op X and fuel costs and all the rest of it. If you compare those two scenarios on a total cost basis out to twenty fifty, what we find is that the net zero trajectory is only fifteen percent more cost than the base case of economic transition scenario, which is again as a least cost scenario.

So I find that very interesting because you know, I'm not going to sit here and say we're on track for the Paris Agreement. But I think one of the questions that we're grappling with as society is how much do we want to spend to increase our climate resilience and also our energy security. Is it one percent more, is it two percent more? Is it fifteen percent more?

For us? You know, for the three of us here, we may have a number in mind that we're willing to spend, but for society as a whole, that number may be different. And I think that's the debate that really needs to be had openly, frankly, in every country, in every society around the world. Albert, first and foremost, thank you very much for coming on the show.

We will put the link to. That report aside the podcast, and again, thank you very much. My pleasure, Thanks so much for having me in a really great conversation. Thank you, Lauren.

I suppose the big question which Albert leaves with me is the future of the move towards zero, because the point he's making is we have to pay for this, and are people willing to do it? Well, look, are people willing to pay Puttin now? People are willing to pay the Uranians. I'd rather pay and have peace than pay months after months after months.

So what is report demonstrates is that the top down government mandates they don't truly work. What's doing the work for them are two things, technology improvement and energy security. So that's the work being done, and the result is going to be the same. I think sorry that the second point you're saying there it's really about resilience, is that what it's all about is making sure that we have energy twenty four to seven.

That's first and foremost the most important priority, and that it's as low cost as possible. And the next thing in and around resilience, which I would say is we're going to have to invest in climate resilience. And climate resilience can be simple to be flood protection, it can be storm protection. But this is also a must going forward.

So I don't know where I'm coming from. Is an ide hear your tosses. I don't think it's about investing in carbon sequestration anymore, to take CO two out of the air or whatever it is. It's really about making sure that the energy system that we have is resilient.

That's what the focus is going to be going forward now. If people want to burn billionaires money into cab and capture good for them. What I do see is, compared to six years ago, the number of hydrogen projects that are currently being operational under construction, it's only easy rower point eight percent of what was announced six years ago because of all those top down lobbies, heavy policies. And we talk about the people.

You have balcony solar, I can tell you there's a new thing coming called balcony battery. You can buy it in the supermarket. People are just gonna buy a battery which is the size of a small fridge, and they're gonna put it in their socket and the utities won't even see anything about it. That is the innovation I love, simple, scaleable down to the people.

Molecule needs big systems and electrons. The people can take charge themselves of getting more resilient at better cost and it's good for the climate. And actually I like that vision as well, or on I think we share that, which is it is about technology and all these decentralized exponential technologies enable you to have more resilience and at the same time that good for environment. With show us absolutely so, it's.

A very Kumbai episode. We love each other, we love bn EF, we love Albert. Everything's great, No run today. What's wrang?

All right? My friend? Good seeing yours ever, I'll see you next week. Okay, looking forward to it.

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