Energy Transition: Charting the Path to Cleaner and Cheaper Power

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Energy Transition: Charting the Path to Cleaner and Cheaper Power

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This podcast is for general information purposes only and is not advice.
Outside of the United States this episode is intended for investment
professional use only, not for further distribution. Please listen to the end
for complete information.

Cold open: “Sitting here today, we obviously, we're
in the chaotic world, and that's the one that's materialized. And it actually
makes sense why it materialized, because this idea that fossil fuels would
always be cheaper than renewables isn't holding true anymore.”

Jackie Fortner

Welcome to The Angle from T. Rowe Price, a podcast for
curious investors. I'm your host, Jackie Fortner, a portfolio specialist at T.
Rowe Price Associates here in Baltimore. This season, we're exploring the
rapidly evolving global energy landscape, diving into what the future holds for
investors, innovators, and policymakers alike. And just a reminder that,
outside of the U.S., this podcast is intended for investment professionals
only.

In today's episode, I'm joined by Maria Drew, T. Rowe
Price’s Head of Global Sustainability. We'll be discussing the trends shaping
the global energy transition, a topic that engages a wide range of stakeholders
– from governments, corporations and financial market participants, to
scientists, NGOs and, of course, the general public. The narrative around
decarbonization has taken a negative turn in recent years, especially in the
U.S. And with energy demand soaring and energy security now a top priority for
many countries, what's the outlook for global energy transition?

Welcome, Maria.

Maria Drew

Thanks, Jackie. I'm delighted to be here.

Jackie Fortner

So, to start off, you know, decarbonization is fundamentally
linked to energy markets. And globally, the energy sector can be a really
powerful economic engine. And that can of course intersect with political
interests as well. So, it's not surprising, you know, over the course of time
to see shifts in sentiment along this energy transition journey. But there are
many contributing factors to the more negative narrative we've been seeing
around energy transition in certain parts of the world. So maybe can we just
start there? What are some of the different dynamics driving this change?

Maria Drew

I think the fundamental difference is that the dynamics
around zero carbon energy sources has changed from an economics perspective. As
now in most parts of the world, renewables are actually the lowest cost source
of supply. Coupled with this is the prioritization of energy security that
we're seeing across a lot of governments around the world. Really for a variety
of reasons. Some of it is just kind of that good, old fashioned classic
geopolitical risk that we've seen for decades and decades. Europe post the
Ukraine invasion, is a really good example of this, and some of it's being
driven by a totally new phenomenon, which is the AI race. China and the U.S.
are really good examples here.

This is a big change as up until really recently, the driver
for energy transition was policy. And I would argue that that’s actually no
longer the case. So, interesting, the view that I’ve just laid out for you is
not really what you would glean from media headlines. There seems to be like a
very desirable narrative out there to say energy transition is going to reverse
course. While I do believe it's going to be extremely difficult and probably
unlikely that the world decarbonizes in line with a 1.5 degree pathway, I
disagree with the idea that energy transition is just going to reverse course.
So, my view is that it's probably actually going to accelerate from here, and
that the energy mix is going to continue to skew toward zero carbon energy
sources. And this view is primarily driven by the underlying economics around
renewables, coupled with energy security-driven political support.

And so, I guess, why is this narrative just so negative
around energy transition? And I can't say for sure, but as you know, we've seen
a huge political shift towards populism, not just in the U.S, but also across
Europe, and other parts of the world. And given the amount of technological
disruption that's happening, it's not surprising that we're seeing this shift.
In fact, if you look back historically at other technological revolutions,
you'll find this is actually pretty textbook to see these types of changes. And
over the long term, we see that technological revolutions tend to bring
economic prosperity. And generally, they tend to bring a very prolonged period
of prosperity. But in the short term, the new technologies displace established
industries, and they also destroy a lot of jobs. And so, the short term is not
so great when you see these revolutions. And I think right now we’re sitting in
the short term – right now. And it's also quite interesting, if you look back
historically, whenever one of these big technological revolutions happens, the
new jobs that are created tend to be in just totally different places. So, if
we look at, say, the age of autos and the rise of oil in mass production, the
change there was that people started to live in the suburbs. And new housing
was needed out there, and all sorts of changing consumer demand patterns drove
kind of different industries to evolve. But that's not necessarily something
that somebody would have forecasted before. And that's probably what we're looking
at now.

