It's Electrifying...

Published on
March 16, 2023
March 16, 2023

Electricity already plays a significant role in our society. The increase of electric vehicles and heat pumps is enhancing its importance even further and it is impossible to have a climate strategy without involving real estate. Here's a snippet with insights on current market. We at the PTC are seeing many new and successful Proptechs coming into market around ESG/climate narrative from Europe and there's strong (institutional) demand in MENA + USA.

In 2020, the appetite for investments in climate technology have seen a massive surge. In 2022, the global investment in low-carbon energy transition totaled a new record of $1.1 trillion. Renewable energy (wind, solar, biofuels and other renewables) was the largest sector in investment terms, achieving a new record of $495 billion, which is 17% more than in 2021. Electrified transport (electric vehicles and associated infrastructure) came close to overtaking renewables, with $466 billion spent, which is an impressive 54% year-on-year increase.

Global investment to energy transition by sector
Global Investment in Energy Transition by Sector

Right now, power generation is the largest source of CO2 emissions globally, of which 73% of emissions are created by energy use. In the U.S. this number is even slightly higher: 75%. At the same time, power generation is the sector that’s leading the way in the transition to net zero by ramping up renewables like solar and wind energy.

Towards the tipping point

It is worth pointing out that the estimated cost to decarbonize the USA real estate industry is approximately $18 trillion. To put that in perspective, the estimated cost to decarbonize the global real estate industry is $115 trillion.

By 2025 renewable energy will become the world’s top source of electricity!

The demand for electricity is high and continues to grow.

In 2022 the demand for electricity remained resilient. The worldwide demand rose with 2%, despite the rocket high energy prices as a consequence of the Ukraine war. However, the electricity consumption in the European Union recorded a sharp 3.5% decline year-on-year. The electricity demand in India and the United States on the other hand rose. Electricity demand in India rose by a strong 8.4% in 2022. This was mainly led by the post-pandemic economic recovery, and the exceptionally high summer temperatures. The United States recorded a 2.6% y-o-y demand increase, driven by economic activity and higher residential use to meet both heating and cooling needs amid hotter summer weather and a colder-than-normal winter.

The worldwide demand for electricity is set to grow 9% by 2025.

global gross electricity demand
Change in Gross Electricity Demand

Over the next three years, more than 70% of the growth in global electricity demand is expected to come from China, India and Southeast Asia combined. The growth of emerging and developing economies is accompanied by a rise in demand for electricity. Simultaneously the advanced economies are ramping up electrification in order to decarbonize their transportation, heating and industrial sectors

However, renewables and nuclear power are growing quickly enough to meet this growing need. According to the electricity market report 2023, renewable and nuclear energy together will cover 90% (!) of all new demand between now and 2025. China will account for more than 45% of growth in renewable generation for the period 2023-2025. The European Union will follow with 15%. For a successful integration into the power systems, this growth in renewables will need to be accompanied by accelerated investments, in grids as an example. The growth in nuclear energy is due to the nuclear recovery in France and from new plants worldwide, but mainly in Asia. Global nuclear power generation is set to grow by almost 4% over 2023-2025, which is a significantly higher growth rate than 2% over 2015-2019. More than half of the growth in nuclear will come from only four countries: China, India, Japan, and Korea. China leads the way in terms of absolute growth from 2022 to 2025 (+58 TWh), India will have the highest growth percentage (+81%) followed by Japan.

The impressive percentage of growth in renewable generation, suggests that we are reaching a tipping point and renewables will become the largest electricity source. Within the next few years renewables are expected to surpass coal as the biggest provider.

Currently coal provides 10,325 terawatt hours (TWh) of electricity per year, which makes up for 36% of the total demand. At this moment, renewables are in second place with 39%, followed by gas (23%) and nuclear (9%).

In 2025, renewables are expected to provide 10,799 TWh per year, which will be equal to 35% of the total global electricity demand, coal will be in second place providing 33%, followed by gas (21%) and nuclear (10%).

Too early for optimism?

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This is obviously great news reason to be cautiously optimistic. But on the other hand, emissions are still rising. With more than 13 billion tonnes of CO2, emissions from the power sector have reached a record high in 2022. The International Energy Agency (IEA) is expecting emissions to plateau before 2025 and then start dropping. The global electricity generation from gas and coal is expected to remain flat between 2022 and 2025. While gas-fired electricity is forecasted to decline in the EU, it will grow in the Middle East. Coal-fired electricity drops in Europe and the Americas, but will rise in Asia Pacific. Developments in China, where more than half of the world’s coal-fired generation takes place, will still be a key factor.

In February 2023 a Mexican deal was signed to acquire a 51% stake in a 99 MW wind project, with a total investment of $115 million. In January 2023, a Japanese trading house announced plans to invest $100 million in a 50 MW solar project in the Indian state of Rajasthan. December 2022, a Danish wind turbine maker secured an order for 63 MW of wind turbines for a wind farm in Sweden. One month earlier, a French renewable energy company announced a joint venture with a UK-based renewables developer to develop a portfolio of solar and battery storage projects in the UK. The joint venture aims to deliver up to 2 GW of capacity by 2030.

Let's all keep pushing to a greener future, the journey started but there's still a long way to go and it becomes more crucial in geopolitics as well!

Please follow our corporate LI for more insights: The Proptech Connection

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