Consumers are seizing the energy transition from big business

Green electricity and transport went from being the province of cost-insensitive idealists — the sort of people who knit their own yogurt or install pointless mini-wind turbines on their roofs — to its current status as a serious asset class in which pension funds, private equity firms and utilities invest hundreds of billions each year. Capital spending on wind and solar generation overtook that on upstream oil and gas last year, according to consultancy Rystad Energy AS. The energy industry — once a synonym for “fossil fuels” — is these days increasingly one for “renewables.”

Bloomberg

We’re on the brink of another revolution, however. Individuals and households have been in the back seat of this transition for a decade. Right now, though, they’re increasingly taking the wheel as spending gravitates away from vast, utility-scale projects toward the booming markets for clean consumer products. That’s already affecting how businesses present themselves to their customers. The disconnect is only going to get more dramatic as households’ lead widens.The switch is being driven by two sectors: electric vehicles and photovoltaic solar panels (PVs). Sales of electric and plug-in hybrid autos grew nearly fivefold between 2019 and 2022, and will triple again by 2027, according to BloombergNEF. They comprised 37% of car sales in China in June, where EVs are already undercutting comparable conventional models on cost.
That translates into a hell of a lot of spending. Last year alone, consumers spent $425 billion on such cars, the International Energy Agency wrote in April — more than the world’s petroleum giants spend on developing new oilfields. Even if you assume the cost of the average EV drops rapidly, the rising numbers being sold will ensure that electrified cars are a trillion-dollar annual market in the second half of this decade.

Bloomberg

Then there’s rooftop solar panels. Three factors are causing them to take up a growing share of power spending:

• Electricity prices that have risen in many markets since Russia’s invasion of Ukraine are making self-generated power a more economical alternative to buying from the grid.
• Red tape that is holding back the connection of utility-scale renewable generation is much lighter or non-existent for people putting panels on their roofs.
• Costs per watt for small installations tend to be two to three times higher than they are for plants producing 100 megawatts or more.

Solar installations by big utilities are still likely to make up the dominant share of capacity growth, and thanks to their higher efficiency, they will comprise an even bigger shares of generation. In spending terms, however, residential panels are already overtaking grid-scale PV.

Bloomberg

That broadly reflects the larger trends already in place. Demand-side clean energy investment — equipment used by energy users, such as electric vehicles, heat pumps and sustainable materials — was running ahead of supply-side investments such as solar, wind, nuclear and battery power, hydrogen and carbon capture last year, according to BloombergNEF. The bulk of that spending is being committed not by large corporates, but by individuals and households.

The shift will have far-reaching effects. Most of this expenditure gets less carbon-reduction bang for its buck than major projects. As the baton passes from corporates to individuals, it’s also far from clear that anything beyond a minority of households are prepared to meet the upfront costs of buying EVs, PVs and heat pumps.

On the flip side, people who are committing more of their own money to greening our economy are likely to get more demanding about the businesses they deal with. That’s going to be a challenge for many industries that will be harder to decarbonize than road transport and domestic power.

Take the rash of complaints, lawsuits and investigations of air carriers over the past year over “greenwashing” claims. Airlines are acutely sensitive to the views of their environmentally focused customers, but have no viable strategies to clean up their industry this side of 2050. The easiest way to bridge that chasm is, essentially, flimflam — but regulators and environmental groups will do everything to stop them getting away with it.

It’s a similar situation with ESG investing and carbon offsetting, two sectors that have presented themselves as painless shortcuts toward net-zero emissions but have increasingly come under criticism for failing to live up to the hype.

The affluent consumers most targeted by airlines and financial-services companies are precisely the ones most likely to have the cash to spend on greening their own lifestyles. Businesses struggling to repeat the same trick in their own operations are increasingly going to find their marketing departments coming into conflict with their financial controllers.

Individuals are back in the driving seat of the energy transition. The companies relegated to the passenger seat may find it an increasingly bumpy ride.