Now I bring this back to kind of the point I raised around
populism, because I think there's kind of an element of nostalgia that goes
with populist movements. And if you think about this from an energy
perspective, nostalgia is going back to fossil fuels. So, it's sort of like the
default mode for people to go to, but it's not actually taking into account
some of the changing dynamics that we're seeing around these zero-carbon fuels
today. So namely, the economics and that energy security change.

Jackie Fortner

Now, that all makes sense, and it does seem as though there
have been a lot of shifts, you know, along the way. I think, one that you know,
has been front of mind, or at least certainly that's been in the front of the
headlines, has been around  sort of this political shift that you noted
around populism, but also kind of coming with that has been an increased
interest in energy security and that's, you know, not only here in the U.S, but
also we've seen that in Europe, as you kind of alluded to some of the
geopolitical issues over there. So, this kind of focus on energy security, you
know, in different places around the world, how does that impact the broader
energy transition?

Maria Drew

Yeah. So, energy security is going to be one of those
factors that has an influence in addition to economics and it’s probably going
to have a really, really big influence over kind of the next 3 to 10 years.
It's also an interesting one, because energy security is one of those areas
where governments have historically been much more willing to make really
long-term strategic investments. So, it's one of those things that can start
kind of like moving the dial on things. And we think the way that this is going
to show up is through increased investment in grid expansion. Also grid
reinforcement, battery storage, and probably also nuclear power.

And some of these areas, like I would argue, maybe the grid
expansion and the grid reinforcement are not kind of economically difficult
decisions to make. But battery storage and nuclear are. Those are not kind of
“in the money” technologies today. So that's really about thinking for the
future and trying to build out a new system. And so I think that we’ll probably
start to see more of those decisions being made.

But maybe it's worth kind of taking a step back and thinking
about what do we, what exactly do we mean by energy security? Because it's a
pretty broad term. So kind of simply put, energy security is defined as
“uninterrupted availability of energy at an affordable price”. So, very broad
concept. It can relate to geopolitical, domestic, or any other type of supply
risk. And it can refer to like to a short-term horizon or a very long-term
horizon.

And when we look at the three big energy-consuming regions,
so U.S., EU, China, we think that energy security is going to be a big factor
in all three of them, but in really different ways. So, both the EU and China
have energy security concerns that relate to just obtaining access to energy
resources. So, both of these regions are importers of oil and gas. And they
have this kind of inbuilt vulnerability. Also, Europe obviously has a very
immediate threat, as it's historically received a material amount of its energy
from Russia.

Now, the U.S. is very different because it's actually a net
exporter of oil and gas. So, instead the U.S. energy security issues, you know,
they're still there even though they're an exporter. But they're focused around
winning the AI race, and the energy needs that are going to be required for
winning the AI race. But I think what's also kind of interesting about this
from the U.S. perspective is historically, whenever the U.S. has had security
of supply issues, it's really been around obtaining oil and gas. This time it's
different. It's about being able to supply electricity, because that's what AI
is demanding. And then China also brings in another interesting element, in
that it is also trying to win the AI race, and it's going to need more
electricity supply as well.

Jackie Fortner

So, thanks, Maria. Really in-depth discussion around kind of
what energy security means for all of these countries. And as part of that, you
did touch on concerns around affordability, which certainly are very real. I
mean, even with the build out of data centers in the Mid-Atlantic of the U.S.,
you know, where I'm sitting today in the state of Maryland, who will shoulder
the rising energy costs is a pretty fierce topic of debate.

So maybe can we talk a little bit more about the energy
trilemma? You know, we can talk in the context of Europe and the U.S. But both
regions, as we mentioned, are focused on energy security. But there's also, you
know, these other factors that come into play that have to be considered and
they're maybe taking different approaches.

Maria Drew

Yeah. So, the energy trilemma is a framework for balancing
three conflicting objectives. So, they'd be: sustainability, security and
affordability. And the idea of it is that policymakers have to find a
compromise between these three goals. And achieving one of them is always going
to, you know, at least somewhat erode the other two. So, they're just competing
objectives.

