For all the rhetorical and real progress made by the energy transition, the last 6 weeks have revealed the obvious. The world still runs on hydrocarbons. The head of IEA has described the consequences of the Iran conflict as worse than the two oil price shocks of the 1970s combined. These shocks created protracted stagflation - low growth and high inflation - globally. This time is worse because it's not simply about higher oil and gas prices. If the Strait of Hormuz continues to be blocked, there will be insufficient supply no matter how much one is willing to pay. Where does this leave the energy transition?
Emerging trends suggest that the world is doubling down on hydrocarbons. In recent weeks, many global automobile manufacturers, like Honda, Ford and Mercedes-Benz, have pushed back or abandoned targets for converting all their production to EVs. BYD and Tesla have seen a stalling in the rate of growth of sales.
In the exploration of oil and gas, Donald Trump had changed the narrative with his aggressive 'Drill, baby, drill' agenda in early 2025. But it has been followed by less flamboyant but equally important reversals of the 'no more hydrocarbons' policy, even in a place like Europe.
Late last year, Greece permitted offshore exploration after 40 yrs. Italy also changed its stance. In Britain, where Labour is under pressure to rethink its policy on no new licences for oil and gas, it has made a concession by allowing more production from areas adjacent to current oilfields. Previously risky geographies like Libya and Namibia are also seeing interest from oil majors.
Some of the rethink on fossil fuels had begun in the aftermath of Russia's invasion of Ukraine in 2022. But it has accelerated since, and likely will happen even faster now.
There are some key reasons for this.
Storage challenge Intermittency of solar and wind power means that they are not 24x7 sources of energy. So far, there isn't a commercially viable technology to store large amounts of this energy. It is hard to see renewables displace hydrocarbons until the storage problem is resolved.
Weak grids Because it cannot be stored, RE needs to be transmitted to the grid and distributed immediately. In India, and elsewhere in the world, we have now reached the stage where transmission infrastructure is insufficient to keep up with the renewables' generation capacity. Many generation units are running at below their potential because energy cannot be evacuated. It will require costly and time-consuming build-up of additional transmission infrastructure to make full use even of existing capacity.
Costly alternative Some other sources of RE, which are not intermittent and might have helped 'hard-to-abate' sectors like heavy manufacturing, such as green hydrogen, are still a long distance away from commercial viability. The cost per unit remains too high for adoption.
In such a scenario, where climate change remains a challenge that needs addressing, two sources of energy are emerging as key:
Gas For long, it was considered a transition fuel because of its relative superiority over coal and oil. Now, it may be in the mix for much longer.
Nuclear Success of the energy transition may well rest on how quickly the world can roll out nuclear power, especially using small modular reactors (SMRs), which are less costly to build than the conventional reactors. Most countries that opposed nuclear in the past, including Germany and Japan, are warming up to the idea.
Energy transition has been set back by the wars in Europe and West Asia, but it's not dead. Instead of going all in on solar, wind and green hydrogen, a greater focus on gas and nuclear may keep it from stalling.
The writer is chief economist, Vedanta
Emerging trends suggest that the world is doubling down on hydrocarbons. In recent weeks, many global automobile manufacturers, like Honda, Ford and Mercedes-Benz, have pushed back or abandoned targets for converting all their production to EVs. BYD and Tesla have seen a stalling in the rate of growth of sales.
In the exploration of oil and gas, Donald Trump had changed the narrative with his aggressive 'Drill, baby, drill' agenda in early 2025. But it has been followed by less flamboyant but equally important reversals of the 'no more hydrocarbons' policy, even in a place like Europe.
Late last year, Greece permitted offshore exploration after 40 yrs. Italy also changed its stance. In Britain, where Labour is under pressure to rethink its policy on no new licences for oil and gas, it has made a concession by allowing more production from areas adjacent to current oilfields. Previously risky geographies like Libya and Namibia are also seeing interest from oil majors.
Some of the rethink on fossil fuels had begun in the aftermath of Russia's invasion of Ukraine in 2022. But it has accelerated since, and likely will happen even faster now.
There are some key reasons for this.
Storage challenge Intermittency of solar and wind power means that they are not 24x7 sources of energy. So far, there isn't a commercially viable technology to store large amounts of this energy. It is hard to see renewables displace hydrocarbons until the storage problem is resolved.
Weak grids Because it cannot be stored, RE needs to be transmitted to the grid and distributed immediately. In India, and elsewhere in the world, we have now reached the stage where transmission infrastructure is insufficient to keep up with the renewables' generation capacity. Many generation units are running at below their potential because energy cannot be evacuated. It will require costly and time-consuming build-up of additional transmission infrastructure to make full use even of existing capacity.
Costly alternative Some other sources of RE, which are not intermittent and might have helped 'hard-to-abate' sectors like heavy manufacturing, such as green hydrogen, are still a long distance away from commercial viability. The cost per unit remains too high for adoption.
In such a scenario, where climate change remains a challenge that needs addressing, two sources of energy are emerging as key:
Gas For long, it was considered a transition fuel because of its relative superiority over coal and oil. Now, it may be in the mix for much longer.
Nuclear Success of the energy transition may well rest on how quickly the world can roll out nuclear power, especially using small modular reactors (SMRs), which are less costly to build than the conventional reactors. Most countries that opposed nuclear in the past, including Germany and Japan, are warming up to the idea.
Energy transition has been set back by the wars in Europe and West Asia, but it's not dead. Instead of going all in on solar, wind and green hydrogen, a greater focus on gas and nuclear may keep it from stalling.
The writer is chief economist, Vedanta
(Disclaimer: The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of www.economictimes.com.)
Dhiraj Nayyar
The writer is chief economist, Vedanta