On some economic principles of the energy transition

Abstract Energy transitions are complex processes difficult to characterize using a small number of features. We provide a simple framework for the energy transition, pointing out that some scenarios have a higher probability. The document is organized around four key propositions: (i) the current energy transition is driven by policies rather than by technology improvements; (ii) the energy transition disrupts liberalized electricity markets and undermines their economic foundation; (iii) given the current technologies and technological perspectives, the energy transition to renewable sources is going to be incomplete; (iv) there is a change in consumer preferences for cleaner energy, demanding new business models. These propositions lead to the following consequences: (a) the outcome in terms of electricity prices and energy production will depend on the policies applied, as there are multiple possible policies and paths of energy transition; (b) a complete transition based on renewable energy may be technically possible, but difficult to manage in liberalized markets, requiring a new design; (c) there is a change in consumers preferences towards decarbonized energy, creating new business opportunities and jeopardizing traditional business models. It is difficult to make accurate predictions on the energy transition, but we provide general guidelines for policymakers, companies and investors.