I think what's really interesting now is that the dynamics
of renewables have changed, because it used to be that renewables only had
support within the trilemma on that little point of sustainability, so you
really needed policy to push them forward. But that's not the case anymore for
most regions because in most regions they’re actually at the bottom of the cost
curve.

And we talked a little bit about security in the last
question. And I think the energy security coming in is another really important
touch point on that, because that's what's going to help to drive some of those
factors that help balance renewables. So, in terms of reinforcing the grid,
growing more electrification, growing more battery storage, but also having
more nuclear supply coming on, down the road. And that's a very long-term
strategic objective.

But if we think about kind of the energy trilemma between
the U.S. and Europe, it's a really interesting comparison because both of those
regions are having cost of living crises. You know, everybody's talking about
high energy prices. I live here in the UK. And on the Sunday morning talk shows
recently, we've had these unbelievably well-informed discussions about power
prices and exactly what drives higher power prices and how bills will change.
As a former utilities analyst, I was really impressed at the level of
conversation on it by politicians, which is not, you know, always the case. And
I imagine that's happening in, you know, lots of different countries in the
world. People really understand where those pressures are coming from.

And I know the same discussions are happening in the U.S. In
the U.S., natural gas is actually the cheapest source of supply. And there's
also like a very different dynamic in the way that electricity markets are
structured, that means that there's more of a regulated market and you can kind
of ease in price and price increases over time. And so that cost-of-living
pressure kind of makes natural gas much more attractive in the cost scheme. We
think renewables are actually probably still pretty attractive even after
losing subsidies, because they're not a very expensive source of supply either.
Even though they're not quite as cheap as natural gas.

But in Europe, it's a totally different story because people
understand that the thing that is spiking power prices right now is fossil
fuels. And it has to do with the fact that Europe has a different type of
market structure in that the marginal price of electricity drives the price in
Europe. Mainly for, I'm simplifying, but, you know, mainly for the whole
market. And, as a result, people really understand high gas prices means really
high power prices. And so, they can see the advantage of renewables, because
eventually that will help to kind of lower the bills, or at least not increase
bills quite as much in the future. So here, you know, you see two different
regions facing the exact same cost pressure. But the way that they address it
is going to be different.

Jackie Fortner

Yeah. That's an interesting, you know, take on how the two
different regions are handling the same issue. And actually you touched briefly
on nuclear and the likelihood of that being part of the solution down the road.
I mean, that's an energy source that's being re-prioritized in the U.S. by the
Trump administration. They have stated a goal to quadruple U.S. nuclear energy
capacity by 2050. And actually, that's something that you and I are going to be
discussing at length later this season. But it does seem that, you know, even
though nuclear may be on the precipice of making a comeback, that's something
that's going to take time. And as you mentioned in the meanwhile, both regions
are, globally, really, we're going to have to find other ways to make a dent in
covering this energy demand.

Maria Drew

Yes. That'll be a great discussion. I think the nuclear
story is fascinating.  We see that China and Korea can bring on nuclear in
a pretty cost-effective way. But the U.S. and Europe can't, and there have been
some horror stories on the recent nuclear power plant builds in both the United
States and the European Union, and the UK. The main reason for this is because
the West just doesn't have a thriving nuclear industry. People haven't been
building nuclear power plants for a really long time. And in the U.S., you see
that Trump is actually willing to make a really big strategic decision to
support the renewal of the nuclear power industry. Europe’s also had a little
bit of a sea change, but they're not going as far as to, like, really try and
support the industry the way the U.S. is. And I'd say the change in Europe is,
it used to be that Europe was really split on the idea of nuclear power. And,
you had, the French leading the pro-nuclear camp, and the Germans leading the
anti-nuclear camp. But over time, that anti-nuclear camp has really had a sea
change. So, the view on nuclear power has changed dramatically. And it's now
viewed as a solution. Whereas, probably if we looked at it even five years ago,
it was a much more mixed view on the role that nuclear should play.

