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Facing macroeconomic shocks, political instability and “weak” business cases, key technologies in the transition from fossil fuels are falling behind, according to a new study.
U.S. consulting giant McKinsey & Company warns of a “reality gap” between ambitions and outcomes for renewable energy sources like wind and solar, and the electrification of vehicles and heat pumps in buildings. It’s the same story, researchers say, for less mature technologies like carbon capture and storage, clean hydrogen, and sustainable fuels.
“While significant progress has been made in developing and deploying some of these technologies, notably solar and wind, for which installed capacity has risen sharply over the past 15 years, a significant gap has emerged between the actual results and the expected ones,” the authors wrote in a study published on Tuesday.
“Corporate, public, and private equity investors are hesitating about deploying capital,” they added. “A significant proportion of announced projects have not yet reached the final investment decision stage at which projects are green-lit, meaning that there is a continuing risk of cancellation.”
Their analysis, focused on the U.S. and Europe, points to three main challenges: the business case for projects, technologies that are not yet cost-competitive for consumers, and other technologies that remain unproven at scale.
“Ultimately, technology-focused enablers have not yet managed to address the challenges posed by macroeconomic shocks, geopolitics, and what it takes to enable tech ecosystems,” the authors wrote. “The business case—that is, the economic returns and policy predictability for developers—often remains weak.”
McKinsey & Company’s findings come as major carmakers from Ford (F) to General Motors (GM) to Mercedes appear to be pumping the brakes on electrifying their vehicle lineups. The report predicts a slowdown in U.S. electric vehicle growth to 2030, on the heels of lacklustre sales figures over the past two years.
Many current decarbonization strategies assumed a different economic and policy landscape than the one that exists todayMcKinsey & Company
For other technologies like wind, solar, carbon capture and hydrogen, researchers say deployment is not happening fast enough to reach U.S. and European 2030 targets.
In Canada, climate advocacy group Investors for Paris Compliance (I4PC) found major financial institutions are not investing in renewable energy at the level required to hit the International Energy Agency’s 2030 target for limiting global warming.
“All of Canada’s big six banks failed to meet the 71 per cent benchmark,” I4PC researchers wrote in a report released on Wednesday. Scotiabank (BNS.TO)(BNS) and Sun Life Financial (SLF.TO)(SLF) ranked the worst, with 67 per cent and 74 per cent, respectively, of their power sector financing and investing directed towards fossil fuels.
Only three institutions — the Canadian Pension Plan Investment Board, Caisse de dépôt et placement du Québec, and Brookfield Asset Management (BAM.TO) — were above 71 per cent invested in renewable energy.
Meanwhile, a Canadian consortium of oilsands companies have also yet to make a final investment decision on what could be one of the largest carbon capture projects in the world. The massive $16.5 billion Pathways Alliance carbon capture network had planned to start injecting and storing CO2 beneath northern Alberta in late-2026.
However, that date was among the information removed from the Pathways website in June in response to the passage of Bill C-59. The legislation requires companies to prove their environmental claims according to internally recognized standards.
The oil and gas industry has complained that the vagueness of the rules leaves them exposed to potential lawsuits from activists. Canada’s Competition Bureau is expected to release guidance on Bill C-59 following a consultation period ending in late-September.
Earlier this month, Vancouver-based hydrogen fuel cell maker Ballard Power Systems (BLDP.TO)(BLDP) told investors that its customers are delaying purchases. The company’s new order book in the second quarter amounted to US$5 million, down sharply from almost US$130 million in the two previous quarters.
At the same time, Ballard says it will “reduce and defer certain capital expenditures given slow market adoption.” The company has secured US$94 million in U.S. government funding for a fuel cell Gigafactory in Texas. A final investment decision is expected in the fourth quarter.
“That’s almost a once-in-a-lifetime opportunity for funding,” CEO Randy MacEwen told analysts on an Aug. 12 conference call. “The problem is that the overall investment cycle is coming earlier than the market adoption. That’s really what we’re wrestling with.”
Last year, U.S. President Joe Biden’s top climate advisor complained of “delays and bottlenecks” for electrification projects under the administration’s US$369 billion Inflation Reduction Act.
Republican presidential nominee Donald Trump and other Republicans have vowed to roll back parts of the law if elected.
“Many current decarbonization strategies assumed a different economic and policy landscape than the one that exists today,” McKinsey & Company concluded in its report.
“Now is the time for stakeholders across the energy value chain to revisit decarbonization plans and assess if these plans are still sufficient to achieve their climate goals.”
Jeff Lagerquist is a senior reporter at Yahoo Finance Canada. Follow him on Twitter @jefflagerquist.
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