Managing the impact of energy transition path uncertainty on European infrastructure investments

Investors in energy infrastructure during these times of a rapid energy transition face two types of uncertainty. The first is whether a slower than required pace of transition will affect markets in ways that undermine investment cases. These risks can be identified and managed by understanding how the infrastructure, its cost, prices, revenues, and market size, might fit within the existing landscape. A more difficult and speculative risk has surrounded the question of whether an investment case might be undermined if the transition goals are met, but the transition path and direction differ substantially from original expectations. This paper uses scenario analysis of a wide range of different plausible, but less likely, transition paths to develop a fact base on which to assess these transition path risks. The 8 scenarios cover transitions where technology breakthroughs and policy accelerate the development of alternatives including nuclear power, carbon capture and sequestration, hydrogen, distributed renewable energy, and energy efficiency to levels at the edge of what forecasters deem as plausible. Two of the scenarios also look at the impact of accelerated development of renewable energy and hydrogen on a global scale, with opportunities to import technology and energy into Europe, where the economics of imports of electricity or hydrogen make sense. For each of these scenarios, we have developed forecasts of demand, prices, costs, utilization rates, price volatility, and investment, for the relevant energy markets and their technologies.