The modern energy transition grew up in an era of easy money, near-zero interest rates and low inflation. Venture capitalists, project developers and governments contend today with a very different situation. Can they keep up the momentum on decarbonisation when investors expect something for their cash?
Between January 2009 and November 2015, the US federal funds effective rate did not exceed 0.2 per cent — quite a change from the early 1980s, when it reached about one hundred times that level. That climbed to a still moderate 2.4 per cent in 2019, then fell back to near-zero in response to the Covid-19 pandemic.
The European Central Bank's (ECB) fixed rate was even lower, and actually zero between March 2016 and July 2022.
Now, in a quick march of rates rises, the US Fed rate has reached 4.65 per cent and the ECB 3 per cent. Short-term rates are seen peaking at about 5.1 per cent while falling back longer-term to about 3.6 per cent.
This is in response to the need to choke off inflation before it becomes embedded. US prices began accelerating in early 2021 with the Covid-related stimulus, hit a peak of 9.1 per cent in June and have since fallen back to 6 per cent.
European inflation has been even higher, because of the surge in gas and electricity costs after Russia’s invasion of Ukraine, and reached an all-time eurozone record of 10.6 per cent in October.
Energy itself drives some of the problem. High oil and gas prices contributed to the jump in inflation in 2021 and 2022. In the longer term, decarbonisation will require heavy investment, often fuelled by government deficit spending, and throwing away much still-productive capital locked up in fossil-fuel assets.
The 2050 net-zero carbon target will require doubling the current annual energy investment to $173 trillion, according to strategic research provider BloombergNEF.
That is something like a quarter of what we currently invest worldwide across the entire economy.
Economic protectionism is particularly in evidence in energy, as the US with its perhaps misleadingly named “Inflation Reduction Act”, the EU and the UK aim to outcompete China in areas such as batteries and electric vehicles.
They are concerned about over-dependence on China and Russia for critical minerals such as lithium, cobalt, nickel and rare earths.
China has been the key driver of falling manufacturing costs for renewable energy systems over the past decade. A complex welter of tariffs and “buy local” preferences will end such frictionless trade.
Carbon prices are an essential and more efficient economic tool, yet still add to the end-user cost of energy. Producing “green” steel, aluminium, cement and plastics using renewable electricity and hydrogen filters through to the costs of building things.
This applies not least to new energy systems, which require large quantities of materials. Low-carbon shipping fuels will lead to higher costs for delivered goods.
Eventually, these alternatives will improve to the extent they are superior to and cheaper than fossil fuels, but the transition period can be painful.
But a higher cost of capital and tighter money make it harder to deliver that transition.
Most of the key low-carbon technologies have higher upfront capital costs than the fossil alternative, but lower operating costs. A wind or solar farm, once constructed, requires only minimal maintenance and no fuel input to churn out electricity for two or three decades. An electric car is cheap to charge and, with fewer moving parts, less prone to breakdowns. This means that higher interest rates put them at a relative disadvantage.
The very low costs of delivered solar power in recent years, particularly in the Middle East, were facilitated by cheap capital. Supply chain issues mean that panels have become at least temporarily more expensive. Our calculations at Qamar Energy suggest that a solar farm delivered for 1.5 cents per kilowatt-hour in 2021 would see its cost rise to 2 cents because of higher equipment bills, then to almost 3 cents due to the greater cost of capital.
This is still very cheap by historic standards, and better than fossil alternatives, but higher than the industry had become accustomed to and on which net-zero carbon plans had been based.
The move up from near-zero interest rates also affects venture capital. Money in recent years poured into energy start-ups and growth companies: in electric vehicles, not just Tesla, but also Rivian, Lucid Motors and fraud-hit lorry maker Nikola Motor. Even without profits, revenues or a working model, they were valued in the tens or hundreds of billions, more than Ford or GM.
This was an attempt, of course, to emulate the success of early investors in stocks such as Alphabet and Meta. The energy tech space is much less forgiving: capital-intensive, long development and deployment cycles, heavy government regulation, and safety and environment imperatives. “Move fast and break things” is not an appealing motto for an electric plane.