Jackie Fortner

Well, and also, you know, we've kind of focused on sort of
the U.S. and the EU, but certainly China is also one who has seen kind of the
absolute cost of solar being cheaper and nuclear plants that can be built maybe
more competitively than in the U.S. and the EU. So, what, what about China? If
we kind of shift this discussion over there. You know, it’s a country that's
also shown it can electrify and maybe even at a faster rate than the U.S and
the EU. So how are we going to see China taking a bigger role in this
discussion?

Maria Drew

Yeah. I mean, what's going on in China is really
interesting. China I think is oftentimes sort of overlooked the progress that
they're making on changing their energy mix. And part of the reason why it's
overlooked, just from like sort of a mainstream media perspective, is because
the country has still been building coal plants. Because their overall energy
demands have been so great, they just keep adding capacity. And it’s not always
been so widely recognized how much zero carbon energy they've been bringing on.
But also the shift that they're making to electrification. And so, I think that
China is going to be really interesting to watch. I've covered China for a long
time, lots of different markets around the world. And what I understand about
the Chinese market is when they set a strategic priority and how they want to
move the energy market, they're able to do it much more efficiently than other
countries are.

Jackie Fortner

And certainly, as part of that, China is also, we can't
forget, a key player in the AI race. So, they’re going to need, expanding on
what you're talking about, they’re going to need a secure electricity supply to
support those initiatives as well.

Maria Drew

Yeah. No. Great. I can't believe I didn't even mention AI in
that answer, but obviously really, really crucial. And I think it's interesting
too, like if we look at the Chinese energy demand historically, you can put it
into three basic phases. You had that industrialization period, which was
really up until about 2010, and then you moved into, this period of, it's
called “chasing megawatts” with the “more renewables, more coal” tagline
associated with it. But I think that ended somewhere, you know, a bit after
2020. And now we're really seeing this shift to trying to build what they call
a clean energy mega system. And I think AI is going to have a big part within
that as well.

Jackie Fortner

Yeah. So you've highlighted a lot of kind of the really what
seems like pretty structural, trends in the global economy that are going to be
supportive of, you know, sort of low and zero carbon infrastructure
investments. So, as we sort of back up and think about what this transition
looks like over time, you know, sometimes it seems like it's just either you're
going to have this high emitting world, or you’re going to have this low
emitting world. And it actually seems like there's kind of a path, you know,
from one towards the other, and maybe it's not exactly a straight line. But
how, do we think about that shift really going from maybe these higher emitting
fuels down to something that's maybe either a balance or, really getting to
that low emitting world in the future?

Maria Drew

So, I remember many years ago (not sure how long it was, it
might even be 20 years ago), being in a meeting with Royal Dutch Shell and they
have a group that they've had in place, I think, since like the 1970s that just
looks at energy scenarios. They’re independent from the operations of the
company, and they really just look at what are the possible scenarios for
energy demand in the future and take a really long-term view. And they always
put out more than one scenario at a time. At this one they had two of them. One
was an orderly transition, and the other one was a more chaotic transition. I
can't remember exactly what they called it at the time. But that chaotic one to
me at that moment, I just couldn't understand how it could possibly
materialize. Because it was a view that you would have a renewables and coal
world – as opposed to going from the highest emitting fuel of coal,
transitioning towards natural gas (which is affordable but lower emitting) and
then eventually going to renewables, which just felt much more sensible at that
time.

But sitting here today, we obviously we're in the chaotic
world, and that's the one that's materialized. And it actually makes sense why
it materialized, because this idea that fossil fuels would always be cheaper
than renewables isn't holding true anymore. And so, it's an interesting dynamic
because, while I don't think that we're going to be in a coal renewables world
where we're building a lot more coal. I think what you're seeing here is we're
probably going to see some coal plants stay on stream longer than anticipated.
And the U.S. might be the country where this is one of the biggest factors,
because it's an area where you're looking at rising electricity prices and that
being very problematic to cost of living. Solving that by building more natural
gas plants and adding to the rate base probably doesn't make sense. You
probably just want to keep that old coal plant that was supposed to shut down
on for longer, and then you start bringing in some additional kind of cheaper
sources of supply alongside that. And also in the U.S., maybe, maybe nuclear
ends up being kind of that big change factor as we go down the road.

