GOVERNMENT SUPPORT IS CRITICAL TO THE LONG GAME OF THE ENERGY TRANSITION
Governments frequently undertake large-scale infrastructure and social projects that exceed the financial or logistical capabilities of the private sector. These initiatives, such as public transportation systems, internet infrastructure, public health programs, and space exploration, typically demand substantial capital investment, offer long-term returns, and yield widespread societal benefits.
Among these ambitious endeavours, perhaps none aligns more closely with these criteria than the comprehensive transition to cleaner energy sources, combined with the expansion of energy resources to meet growing global demand. This monumental shift in energy production and consumption represents a challenge of unprecedented scale and complexity, requiring the resources, long-term planning, and coordinated effort that governments are uniquely positioned to provide.
As noted by the International Energy Agency (IEA)’s report: World Energy Investment 2024, “energy investment decisions are primarily driven and financed by the private sector, but governments have essential and indirect roles in shaping capital flows.”
In the last twelve months, we have begun to see some of this support reach the marketplace.
Funding
Funding from the Bipartisan Infrastructure Law of 2021 is underwriting the build-out of the hydrogen industry in the US and, after selecting seven regional hub locations, in July the Office of Clean Energy Demonstrations awarded the first tranche of funding to the California Hydrogen Hub.
Carbon capture
In December 2023, the US Department of Energy made awards to three carbon capture projects.
Private investment into clean power
In July, the UK’s newly elected Labour government launched Great British Energy with £8.3 billion of funding to catalyse private investment in clean power.
Clean energy initiatives
Earlier this year, Brazil’s development bank BNDES chose to partner with the Glasgow Financial Alliance for Net Zero to invest in Brazil’s clean energy initiatives.
Localized manufacturing
Also in July, the Kingdom of Saudi Arabia’s Public Investment Fund (PIF) announced three new renewable energy joint ventures to localise manufacturing of wind turbines and photovoltaic modules.
Globally, we are seeing governments – as well as direct foreign investors (DFIs) and intergovernmental organisations (IGOs) – de-risking the energy transition, paving the way for a more efficient flow of private capital to critical aspects of the transition to cleaner energy.
But the effectiveness of capital flow is directly tied to the efficacy of regulation.
Beyond funding
Overall, what are your top concerns for the long-term energy outlook? (energy suppliers and investors)
Financing and incentives are crucial for energy suppliers, developers, and investors to drive the energy transition forward. But regulation and permitting emerged as a top concern for 45% of energy suppliers and investors, with the political environment also weighing heavily (42%). This issue resonated strongest in the US and UK markets, concerning 60% and 56%, respectively, of those polled.
To be clear, the concern with regulation and permitting is not about the fact that energy projects require permits or are heavily regulated. Energy and natural resources companies routinely design projects and follow procedures that far exceed regulatory requirements.
Rather, the concern arises from uncertainty and delay. When regulatory requirements vary substantially from jurisdiction to jurisdiction, or upon each change in political leadership, project developers can struggle to design a project that meets legal requirements.
Similarly, when the process of permitting a project drags on because regulatory agencies are understaffed and project opponents can delay an approval for years by filing legal challenges, the value of a project is greatly diminished.
Overly strict regulatory measures can also inadvertently impede progress toward environmental goals. This effect is particularly acute when it comes to permitting, whether for mines, oil and gas exploration, transmission lines, or offshore wind. As noted in our recent series Striking the Balance: Permitting Reforms for Mining and the Energy Transition: “the irony is that well-intentioned but inefficient rules designed to mitigate the environmental impact… may pose a different threat to our environment in the long-term.”
Governments and regulatory bodies are beginning to recognise this paradox. In April 2024, the EU signed the Critical Raw Materials Act into law. This legislation specifically outlines processes for identifying “strategic projects,” accelerated permitting of those projects, and streamlined administrative processes to alleviate the planning and permitting bottlenecks. In April, US Department of Energy (DOE) created the Coordinated Inter-agency Authorisation and Permits Program establishing the DOE as the main point of contact for developers and the federal government for transmission permitting. Most recently, the Energy Permitting Act of 2024 was proposed in Congress as a bipartisan effort to address the root causes of major delays in energy projects in the US.
Workers wanted
A skilled and adaptable workforce is essential to the development, implementation, and maintenance of the complex technologies and processes driving the energy transition. According to the International Energy Agency’s 2023 estimate under the net zero scenario, the shift to clean energy will generate 17 million new jobs while necessitating the transition of more than six million workers out of “traditional” energy. While these specific numbers may be open to debate, a fundamental change in the workforce is needed not just for energy suppliers, but for all companies facing the challenges presented by a shift to cleaner resources.
Accordingly, workforce issues emerged as a significant factor affecting the long-term prospects of the energy sector, with 42% of energy suppliers and investors identifying it as a critical concern. This issue was particularly pronounced in the Middle East, where 64% of respondents considered it a top priority. In both the US and the UK, 52% of those surveyed also recognised workforce challenges as a major concern for the energy sector's future.
Similarly, when questioned on where investment could be most effective in driving the energy transition, supplier and investor respondents gave nearly equal weight to research and development of new technologies (53%), upskilling of the workforce (52%), international collaboration and knowledge exchange (50%), and education and training programs for future professionals (47%). This suggests that there is a recognised need for technological advancement and human capital development and that success is predicated on the progress of both.
Workforce issues:
of energy suppliers and investors identifying it as a critical concern
of respondents in the Middle East considered it a top priority
of US and UK respondents also recognised workforce challenges as a major concern for the energy sector's future
Supplier and investor respondents gave nearly equal weight to:
research and development of new technologies
upskilling of the workforce
international collaboration and knowledge exchange
education and training program for future professionals
In which of the following areas do you believe investment in skills is most needed to support the energy transition? (energy suppliers and investors)
Governments recognise their role in enabling workers to acquire new skills, or up-skilling or re-skilling of workers as shown in such legislation as the US’ Inflation Reduction Act, the recent roadmap for an “energy skills passport” as part of the North Sea Transition Deal in the UK, and in the EU’s Green Deal Industrial Plan. In Saudi Arabia, Vision 2030’s Human Capability Development Program makes provisions to train Saudis for jobs in the renewable energy sector. Today, clean energy jobs employ 50% of energy workers, according to the IEA's inaugural World Energy Employment Report, and 45% of energy workers are in highly skilled occupations (versus 25% for the broader economy). As technology evolves, required skill levels will increase. Workforce development will undoubtedly endure as a key policy issue for years to come.
The global energy transition represents a complex interplay between government initiatives, private sector innovation, and regulatory frameworks. The success of this transition ultimately hinges on the ability of governments to provide clear, consistent, and supportive policies that can de-risk investments and accelerate the development of clean energy infrastructure. As we move forward, the collaboration between public and private sectors will be crucial in navigating the intricate balance between energy security, affordability, and sustainability, ensuring a successful and equitable transition to a low-carbon future.
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