The green transition industries are hitting a wall of reality, while fossil fuel industries remain popular with consumers.

The oil, coal, and gas sectors are doing very well! In October 2023, the world’s leading company, Exxon, signed a check for $60 billion to buy Pioneer Natural Resources. Chevron, another American « major, » launched the acquisition of Hess for $53 billion.

Add to these moves another transaction: Glencore, a major commodity trading company, acquired the coal activities of the Canadian group Teck for $7 billion. Fossil fuels are still popular with investors, and for good reason: the price differences between the various energy sources are unmistakable.

In France, the Court of Auditors estimates the cost of gas-produced electricity at 35 to 45 euros per MWh and coal at 20 to 25 euros, compared to 61 to 91 euros for onshore wind, and 74 to 135 euros for solar. This does not include the development of offshore wind, which is expected to cost 140 to 200 euros per MWh, or tidal power estimated at around 250 euros. In this context, it is not surprising to see that despite public announcements, massive subsidies for renewables, significant changes in regulations, and incredible research and development efforts, many flagship companies of the green transition are going through tough times.

Plug Power, a former star of fuel cells, has faced a grim fate. Investors have grown tired of seeing the company burn through cash faster than it ever produced hydrogen. Vestas, the world leader in wind energy, is approaching profitability in 2023, reaching an o  n of fields off the Massachusetts coast, whose profitability has become uncertain.

In Europe, the first phase of the gigantic Markbygden project off the coast of Sweden is on the verge of bankruptcy.

The green transition is hitting a wall of reality. In fact, three walls:

  • political,
  • technological, and
  • financial.

The political wall, firstly, because behind the growing anxiety about the ecological cause in public opinion and the goals imagined by expert groups lies the more concrete question of acceptability by local populations.

Resistance is hardening, including from those who claim to be environmentalists, like with offshore wind turbines that compromise the living environment of certain marine species.

The « not in my backyard » phenomenon, in other words, « not in my backyard, » has taken on considerable proportions, amplified by the discovery of the environmental consequences, which are not so negligible.

The technological wall forces a reality check. The best example is hydrogen, which has become the miracle solution to achieve industrial or transport decarbonization scenarios.

Only 4% of projects in this area are actually financed, simply because there is no viable economic model…

The rise in interest rates is putting the green revolution through a formidable test of truth.

In a few months, the financial environment has radically changed and is forcing a ruthless sorting between ideas that have a future and those that will have to go back to the drawing board. This major cleanup is probably beneficial.

On the one hand, it removes opportunists, sellers of solutions that only the free money from central banks and subsidy windows would have financed. On the other hand, it will force all players to tighten their costs.

The oil industry has lessons to teach them. In 2014-2015, the barrel plunged to $50 after years around $110. Such an event forces the entire production and subcontracting chain to make a brutal adaptation. The young green transition industry will have a future if it learns, in its adolescence, to develop sustainable economic models.

 

Matthieu LAMY 

Cost Manager Expert

Matthieu LAMY is President of the RLB | SQA, Chairman of the Organisme de Qualification des Economistes de la Construction (International Cost Engineering Council), French Representative to the European Council of Construction Economists, French Representative to the International Cost Management Standard (ICMS)