I was thinking about that story when I read the IEA’s world energy investment report this week. One of its findings was that those countries that prioritized transitioning to clean energy alongside electrification and efficiency saved some $260 billion in fossil fuel import costs last year, with savings expected to grow substantially this year. And a billion dollars is now invested in solar power every day. While clean power receives much of the attention, the electrification story is increasingly important. Among my biggest takeaways from the report was the growing support for electrification: 15% year-over-year investment growth in technologies like heat pumps, electric vehicles, and the electrification of industrial processes.
But headwinds remain despite the clear business case at a household-by-household, firm-by-firm level. The IEA report cites “persistent bottlenecks” created by “misalignments between demand growth, financing structures, and risk allocation.” None of these are fatal flaws. The electrification train has clearly left the station. But support from policymakers and financial innovation are required for electrification to reach its full potential on the shortest possible time horizon.
Large companies like Mahindra can pay for improvements up front or have access to lower-cost credit that make the numbers add up. But many firms—particularly smaller ones—remain contained by limited balance sheets. Persistent high interest rates also present a challenge since electrification benefits play out over time and high interest rates can spook companies concerned about short-term returns (or even survival). A report last year from Economist Impact found that 84% of businesses are piloting electrification; only 9% are fully electrified.
Nonetheless many trends are encouraging for electrification. Electric vehicles accounted for a quarter of sales globally last year. The IEA projects continued growth and notes particularly fast acceleration in parts of Asia. “We’re going to have a blowout year for electric vehicle sales this year globally,” says Jigar Shah, the clean tech investor who previously ran the U.S. Department of Energy’s Loan Program Office.
Indeed, a report from the We Mean Business Coalition earlier this year found that investors are increasingly factoring “electrification readiness” into their decisions. In the end, financial markets may end up being a significant driver of electrification as much as operational performance. In any event, the direction of travel remains clear, even if the path remains complicated.
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