Accelerating the Energy Transition 2025

Although many projects are already operational, accelerating these emerging technologies towards commercial viability to meet 2050 net-zero targets will require unprecedented levels of investment and capacity growth. Several issues hinder capital deployment in the technologies needed to drive the energy transition: – The business case for developers, particularly financial returns and policy predictability, remains weak. – Many technologies are not yet cost-competitive either for final or intermediate consumers, due to limited manufacturing capacity and insufficient economies of scale. – Deep emission reductions in hard-to-abate sectors rely heavily on disruptive technologies that are not yet economically viable.5 – Businesses may hesitate to adopt cutting-edge technologies when current assets with long operational lifespans are still financially viable. – Emerging technologies require multi-year product, project, supply-chain and related infrastructure development, creating uncertainty about their effectiveness and reliability.6Many stakeholders recognize the need and potential for these solutions but hesitate to be first movers or advance at the necessary speed and scale. Governments must step in with supportive policy frameworks that encourage R&D and investment, including early-stage pilot projects that help bridge the gap between technological promise and commercial viability. For countries with strong technological capabilities, investing early in R&D can create an economic case, even before a business case for scaling-up emerges. Initiatives such as the US Department of Energy’s Loan Programs Office (LPO) play a key role in financing early-stage clean technology projects, mitigating risks and pushing the technology frontier towards net-zero emissions.7 Intergovernmental collaborations such as Mission Innovation are also critical in fostering cross- national learning and cooperation.8 Meanwhile, businesses must be incentivized to act on government policy signals and incentives and take an active role in scaling-up proven technologies, while continuing to invest in emerging ones. Ultimately, the success of the energy transition will depend on the collective confidence and commitment of businesses, policy- makers and financial institutions to invest and scale-up these solutions. Pricing Pricing is foundational for building the business case for the energy transition. As advanced energy solutions continue to innovate and scale-up by 2030, costs are expected to decrease. However, many emerging clean technologies still carry a “green premium”, making them less competitive with conventional energy sources. For example, SAF has the potential to significantly reduce emissions in the aviation sector but is expected to remain two or three times more expensive than kerosene by 2030. Absorbing this cost could increase flight ticket prices by 18% to achieve a 50% emissions reduction.9 This highlights a key challenge: how to absorb the cost of greener technologies while ensuring market competitiveness. Understanding and addressing the green premium is essential for driving market demand and scaling-up clean technologies. Governments and businesses on both the supply and demand sides must work together to implement mechanisms that offset the green premium, such as creating first demand, subsidies, tax incentives, offtake agreements or consumer price adjustments. 2.2 Enablers for the business caseWhat took decades for solar and wind must now be replicated in a fraction of the time to meet Paris Agreement targets, while keeping energy affordable and secure for all. significant reductions in technology costs. They now operate with established industries and supply chains, benefiting from a clear economic case and significantly reduced costs, which in turn strengthens the business case for continued investment. A similar trajectory is also needed for emerging technologies but with one critical difference: what took decades for solar and wind must now be replicated in a fraction of the time to meet Paris Agreement targets, while keeping energy affordable and secure for all. Accelerating the Energy Transition: Unpacking the Business and Economic Cases 9