Energy Evolution: the transition from grey to green?

The energy sector is at an inflection point. Renewable energy is currently the most economical way to mitigate climate change and ensure energy security. We see three areas of investment that stand to benefit from increased spending on the energy transition: electrification, networks, and critical minerals for the energy transition.

April 18, 2023

Dirk Hoozemans

CFA, Senior Portfolio Manager, Credit Suisse Asset Management Thematic Equities


The global energy transition is at an inflection point. Investment in clean, reliable and affordable energy is set to increase significantly as not only consumers and producers want to behave more responsibly, but governments are also taking action to combat climate change and ensure energy security as well. We expect to see significant investment in (i) electrification and (ii) the grid, which will drive strong demand for (iii) critical materials, the building blocks of the energy transition.

A history of energy transitions

Throughout history, humankind has experienced several energy transitions. Societies and economies over the ages have moved from burning carbon-heavy fuels in order to provide heat, power, and light, to burning various iterations of less carbon-intensive fuels to heat our homes, cook our food, power our factories, and fuel our modes of transportation.1 Today, the energy mix consists of coal, oil, and natural gas, with nuclear and hydropower providing a stable baseload of electricity, and renewable energies such as wind and solar power growing rapidly, albeit from a small base.

After the 1973 oil crisis, the term “energy transition” was embraced by politicians and the media. However, it was not until Jimmy Carter spoke of “a transition in the way people use energy” in his 1977 Address to the Nation on Energy that the term became popularized and more widespread.2

We use the term “energy evolution” to describe what we assume will be a very gradual transition (i.e. an evolution) from a fossil-fuel based system to cleaner modes of energy production, storage, supply, and consumption.

Figure 1: Global primary energy consumption by source3

Source: Our World in Data, based on Vaclav Smil (“Energy and Civilization – a History,” 2017) and BP Statistical Review of World Energy. Derived from, retrieved on February 23, 2023

Energy evolution at an inflection point

We feel that the energy evolution is currently at an inflection point and believe that renewable energy is the most economical way to achieve the dual objectives of mitigating climate change and ensuring energy security. The global energy system as we know it faces several issues today:

  1. Demographics: Energy consumption increases with population growth as economies develop, urbanization increases, and consumers become more affluent.4
  2. Affordability: Rising energy demand is meeting years of underinvestment in energy supply, resulting in high energy prices.
  3. Energy security: Recent events in Russia and Ukraine have once more highlighted the issue of geopolitical events driving up the price of energy, emphasizing the need to invest in energy security and self-sufficiency and to reduce our dependency on cross-border imports to meet our energy needs.5
  4. Climate change: The damage caused to the planet’s ecosystem and the economic costs of climate change6 are becoming untenable. Consumer, producer, and government awareness are rising fast, driving changes in behavior, government policy, and regulation alike.
    Policy action is indeed driving a renewed wave in renewable energy, clean technology, sustainable mobility, and related energy infrastructure investment, as illustrated by the passage of the US Inflation Reduction Act,7 with significant tax credits for investments in new technology and re-shoring energy value chains. Furthermore, the European Union is currently working on its counterpart to attract investments as well.

Renewable energy technology and scale as evolution enablers

As mentioned above, the global transition to sustainable energy is being increasingly driven by the recognition that global greenhouse gas emissions must be brought down to zero in order to combat climate change. Since fossil fuels are the largest single source of carbon emissions,8 their use is limited by the Paris Agreement of 2015 to keep global warming below 1.5°C.9

The energy evolution from carbon-heavy energy systems to a less carbon-intensive and cleaner energy system is supported by ongoing technological improvement and the scaling-up of new technologies. As can be seen in the chart below, traditional coal and gas-fired electricity have hardly shown any improvements in their levelized cost of energy (LCOE)10.

Figure 2: LCOE for different technologies in USD/MWh

Solar PV: solar photovoltaic
Source: Bloomberg New Energy Finance (BNEF), Dataset Global LCOE benchmarks

In addition, it is estimated that the cost of wind and solar energy will come down further as scale increases. In other words, more capacity will be deployed in what is known as the capacity learning curve, which is the cost reduction per doubling of installed capacity.11

Decarbonization through electrification

Cost-competitive renewable energy facilitates the electrification of energy systems. This essentially means that the way we consume energy will change: instead of driving gasoline-powered cars, we will drive electric vehicles (EVs),12 while instead of heating our homes with gas or cooking on gas stoves, penetration of heat pumps will increase and we will cook using electricity. It is estimated that by 2050, roughly half of society’s energy consumption will be through electricity.13

Figure 3: More renewables needed to meet growing demand for electricity

Projections are based on what is needed for the global energy sector to achieve net-zero CO2 emissions by 2050.
Source: International Energy Agency (2021), Net Zero by 2050

This greater electricity demand will increasingly be met through clean energy, meaning significant investment in renewable energy will be needed to accommodate a twenty-fold increase in low-carbon power generation.

