This week, the International Energy Agency said that the COP28 targets for expanding wind and solar capacity were “within reach”. Yet there was a “but”. That had to do with the fast expansion and upgrade of grids and the equally fast buildout of energy storage capacity. That “but” can doom the whole transition—if it’s not already doomed.

Take EVs, for example. The latest sales data shows that only China recorded a substantial increase in sales, with those jumping by as much as 42%, driving a global 20% increase—while sales of electric cars in Europe dropped by more than Chinese sales rose, at 44%. EV sales in North America increased modestly and nowhere near enough for what transition architects might see as a desirable level of transport electrification.

Or how about solar: in the United States, solar capacity additions are breaking record after record, yet companies are starting to struggle to survive, and some are folding. The biggest sector player to do that was SunPower, which filed for bankruptcy last month.

Wind power is not doing so well, either, despite the generous government support is receives in both Europe and North America. Things took a bleaker turn after a turbine blade broke off, spilled debris in the ocean, and drifted ashore, raising questions about the much-touted green credentials of wind energy and resulting in the shutdown of the whole installation while the incident is investigated.

Then there is the issue of negative electricity prices caused by the surge in wind and solar capacity. Europe has been on a building spree in wind and solar energy, which has had one unforeseen impact on prices. During peak output hours, when wind and/or solar generation is abundant, it increasingly often exceeds demand, plunging wholesale market prices below zero. This year has seen a record amount of hours with negative prices, essentially meaning that generators have to pay grid operators to take their electricity.

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The above is not exactly a profitable business strategy. In fact, it is making life rather challenging for generators—and for their investors who keep expecting returns that, based on the above developments, are unlikely to ever materialize. Unless, of course, governments step in to effectively guarantee these businesses’ profits by instituting higher prices, even as they keep advertising wind and solar as the cheaper option to gas and coal. Consumers, understandably, are beginning to have doubts, as the Wall Street Journal reported earlier this year.

In a story looking at the latest transition policies in Europe, the WSJ noted how governments had lured their voters into believing the transition will make energy cheaper, only to later slap them with the bill of that transition when they ran out of subsidy money. That bill appears to be pretty high, with various high-profile political figures repeatedly calling for more to be invested in it. All this is causing an understandable backlash. It is also casting a shadow over the future of said transition.

Politicians are finding different ways to tackle the situation. In Germany, where the government axed EV subsidies last year only to see a major sales slump this year, they are bringing a form of subsidy back: for carmakers. In the UK, Prime Minister Keir Starmer has had to admit that it would get worse before it gets better, speaking of the cost of living crisis many Brits are struggling with. The Starmer government is unwavering in its green ambitions, for now. This may change when people start complaining about ever-growing energy costs.

In the U.S., meanwhile, transition industries are on edge ahead of elections that might end up won by the candidate who does not have a great love of subsidized wind and solar. Perhaps that’s why President Biden’s climate chief, John Podesta, earlier this month praised the growth in oil and gas production in the country over the past four years. A man with a career positioned against oil and gas touted that growth as an economic success, likely as a way of positioning the Democratic candidate as friendly to an industry she had prosecuted in the past in her role as California’s AG.

In addition to rising transition costs, ending subsidy money, and a growing discontent from consumers who were promised cheaper energy and instead got doubling bills, there is the issue of growing energy demand. That growing demand comes mostly from the Big Tech industry, which is on a quest to make the most of artificial intelligence.

That quest needs electricity—a lot of it. Big Tech has had to admit that this electricity won’t come from wind and solar. Because they need it around the clock. So, now analysts are expecting a surge in gas demand while nuclear returns to the low-emission energy debate as a reliable source of power.

It seems that no matter what amount of words the IEA spends on convincing its audience that the transition is right around the corner as long as we double down on pushing EVs, heat pumps, and more solar, ultimately it’s the market that has the last word. And for now, that word is a “No”.

By Irina Slav for Oilprice.com

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