Abstract
This chapter looks at the profound transformations which are currently shaping the energy sector with the aim of providing a better understanding of their potential implications for investors, asset managers and industrial stakeholders at large. The analysis starts with an overview of the global energy balance and its evolution over time, then highlights the relevant changes taking place in all fuels, from the shale gas revolution to the rapid expansion of renewable technologies and finally focuses on the electricity industry. The latter in particular deserves specific attention because of its leading role in all decarbonisation scenarios and its greater impact on the whole energy sector. Therefore, the chapter looks at the evolution of the electricity industry and at the key trends that are driving its economic fundamentals, investment opportunities and market strategies. Moreover, the study highlights how Europe’s largest utilities are responding with different business models and technological solutions to the challenges and opportunities provided by all these radical transformations. The evidence is not clear yet as to which of these models will be better suited to compete in this new environment and prospects for investments in the energy sectors vary widely according to the considered target and time horizon. Finally, the analysis concludes that the expected value of any investment will be significantly affected by changes in climate policy (e.g. carbon targets), market design (e.g. capacity mechanisms) and regulation (e.g. the regulated cost of capital).
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Notes
- 1.
According to the International Energy Agency (IEA), over 120 million people worldwide gained access to electricity in 2017, reducing the total number of people without access to below 1 billion.
- 2.
According to the IEA, energy demand growth would be twice as large in the absence of continued improvements in energy efficiency (IEA 2018).
- 3.
Renewable electricity used for rail and road transport (i.e. electric vehicles) is growing, but is currently low compared to biofuels (IEA 2018a).
- 4.
Specifically, solar PV and wind are the technologies that saw the greatest growth over the past seven years (IRENA 2018).
- 5.
In Europe, renewables, including hydro, accounted for 30% of total electricity generation in 2017.
- 6.
The renewables’ share of the electricity fuel mix is also estimated to grow to over 40% by 2040 (IEA 2018). In addition, renewable technologies, mostly solar PV and wind, will supply over 70% of global electricity generation growth in the period 2018–2023.
- 7.
The original reactor design lifetimes of most of these plants were between 30 and 40 years.
- 8.
The amount of electricity generated from fossil fuels was still greater in the third quarter of 2018, generating around 40% of the UK’s electricity, compared to 28% for renewable sources (Husseini 2018).
- 9.
Energy efficiency is measured by energy intensity, the amount of energy used to produce a unit of output (i.e. primary energy demand per unit of global GDP).
- 10.
In general, PPAs are contracts that allow Commercial & Industrial clients to buy electricity produced by renewable technologies.
- 11.
The Clean Spark Spread is the same indicator but it refers to electricity produced with gas.
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Di Castelnuovo, M., Biancardi, A. (2020). The Future of Energy Infrastructure. In: Gatti, S., Chiarella, C. (eds) Disruption in the Infrastructure Sector. Future of Business and Finance. Springer, Cham. https://doi.org/10.1007/978-3-030-44667-3_2
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