Global decarbonisation means more electrification and less fossil fuels. The solution to growing electricity demand? Energy from renewable sources. These are often the most efficient and cost-effective.
Electricity will be our most important energy source in the future, with electrification already playing an increasingly important role in reducing global CO2 emissions. This is because anything that can be electrified can potentially be decarbonised - provided, of course, that the energy used is generated from renewable sources.
The increasing number and severity of natural disasters show the destructive power of global warming and how climate change is already transforming the planet today. The European Union's earth observation service, Copernicus, reported that in 2024, earth's temperature was already +1.6 °C above pre-industrial levels, exceeding the +1.5 °C target agreed in the 2015 Paris Climate Agreement. The UN warns that the world could warm by +2.6 to +3.1 °C this century, if emissions don't fall faster than their current trajectory.
Energy production from fossil fuels is the largest contributor to CO2 emissions globally. Looking at various sectors, electricity generation accounts for 26 % of emissions overall, transport for 15 %, and industry for 11 %. Although the political landscape has changed in parts of the world, and time and momentum towards climate action and achieving net zero goals might slow down in the short term, decarbonisation remains a key issue over the next years.
While global energy consumption has grown by about 1.4 % each year over the past decade, this trend is likely to reverse, and according to estimates by the International Energy Agency (IEA), the increase will level off at 0.5 % per year by 2050. This because the more overall electrification progresses, the more the global energy consumption is expected to fall. as electricity can be used much more efficiently than fossil fuels since it has a higher conversion efficiency. For example, electric motors have a higher efficiency than internal combustion engines, where most of the energy is lost as heat. So overall, the more we electrify, the less primary energy is needed to deliver the same useful output.
Thinking, managing, and investing sustainably are integral parts of our DNA. Our owner, the Princely Family of Liechtenstein, recognized early on how important sustainability is for our environment, society, and future. As a family-run private bank, we are committed to the Paris Climate Agreement, the United Nations Sustainable Development Goals, and a sustainable financial sector.
Accomplishing this combined transition will require the electrification of industry, transport, and buildings and a shift in electricity generation towards renewables. Electricity is already one of the most important sources of energy today and renewables already account for 30 % of global electricity generation. Depending on the path followed, the IEA expects the percentage of electricity derived from renewables can rise up to about 90 % by 2050.
Regulation and tax credits have fuelled much of the current investment in renewables. Initiatives like the EU Green Deal and the US Inflation Reduction Act could remain important drivers in the development and scaling of renewable energy technologies. Political influences could slow these developments, though not reverse them.
However, renewables - offshore and onshore wind, as well as solar - are very often the most attractive solution for meeting electricity demand or replacing older fossil fuel plants. On a global level, the cheapest alternative is onshore wind, with solar running a close second. By contrast, electricity generated from coal is 76 % more expensive than solar on average, and 95 % more expensive than onshore wind.
We want to make an active contribution to the UN Sustainable Development Goals (SDGs). Among other things, the focus is on combating climate change. For this to happen, net emissions must fall to zero. We actively support this target in all our business areas - on the investment side, as well as in advising our clients and in the operation of our business.
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Other technologies also contribute to the attractiveness of renewable solar and wind power, in particular battery storage, which has also seen significant cost reductions in the past and is an important tool for managing the intermittency of renewables. Unfortunately, neither hydrogen solutions for power generation nor nuclear energy are cost competitive yet.
Global solar and wind capacity is expected to increase almost sixfold from 2,700 GW today to 15,400 GW by 2050, playing an increasingly important role in future electricity generation. Solar power remains the most readily available technology and is likely to be the most widely deployed. In the US, solar capacity is expected to be four times higher in 2050 than it is today, and wind capacity about three times higher. The picture is similar in Europe, although wind power capacity is likely to only double by 2050.
A growing number of companies in the US and Europe are likely to benefit from this transition to renewables, offering interesting opportunities for investors in the utility sector and in manufacturers of technologies that capture energy from wind or sunlight.
Yes, nuclear power generation is CO2-free, so why won't it play a bigger part in the decarbonisation trend? The short answer is that nuclear power is expensive, can be very risky, has long construction times, and the disposal of radioactive waste is often unclear.
According to the IEA, nuclear power currently provides 10 % of the world's electricity. This is unlikely to increase in future, because many currently active plants are being decommissioned and demand is often met by renewables, even though new nuclear plants are due to come online in China. The best-case scenario from the IEA is that worldwide nuclear energy capacity could double by 2050 from its current 400 gigawatts.
But nuclear power comes with significant downsides. It is one of the most expensive forms of electricity generation. The Flamanville 3 plant in France provides an example. At EUR 13.2 billion, it was four times more expensive than planned and opened 12 years behind schedule.
Nuclear power could help to decarbonise electricity generation, but to meet global decarbonisation targets, it simply comes far too late. In addition, the technology carries risks that are ultimately borne by the state and therefore taxpayers. Furthermore, these plants are not profitable unless they run at full load for their entire service life. This is not compatible with the current transformation of the energy system, nor with low-cost renewable energy sources. Nuclear accidents, military conflicts, and terrorist attacks further increase the risk profile.
Sustainability is part of our DNA and guides us in everything we do. Our owner, the Princely Family of Liechtenstein, has always been committed to ensuring that future generations are given the best possible conditions in which to thrive. As one of the leading sustainable investment companies, LGT embraces this principle across all of its activities, and offers a broad range of sustainable investment solutions.