The world still needs these breakthrough technologies, in areas such as atmospheric carbon dioxide removal, space solar, nuclear fusion and advanced fission, alternative batteries to lithium-ion, engineered geothermal, novel electrolysers and many others.
The question is how to keep venture capitalists interested when interest rates are well above zero and payoff comes — if it comes — after a decade or two.
The outlook for inflation and interest rates is critical: will demographics, maturing economies and cheaper low-carbon energy push rates down again, or will activist governments, deficit spending, a decarbonisation splurge and the end of the deflationary “China shock” keep them elevated?
Geopolitical imperatives aside, de-globalisation or “slowbalisation” indicates economic stagnation with higher inflation, hampering the energy transition.
Bureaucratic procedures and excessive deference to special interests reduce the deployment of major new infrastructure to a crawl, magnifying the impact of more costly capital.
Governments need to imaginatively bring money into long-term breakthroughs, but also accelerate their journey to reality.
After economic shocks, pandemic and war, we need to reconcile the end of near-zero with the start of net-zero.
Robin Mills is chief executive of Qamar Energy and author of 'The Myth of the Oil Crisis'
F1 The Movie
Starring: Brad Pitt, Damson Idris, Kerry Condon, Javier Bardem
Director: Joseph Kosinski
Rating: 4/5
Ovo's tips to find extra heat
- Open your curtains when it’s sunny
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- Eat ginger but avoid chilli as it makes you sweat
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- Avoid alcohol
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New Zealand T20 squad
New Zealand T20 squad: Tim Southee (captain), Finn Allen, Todd Astle, Hamish Bennett, Mark Chapman, Devon Conway (wicketkeeper), Lockie Ferguson, Martin Guptill, Adam Milne, Daryl Mitchell, Glenn Phillips, Ish Sodhi, Will Young
EA Sports FC 26
Publisher: EA Sports
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COMPANY PROFILE
● Company: Bidzi
● Started: 2024
● Founders: Akshay Dosaj and Asif Rashid
● Based: Dubai, UAE
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● No of employees: Nine
NO OTHER LAND
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Stars: Basel Adra, Yuval Abraham
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What is a robo-adviser?
Robo-advisers use an online sign-up process to gauge an investor’s risk tolerance by feeding information such as their age, income, saving goals and investment history into an algorithm, which then assigns them an investment portfolio, ranging from more conservative to higher risk ones.
These portfolios are made up of exchange traded funds (ETFs) with exposure to indices such as US and global equities, fixed-income products like bonds, though exposure to real estate, commodity ETFs or gold is also possible.
Investing in ETFs allows robo-advisers to offer fees far lower than traditional investments, such as actively managed mutual funds bought through a bank or broker. Investors can buy ETFs directly via a brokerage, but with robo-advisers they benefit from investment portfolios matched to their risk tolerance as well as being user friendly.
Many robo-advisers charge what are called wrap fees, meaning there are no additional fees such as subscription or withdrawal fees, success fees or fees for rebalancing.
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The Greatest Royal Rumble card as it stands
50-man Royal Rumble - names entered so far include Braun Strowman, Daniel Bryan, Kurt Angle, Big Show, Kane, Chris Jericho, The New Day and Elias
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WWE World Heavyweight Championship AJ Styles (champion) v Shinsuke Nakamura
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Cruiserweight Championship Cedric Alexander v tba
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Call the hotline on 0502955999 or send "thenational" to the following numbers:
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It Was Just an Accident
Director: Jafar Panahi
Stars: Vahid Mobasseri, Mariam Afshari, Ebrahim Azizi, Hadis Pakbaten, Majid Panahi, Mohamad Ali Elyasmehr
Rating: 4/5
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10 tips for entry-level job seekers
- Have an up-to-date, professional LinkedIn profile. If you don’t have a LinkedIn account, set one up today. Avoid poor-quality profile pictures with distracting backgrounds. Include a professional summary and begin to grow your network.
