Wavering consumer confidence could stall the energy transition

16 May 2023 Consultancy.eu 3 min. read
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Consumer confidence seems to be diminishing as the impact of the energy transition becomes more apparent, leaving lower-income demographics feeling marginalized. To achieve success in the energy transition, it is crucial to raise consumer confidence, which will necessitate cooperation between the energy sector and governments.

Consulting firm EY has released the latest edition of its Energy Consumer Confidence Index (ECCI), which keeps track of consumer confidence in their energy situation, the energy market, and the future of the energy transition – the transition from fossil fuels to renewable energy.

Consumer confidence is an important metric because when consumers are more confident, they tend to have a better outlook on the future and thus are more likely to spend money.

Wavering consumer confidence could stall the energy transition

Global investments in low-carbon technologies reached a staggering $1.1 trillion in 2022, jumping around 31% from the previous year. Urgent solutions are needed more than ever as a significant energy crisis has developed in recent years, hastened by the war in Ukraine, which has particularly affected Europe.

One interesting finding from the ECCI report is that as a market begins the energy transition, consumer confidence initially increases as consumers are optimistic about the future, however, down the line, it falls sharply. The report found that as the energy transition goes from theory to reality, the disrupting impacts are felt more. This means consumers were less confident in countries that are in a sort of ‘in-between’ stage of the energy transition, like those in Europe.

As the new energy landscape unfolds, consumers gradually recognize the benefits brought about by the changes and confidence grows. The ability to cultivate and sustain consumer confidence throughout the energy transition process will play a pivotal role in determining a market’s capacity to reach its decarbonization goals.

Wavering consumer confidence could stall the energy transition

The ECCI has revealed the two extreme ends of consumer confidence. Japan was found to have very low confidence, mainly because consumers there have to grapple with rising energy costs, deregulation of the market, and the lasting impact of the devastating Fukushima nuclear disaster. On the other hand, consumers in China were found to be very confident in the future of their energy sector. This may be driven by China’s policy of significant investments in renewable energy infrastructure.

EY notes that the findings from the ECCI should serve as a warning that consumer attitudes can become a major obstacle to achieving climate targets. If consumers are not convinced of the benefits to the energy transition, even huge increases in investment will not be enough to pull it off. For the energy transition to succeed, the energy sector and governments will need to take bold action to shore up consumer confidence as soon as possible.

There has been some significant excitement around emerging renewable energy technologies housing the potential to significantly lower greenhouse gas emissions globally. For example, green hydrogen, sometimes called the ‘holy grail’ of renewable energies, is expected to soon take up a much larger market share, though some lingering doubts about its implementation mean widespread use of this energy source may have to wait much longer.