Energy transition is the global energy shift from fossil fuels and systems of energy consumption to renewable energy sources such as wind and solar. The transformation plays a key part in the journey to net zero, with global leaders committing to the Paris Agreement, which seeks to limit global warming to 1.5°C – given temperatures beyond this will unleash far more severe climate change impacts, including more frequent and severe droughts, heatwaves and rainfall.
In our latest Technology Sector Report, one of the key themes is Energy Transition and how digital technology will facilitate a faster, smarter way to achieve net zero ambitions and climate change targets.
BP estimates in their Statistical Review of World Energy that achieving the Paris Agreement would require the rate of emissions to fall each year from now at a rate similar to the declines seen in the midst of lockdowns at the height of the COVID-19 pandemic.
The UK is already building on its progress with one of the most ambitious 2035 climate change targets of any major economy, having undergone one of the fastest reductions in greenhouse gas emissions, down nearly 50% since 1990. However, to meet net zero targets globally by 2050, at least a third of the emissions reductions will need to be supported by technologies that are not yet on the market.
MIT Technology Review says digital technologies will be key to the net-zero transition, “They enable decarbonization with their ability to process more data more effectively, identify problems faster, and test solutions virtually.”
This is why M&A momentum has continued throughout 2023, with £18.2 billion investment recorded in the UK’s energy, utilities and resources sector for 2023 – the highest amount for any individual industry. Global investment in the low-carbon energy transition grew by 17% in 2023, demonstrating the resilience and importance of the sector. It is expected that high levels of investment activity will continue into 2024, supporting the technological advancement needed to sustain the next stage of the UK’s energy transition.
Despite this, the current level of investment in clean energy technologies is not nearly sufficient to set the world on track for net zero by mid-century. According to BloombergNEF’s (BNEF) Energy Transition Investment Trends 2024 report, energy transition investment would need to average $4.8 trillion per year from 2024 to 2030 to align with BNEF’s Net Zero Scenario. This is nearly three times the total investment observed in 2023.
Given that investment to support the energy transition needs to accelerate materially, businesses that can support the transition to net zero, ESG reporting and social value are well-placed to achieve support from private capital. We also believe there are opportunities for consolidation in the market given the number of climate tech startups in the UK, which we are keen to support.
Read our full Technology Sector Report for further key trends, portfolio case studies and insights from experts across the Technology sector.