Jackie Fortner

And, you know, maybe even just backing up a little bit, in
the first episode of this season, we looked at oil and gas, and that was
primarily from a U.S. perspective. So, your global views here are really
informative. And maybe, you know, with the connection between kind of energy
security and climate making the case, potentially for renewables even stronger,
how do we think about some of the global leaders that are emerging in energy
transition? Countries and companies are moving at different speeds, but there
are a lot of these tailwinds to this theme, overall. So, as we kind of step
back and look at where this transition is going, how do you see that playing
out as we look around the globe?

Maria Drew

I think what's interesting now is obviously we've mentioned
the cost of renewables is just radically different than it's been before. The
other aspect of renewables we haven't talked about is that they used to be just
such a tiny sliver of supply that it just didn't matter if you increased it by
100%, it just weren't big enough to matter. But that's changed. They're
actually a decent little chunk of the market now. So these incremental adds are
starting to make a difference. And so, I think that's an important factor to
think about going forward.

The other sort of big, interesting catalyst right now, maybe
to look at one region in particular: So, if we look at Europe. Since 1990,
Europe has reduced its greenhouse gas emissions by 37%, at least I think that
was the number as of 2023. And so, they've made a lot of progress in terms of
decarbonization. Most of that has come from energy efficiency, but also,
working to make its electricity mix greener. So, you know, bringing more
renewables into that electricity mix. If we
look at Europe right now, or the EU, 47% of the electricity supply is from
renewables and another 24% is from nuclear. So, pretty green from that
perspective. But where they've made less progress is in the transport system
and also in emissions from buildings.

And there is a new piece of regulation that's coming into
play in Europe that is right now somewhat controversial, and it's called ETS2
(so that's Emissions Trading Scheme 2). And what it's doing is basically adding
more sectors into the emissions trading scheme. So namely road transport, and
also buildings. So, it's meant to really push more EVs and more heat pumps to
be used across the continent. And I think if they're able to bring that in
effectively, Europe will probably continue to progress at a really rapid pace.
That's a question right now because of cost of living, and we're seeing some of
the member countries kind of push back on it. But I think we're probably at a
little bit of a testing point there.

Another kind of interesting aspect as well is probably the
U.S./EU negotiations around tariffs are going to matter to how this plays out.
And, you might know that Europe has this carbon border adjustment mechanism,
which is called CBAM, which is basically meant to kind of equalize pricing and
protect its domestic industry, but by applying carbon taxes. So, this is seen
as probably one of the levers that Europe might have at its disposal when it
negotiates with the U.S. So, I think looking at that decarbonization pathway
is, it’s probably going to, all these factors are going to play into how
rapidly, or not rapidly things change, across Europe.

Jackie Fortner

Well thank you, Maria. This has been, you know, a really
wide-ranging discussion and I appreciate you taking the time and lending your
expertise across this topic.

Maria Drew

Thanks, Jackie, it was a great discussion.

Jackie Fortner

We’ve talked about how kind of different countries compare
through the energy trilemma lens. And, you know, despite perhaps some of the
kind of negative narrative that we've heard in the market, really in some
regions, green technologies are no longer seen as a trade off with
affordability, but actually they go hand in hand. And I think the energy
transition has structural tailwinds behind it.

Thank you again for listening to The Angle. We look forward
to your company on future episodes.

You can find out more information on this and other topics
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Disclosure

This podcast episode was recorded in November of 2025 and is
for general information and educational purposes only. Outside of the United
States, it is for investment professional use only. It is not intended to be
used by persons and jurisdictions which prohibit or restrict distribution of
the material herein. This podcast does not give advice or recommendations of
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Prospective investors should seek independent legal,
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Discussions relating to specific securities are informational only and are not
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those of other T. Rowe Price associates and/or affiliates. Information is from
sources deemed reliable but not guaranteed.

The source for the statement about Europe having reduced its
greenhouse gas emissions by 37% is the European Commission’s EU Climate Action
Progress Report 2025.

The source for the statement about 47% of the European
Union’s electricity supply coming from renewables is from an EU Eurostat
article, titled ‘Electricity from renewable sources reaches 47% in 2024’ and
published 19 March 2025.

The source for the statement about 24% of the European
Union’s electricity supply coming from nuclear is from Ember’s European Union
page, last updated November 2025.  

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