Decentralization of electricity networks

As more intermittent renewable energy is fed into the grid, investment in battery storage capacity on the network will be needed in order to store the electricity generated from wind and solar. After all, the sun only shines during the day whereas we might want to use solar energy when we get home from work and turn on the TV, start up the washing machine, charge our EV, and so on.14 Furthermore, investment in bidirectional networks will be needed, including the software needed to manage electricity flows in order to keep the grid balanced. The electricity network as we have known it until now, in which a large plant dispatches power to many households, will be replaced by a decentralized network that enables distributed generation by smaller grid-connected players15.

In the same International Energy Agency (IEA) scenario in which electricity consumption more than doubles and this incremental demand for electricity is met by renewables, grid investment is set to triple between 2020 and 2040 and remain at elevated levels thereafter.

Figure 4: Grid investment expected to triple by 2040

Bottlenecks in critical materials

The energy evolution is a physical transition, so the new future-proof energy system will have to be built. This means that building blocks are needed: we will need to invest in critical materials such as metallic or chemical ingredients for batteries, copper for electric wiring and transportation of electrified energy, aluminum for light-weighting mobility devices, and rare earth metals to produce permanent magnets for EVs and offshore wind turbines.

Due to underinvestment in many of these material enablers of the energy transition in recent years, it is estimated that the supply will not be enough to meet demand, leading to market shortfalls and rising prices. We have already seen this in copper markets, while lithium prices have also risen significantly in the last few years.

Figure 5: Projected mineral demand expected to triple by 2040

Total mineral demand is expected to triple by 2040 as we will need to bring the critical materials that enable the energy transition to the surface.16 Demand for minerals used in EVs and battery storage systems is even expected to increase more than twenty eight-fold within the same timeframe.

It is worth noting, however, that it will not be possible to meet all of the demand with the (finite) amount of resources in the Earth’s crust, and therefore recycling will play a key role in increasing supply, too. Indeed, recycling’s share of meeting total demand for copper, lithium, cobalt, and nickel is expected to increase from less than 1% at present to 8% of supply by 2040 in the same scenario.

Bringing it all together: significant investment is needed to transition from gray to green

As can be seen in Figure 6 below, we are truly at an energy evolution inflection point, as investments in the energy transition have surged to over USD 1 tn in 2022, up 31% year-over-year. That said, transition investment will still need to triple for the remainder of this decade to stay on track for a net-zero energy system.

Figure 6: Global investment in energy transition by sector17

Source: BloombergNEF, Energy Transition Investment Trends 2023.


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1 The world's energy transitions: a history told in infographics | World Economic Forum (
2 Source: Transcript of Carter's Address to the Nation About Energy Problems - The New York Times (; accessed on February 23, 2023
3 Primary energy is calculated based on the “substitution method,” which takes account of the inefficiencies in fossil fuel production by converting non-fossil energy into the energy inputs required if they had the same conversion losses as fossil fuels.
TWh = terawatt-hour, the energy of one billion watts of power, sustained for one hour
4 U.S. Energy Information Administration (2021). International Energy Outlook 2021. Retrieved on February 23, 2023
5 Reuters (2022). Ukraine crisis. Russian gas threat in Europe. Retrieved from on February 23, 2023
6 SwissRe Institute (2021). The economics of climate change. Retrieved on February 23, 2023
7 United States Environmental Protection Agency (2022). The Inflation Reduction Act. Derived from on February 2023, 2022
8 United States Environmental Protection Agency (2022). Global Greenhouse Gas Emissions Data. Derived from on February 23, 2023
9 United Nations Framework Convention on Climate Change (UNFCCC) (n.d). The Paris Agreement. Derived from on February 23, 2023
10 LCOE: the economic lifetime cost of providing energy: the price of energy that needs to be paid to cover initial investment, operations and maintenance expenses, and the cost of fuel. See, for instance Global LCOE and Auction values (
11 BloombergNEF (n.d.). Levelized Cost of Electricity: Methodology | Full Report | BloombergNEF ( Derived from on February 23, 2023
12 Statista (n.d). Mobility Market Insights. Electric Vehicles Worldwide. Derived from on February 23, 2023
13 International Energy Agency (IEA) (2023). Net Zero by 2050. A Roadmap for the Global Energy Sector. Derived from on February 23, 2023
14 For a good illustration of this, see e.g. Ten Years of Analyzing the Duck Chart: How an NREL Discovery in 2008 Is Helping Enable More Solar on the Grid Today | News | NREL
15 United States Environmental Protection Agency (n.d.). Distributed Generation of Electricity and its Environmental Impacts. Derived from on February 23, 2023
16 IEA (2021). The Role of Critical Minerals in Clean Energy Transitions. Derived from on February 23, 2023
17 Note: excluding grid investments; start-years differ by sector, but all sectors are present from 2019 onwards; nuclear figures start in 2015. Dotted squares indicate required annual investment to achieve Bloomberg New Energy Outlook 2022 Net Zero Scenario (NZS) outcomes. The Net-Zero Scenario targets global net zero by 2050 in line with 1.77 degrees Celsius of warming.
18 The “pure-play” concept refers to companies with at least 50% of their revenues directly attributable to the corresponding area.

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