Cost, Politics and Grid Modernization are Key Obstacles to the Energy Transition, According to Womble Bond Dickinson Survey Report

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Third annual survey finds energy industry leaders maintaining or increasing their commitment to energy transition strategies, but navigating tough new economic realities

(November 14, 2023) – The energy industry has entered a new phase in the multi-generational journey to Net Zero, as increasing costs and other factors bring fresh challenges, according to Womble Bond Dickinson (WBD)’s 2024 Energy Transition Outlook Survey Report. More than half (56%) of the energy executives, investors, and legal counsel surveyed are deepening focus on their transition strategies, and many show significant optimism around low or no carbon resources and technologies, such as carbon capture and green hydrogen. Yet they are also clear-eyed about the hurdles ahead: namely, a greater-than-anticipated level of capital investment, the need for grid modernization, political risk during a project’s lifecycle, and lack of public support. 

These are among the key takeaways from WBD’s third annual survey, which provides insight into international progress on the clean energy transition at a moment when some energy companies are doubling down on core oil and gas assets or moderating prior net zero commitments. 

“We may be moving into a phase of the transition in which energy security is more of a priority,” Jeff Whittle, Head of WBD’s Global Energy and Natural Resources practice. “There seems to be a growing sentiment that fossil fuels will be a part of our energy mix for some time. Overall, however, the findings demonstrate that while the pathway to achieving net zero ambitions is challenging, there remains a commitment to a lower emissions future."

According to Richard Cockburn, Head of WBD's UK Energy and Natural Resources Group, “the imperative of energy security and the striking growth in energy consumption highlight the pressing need to accelerate renewable energy developments. This will require streamlining approvals processes, addressing infrastructure bottlenecks and ensuring clear and stable regulatory regimes.”

The report, completed by more than 450 executives and investors, expands the scope of WBD’s previous energy transition surveys to encompass perspectives from North America, the UK and European Union, Asia Pacific, the Middle East, and Latin America. Respondents included companies and investors with interests in renewable energy, oil and gas, utilities, mining, electric vehicles, and nuclear power.

Cost and Economic Impact are Key Obstacles on the Road to the Energy Transition

Amid rising interest rates and equipment prices, 56% of respondents said cost and economic impact was a leading challenge impacting the energy transition, with 47% expressing concern about inadequate tax and incentive support. Cost concerns were slightly more pronounced in the developing economies of Latin America, selected by 60% of respondents, compared to 57% in North America who cited those challenges. 

“Higher interest rates raise the associated levelized cost of electricity—or the average of what it will cost to produce electricity in today’s terms incorporating everything from construction to fuel to financing fees,” said Lisa Rushton, Co-Head of WBD’s US Energy and Natural Resources practice. “For capital-intensive renewable projects, rising interest rates are hugely expensive and may stymie development.”

Infrastructure and Grid Modernization Pose Significant Challenges

Infrastructure needs and grid flexibility requirements rank among the top challenges impacting the energy transition, as selected by 54% and 52% of respondents, respectively. “The realization is spreading across the industry that creating a clean energy system requires more than deploying solar, wind, and storage assets at scale,” said Belton Zeigler, Co-Head of WBD’s Regulated Utilities team. “It also requires modernizing and expanding the transmission grid so that it can serve customers efficiently and reliably as electrification proceeds and increasing levels of renewable resources are added to the system.”

Respondents said key concerns in grid modernization include interconnection challenges, mitigation of grid instability resulting from renewable energy integration, and aging infrastructure. The top concern in North America and in Asia Pacific was the need to accurately monitor and protect grid conditions. In Latin America, grid modernization was seen as most important for imbalances and power flow issues associated with the use of renewables.  

Energy Transition Outcomes Hinge on Government Support

Despite considerable public sector support in the U.S. for clean energy, much more is required—both in America and globally—in terms of capital mobilization, legislation, and regulation. Asked to select all areas in which legislation, regulation, or incentives could be most effective in accelerating the energy transition, 40% of respondents chose funding of grid upgrades and efficiency improvements, 33% chose policies to incentivize energy storage, and 32% said such government support would be most effective in energy efficiency measures. 

From a regulatory perspective, more than one-third of respondents suggested that the government should be more proactive in the establishment of national (37%) and global (35%) carbon credit market schemes. National carbon markets were of particular interest to respondents in Asia Pacific (60%) and the Middle East (57%). Respondents also viewed regulation and policy support as critical across a range of clean energy technologies, from utility-scale energy storage to nuclear and solar power generation. 

Key Energy Transition Growth and Investment Opportunities

Heading into 2024, the overall investment picture is strong for clean energy. Key areas of opportunity, according to respondents, include decarbonization-focused solutions such as biofuels and biomass (energy from waste); energy efficiency improvements; carbon capture technologies; utility-scale energy storage; and electric vehicles.

Executives are generally more bullish on energy from waste (including biomass and biofuels), while both executives and investors show interest in carbon capture infrastructure and technology. Nearly 70% of executives and investors expect commercial-scale carbon capture, transport, and sequestration will be a reality by 2040. 

Politics: The Key Obstacle to Net Zero Goals 

Sustained societal and economic commitment to greenhouse gas emission reduction cannot be taken for granted, either on a domestic or on a considerably more complex global basis. When respondents were asked to identify the threats to net zero goals, the top three choices are rooted in politics. These include insufficient government support (34%); fragmentation, plurality, inconsistency of legislation (28%); and general political risk that governments may not live up to net zero commitments (26%). Those factors also ranked among the top five concerns across all regions surveyed. Latin America, as arguably the least developed economic region in the survey, showed the greatest concern regarding insufficient government support, with 46% of respondents citing it as a challenge. 

In the U.S., the 2024 election could usher in a new administration that may be less inclined to support future energy transition initiatives. From a global perspective, there has been some positive movement on coordinated action across geographies. But it is clear that while the will to tackle climate change remains, the need must continue to be reinforced in the minds and hearts of the public, as the global rise in populism, isolationist politics and geopolitical strife poses a considerable challenge to coordinated action on climate goals. 

WBD’s 2024 Energy Transition Outlook Survey Report was completed by 456 decision-makers in the energy industry, including CEOs, chief financial officers, chief operating officers, legal counsel, and business, operations, and project managers in key regions around the world. More than a quarter (27%) of our responses came from investors. Respondents included companies and investors with interests in renewable energy (76%), oil and gas (64%), utilities (39%), mining (33%), EVs (30%) and nuclear (18%). Participants were located in North America (23%), the U.K. and Europe (37%), Asia Pacific (11%), the Middle East (6%), and Latin America (22%). 

To read the complete report and methodology, please click here.