Energy sector: Challenges and opportunities in the transition to sustainability

The energy sector faces major challenges, such as climate change and a global demand for energy that continues to grow. The future of the sector lies in sustainability and innovation, with more electrification in transport and industry, greater use of renewable energies and improvements in storage and efficiency. Clean investments that already exceed US$ 2 Trillion/year, and will reach more than US$ 4,5 Trillion/year by 2030 in NZE scenario. Global funding and investment in research will be crucial for a successful energy transition.

In recent years, investors have been paying particular attention to companies in the energy sector for obvious reasons: They are the main protagonists of the energy transition and bear a great responsibility for creating a more sustainable future for society as a whole. Understanding their growth ambitions, commitments to achieving emissions reductions, and the way in which energy is ultimately used and produced, is essential to providing excellent and focused advisory services.

We are living in very turbulent times, with the escalation of conflicts such as the one in the Middle East or Russia's war in Ukraine, regions with a very relevant weight in energy production, which once again highlights the well-known trilemma of the need to balance security of supply, access to clean energy, and affordable prices that allow economic growth and social development.

In addition, the pace of sustainable energy development is influenced by public policies, with clear examples such as the IRA in the United States or REPower EU in Europe, and their ability to implement the necessary subsidies, permits, and targets to channel investment efficiently. Interestingly, in 2024, government elections will be held in countries that account for more than half of the world's energy demand.

In this context, oil and gas (O&G) investment continues to be significant, but investment in clean energy is growing at unprecedented rates, with figures doubling O&G investment and exceeding US$2 trillion per year.

Likewise, energy demand is expected to continue growing as a result of economic growth, but with greater efficiency. This growth will also be accompanied by a significant change in the energy mix, with a strong electrification of the economy. Renewable energy will be the fastest growing source of energy, doubling its share to 25% by 2030, while O&G should be peaking during this period. 

Continuing to finance this capital needs is of utmost importance in order to meet the agreed sustainable development goals. Carlos Zuloaga, Global Sector Head of Energy at BBVA CIB,  explains: "Although activity has grown considerably, there is still a lot to do. Very significant investments are required, not only in clean generation, but also in networks that allow the electrification of the economy. At the latest COP 28, a commitment was made to triple installed renewable capacity to 11,000 GW by 2030, which implies doubling the annual investment of recent years and investing more than €650 billion annually in grids. These capacity increases will be key to meeting the growing demand for electricity, driven in part by the rise of data centers and artificial intelligence."

With sustainability and innovation at the core of BBVA strategy, BBVA is committed not only to placing clients at the center, but also to surprising them with a unique experience. To achieve this, it is essential to accompany clients with in-depth sector knowledge, anticipate key trends and offer solutions adapted to their needs. These solutions cover a broad spectrum, from a sound strategic advice (equity, debt, ESG), to competitive financing,  including banking debt (project and corporate finance), capital markets (public and private bonds, equity placements) and Export Credit Agencies (ECAs), without forgetting GTB and GM solutions, taking advantage of BBVA's presence in more than 25 countries. All this, with the aim of helping clients create value for their stakeholders through an expert and cross-border team that supports them in their ambitions for sustainable growth and capital optimization.

Innovation, a catalyst for sustainability for energy companies

The long-term survival of the most carbon-intensive companies will depend on significant innovation efforts. What should this innovation focus on? In addition to the transport and industry electrification, and managing the intermittency of renewable generation with batteries and smart grids, the world needs to decarbonize some hard to abate sectors with green molecules. So, investments in technologies focused on developing green hydrogen, biofuels, biomethane or renewable gas, together with Carbon Capture Use and Sequestration (CCUS) are critical,

Although some of these technologies are available nowadays, they require investments and collaborative ecosystems to reach scale and competitiveness in order to meet decarbonization targets. And on the other hand, a real bet on innovation is key to continue developing them and finding other competitive sources of emissions-free energy sources, such us the great advance done in nuke generation with Small Modular Reactors (SMRs). 

According to Zuloaga: "Energy companies face a great challenge, but, above all, a unique opportunity to lead the fight against climate change, taking advantage of their financial strength, technological knowledge, leadership and capacity for innovation. In addition, they have the support of investment funds with great liquidity and industrial experience, a dynamic venture capital ecosystem and banks such as BBVA, committed to supporting customers who want to carry out the necessary Energy Transition".

Many energy companies have defined strategies with decarbonization targets, being innovation a driver of change. BBVA CIB is ready to support their cleantech initiatives and help them achieve their financing and investment objectives in technologies that allow them to move towards a sustainable future. BBVA is committed to be the partner of choice for our energy clients.