December 2024 saw our second Houston energy transition dinner of the year with special guest, Doug Terreson, board member of Phillips 66 and one of Wall Street’s most influential analysts. Over the course of the evening, attendees from the sector gathered to discuss some of the key topics dominating energy including artificial intelligence, the national grid and potential changes to government subsidies under a new administration.
Attracting capital
Over the course of 2024, clean energy technologies attracted two-thirds of total energy investment worldwide. The IEA’s annual World Energy Investment report states that it expects the world energy investment is expected to exceed US$3 trillion with circa US$2 trillion going towards clean technologies including renewables, electric vehicles, nuclear power, low-emissions fuels to name a few. The remainder is expected to go to coal, gas and oil.
As good as this news is, it was also noted that there are still major imbalances in energy investment flows, with clean energy spending in emerging and developing economies below what is required to meet growing demand. Why? Simply the high cost of capital.
Oil majors invested US$30 billion in clean energy in 2023, around four percent of the industry’s overall capital spending according to the IEA. However, around 40 per cent of oil and gas spend is in targeting existing fields, with 33 per cent opening up new fields and exploration to keep future pipelines filled. We need to manage today’s energy demand but also how it will be met in the future, is there a way to balance the two?
AI and data centres driving demand
Currently, investment in new production is driven primarily by consumption. With growing populations, continued industrialisation, increased electric vehicle market, popularisation of AI (not to mention the data centres required to support AI), the spend on fossil fuels remains high to meet energy demand.
Challenges continue to crop up across the country particularly as – according to FERC data – the US only built 55 miles of high-capacity transmission in 2023, not nearly enough required for current demand. In addition to this, a number of generation projects are being slowed with nearly half of projects delayed due to supply chain bottlenecks and necessary permits, amongst other factors. If this continues, AI, data centres and other vital pieces of infrastructure could be at risk.
Carbon pricing
According to the latest World Bank report, carbon pricing revenues reached US$104 billion in 2023 with 75 carbon pricing instruments used worldwide. Half of this revenue was used to fund climate and nature related programs, resulting in the World Bank labelling carbon pricing as, ‘one of the most powerful tools to help countries reduce emissions.’
In addition to this, carbon taxes and Emission Trading Systems (ETS) have expanded from covering a mere seven percent of the world’s emissions to almost 24 percent.
While this is all positive, carbon pricing, taxes and ETS operate differently depending on level of government, by country/territory and in some instances, by city. Right now, pricing varies significantly but is generally considered too low at around US$50 per ton CO₂ or less.
New administration
Biden’s IRA has been instrumental in funding clean energy projects, with much of it going to projects in Red states. The biggest question at the table was whether this will this continue under Trump’s administration? The overall view from the dinner was that the IRA will remain, and that permit and regulatory requirements will be eased which could support all types of energy projects. On the other hand, could the changes to trade tariffs that Trump speaks of impact LNG trade flows?
With tech billionaires staying close to President Trump, what support might there be for power projects that can feed the vast energy demands of AI data centres? At our previous energy transition dinner in London, the role of tech companies was a popular topic with many noting Microsoft’s 20-year power purchase agreement with Constellation, restarting the Three Mile Island Unit 1 in Pennsylvania. Could this hunger for power be the shot in the arm that new nuclear, particularly SMRs, need?
When it comes to the climate crisis, there have been huge gains in renewable energy but also a realisation of how much more there is to do and just how much it is going to cost.
Right now, green hydrogen has fallen out of favour due to the sheer cost of it, with conversations turning to blue hydrogen and carbon capture as options for accelerating the transition. Nuclear and SMRs remain part of the conversation and as we can see from our events, are becoming more popular, however, they still suffer stigma and concerns around regulation and planning.
As we move through 2025, the role of international technology firms, private equity companies and investment banks will be pivotal in shaping a sustainable and profitable energy future. How that looks and the role they play will continue to develop, but seizing the opportunities that arise will be just as important.
Download the full white paper, with all the topics discussed at the event.
