Green transition: sowing the seeds of innovation
The 1970s was a pivotal decade which brought a number of social, economic and political changes. It was also an era which raised public awareness about the environment and resource scarcity as a result of the oil shocks in 1973 and 1979.
Back then, oil prices quadruped in the space of five months, forcing consumers to dramatically change how they use energy. Some switched off Christmas lights, others endured long queues at petrol stations. But there was a silver lining. Western governments radically stepped up their spending on finding alternative energy solutions. Their investments have paid off: in the US for instance, R&D from this period led to a “wind rush” in the early 1980s that created the first large-scale wind farms. This period also marked the beginning of Israel’s solar engineering and Denmark’s foray into wind turbines. In fact, the 1970s were a fertile time for innovation which saw a steep rise in the number of new concepts cited in scientific papers and patents, according to research by Economist Impact, in partnership with data science studio Flamingo. Their model, based on data analysis of more than six decades of scientific papers and patents, deploys natural language processing to discern linguistic trends and detect the emergence of novel language in literature (see Methodology). They have discovered that a rush of ground-breaking concepts in academic publications tend to precede waves of innovation activity and a rise in new patent filings. Curiously, the Economist-Flamingo model reveals we may be in the early stages of clean energy innovation, reaping rewards from a rise in novel linguistic structures related to the distribution, usage and storage of renewable energy in the past decade.
Perovskite solar, for instance, is a good case in point.
Perovskite, a mineral, promises to replace silicon as a more sustainable semiconductor material used in solar cells. Academic activity surrounding the mineral surged in the 2014-2016 period (see infographic).Today, the rise in its conversion efficiency to 25 per cent from just 3 per cent in 2006 and low production costs are making these cells commercially attractive.Technologies such as perovskite are critical to leveraging and scaling renewable sources for our post-fossil-fuel era.Encouragingly, the most recent research boom in innovative technology suggests there is already an impressive suite of technologies that can address decarbonisation.“Existing technologies will take us 70 to 80 per cent of (the way to) net zero,” says Angela Wilkinson, head of the World Energy Council.Data from the IEA backs up her point. Next-generation technologies, including those that are not yet commercially viable, have the potential to cut global energy sector CO2 emissions by nearly 35 gigatonnes of CO2 by 2070, or 100 per cent of what’s required to achieve all current net zero pledges.1What is missing now is improvements in manufacturing and production that cut costs and shorten the time lag between a breakthrough in upstream innovation and its adoption in the real world.Solar panels have gone through the whole innovation-adoption cycle. The price of electricity from solar photovoltaic sources has fallen by 89 per cent in the last ten years, compared with a 2 per cent decline in the price of coal, which is now more expensive on a levelised basis, when factoring in the costs of building and running power plants.Other core technologies will, therefore, demand significant investment to fuel their rise to commercial viability and widespread adoption.
Insights for investors
- Technological innovations are enabling profound changes in the clean energy industry, with solar energy costs falling by 80 per cent and onshore wind energy costs down by 45 per cent over the past decade.
- Further technological transformations are needed to reduce greenhouse gas emissions within the next decade, which demand more investments. Annual clean energy investments are required to triple to more than USD4 trillion by 2030.
- But such transition is likely to benefit the economy, adding for example an extra 0.4 percentage points to annual global GDP growth and requiring about 30 million new workers. It is also likely to generate investment opportunities in a diverse business landscape, spanning in companies not just in power production but also in transport, manufacturing, buildings, IT and energy infrastructure such as networks and grids.