- Keep track of the job trends in your sector through the news. Apply for job alerts at your dream organisations and the types of jobs you want – LinkedIn uses AI to share similar relevant jobs based on your selections.
- Double check that you’ve highlighted relevant skills on your resume and LinkedIn profile.
- For most entry-level jobs, your resume will first be filtered by an applicant tracking system for keywords. Look closely at the description of the job you are applying for and mirror the language as much as possible (while being honest and accurate about your skills and experience).
- Keep your CV professional and in a simple format – make sure you tailor your cover letter and application to the company and role.
- Go online and look for details on job specifications for your target position. Make a list of skills required and set yourself some learning goals to tick off all the necessary skills one by one.
- Don’t be afraid to reach outside your immediate friends and family to other acquaintances and let them know you are looking for new opportunities.
- Make sure you’ve set your LinkedIn profile to signal that you are “open to opportunities”. Also be sure to use LinkedIn to search for people who are still actively hiring by searching for those that have the headline “I’m hiring” or “We’re hiring” in their profile.
- Prepare for online interviews using mock interview tools. Even before landing interviews, it can be useful to start practising.
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Arda Atalay, head of Mena private sector at LinkedIn Talent Solutions, Rudy Bier, managing partner of Kinetic Business Solutions and Ben Kinerman Daltrey, co-founder of KinFitz
Labour dispute
The insured employee may still file an ILOE claim even if a labour dispute is ongoing post termination, but the insurer may suspend or reject payment, until the courts resolve the dispute, especially if the reason for termination is contested. The outcome of the labour court proceedings can directly affect eligibility.
- Abdullah Ishnaneh, Partner, BSA Law
More on Quran memorisation:
The alternatives
• Founded in 2014, Telr is a payment aggregator and gateway with an office in Silicon Oasis. It’s e-commerce entry plan costs Dh349 monthly (plus VAT). QR codes direct customers to an online payment page and merchants can generate payments through messaging apps.
• Business Bay’s Pallapay claims 40,000-plus active merchants who can invoice customers and receive payment by card. Fees range from 1.99 per cent plus Dh1 per transaction depending on payment method and location, such as online or via UAE mobile.
• Tap started in May 2013 in Kuwait, allowing Middle East businesses to bill, accept, receive and make payments online “easier, faster and smoother” via goSell and goCollect. It supports more than 10,000 merchants. Monthly fees range from US$65-100, plus card charges of 2.75-3.75 per cent and Dh1.2 per sale.
• 2checkout’s “all-in-one payment gateway and merchant account” accepts payments in 200-plus markets for 2.4-3.9 per cent, plus a Dh1.2-Dh1.8 currency conversion charge. The US provider processes online shop and mobile transactions and has 17,000-plus active digital commerce users.
• PayPal is probably the best-known online goods payment method - usually used for eBay purchases - but can be used to receive funds, providing everyone’s signed up. Costs from 2.9 per cent plus Dh1.2 per transaction.
The line up
Friday: Giggs, Sho Madjozi and Masego
Saturday: Nas, Lion Bbae, Roxanne Shante and DaniLeigh
Sole DXB runs from December 6 to 8 at Dubai Design District. Weekend pass is Dh295 while a one day pass is Dh195. Tickets are available from www.soledxb.com
Red flags
- Promises of high, fixed or 'guaranteed' returns.
- Unregulated structured products or complex investments often used to bypass traditional safeguards.
- Lack of clear information, vague language, no access to audited financials.
- Overseas companies targeting investors in other jurisdictions - this can make legal recovery difficult.
- Hard-selling tactics - creating urgency, offering 'exclusive' deals.
Courtesy: Carol Glynn, founder of Conscious Finance Coaching
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COMPANY PROFILE
Founders: Alhaan Ahmed, Alyina Ahmed and Maximo Tettamanzi
Total funding: Self funded
Thank You for Banking with Us
Director: Laila Abbas
Starring: Yasmine Al Massri, Clara Khoury, Kamel El Basha, Ashraf Barhoum
Rating: 4/5
