Managing Director & Partner
San Francisco - Bay Area
By Thomas Baker, Karan Mistry, Vinoj Pillai, Bahar Carroll, and David Cotton
The worldwide effort to advance and commercialize emerging climate technologies faces new headwinds. The immense enthusiasm that once surrounded these technologies has diminished, and green premiums remain stubbornly high. (See Exhibit 1.)
Sustainable aviation fuel (SAF), for example, remains two to three times as expensive as conventional jet
The energy industry has overcome similar challenges in the past. A historical examination of today’s mature technologies—including combined cycle gas turbines (CCGT), solar, wind, and liquefied natural gas (LNG)—reveals a roadmap for how to accelerate the at-scale deployment of today’s emerging technologies.
Industry, entrepreneurs, financial intermediaries, policymakers, and other stakeholders can collaboratively apply the lessons from the development journeys of legacy technologies:
All emerging climate technologies share the same goal of riding the rising S-curve of adoption by creating attractive projects for investors. But four familiar types of barriers are slowing progress:
These barriers are familiar to longtime energy professionals. Today’s mature technologies—including solar, wind, CCGT, and LNG—once faced similar hurdles. The stories of their development provide lessons on how to accelerate the deployment of today’s technologies.
The standardization of safety, quality, and technical specifications helped wind power overcome a number of technical barriers. For much of its history, the wind power industry was fragmented. Manufacturers developed turbines in isolation, leading to inefficiencies and high costs. This changed in 1988 when the International Electrotechnical Commission (IEC) introduced a series of universal safety, quality, and technical standards for wind
The impact of standardization on wind was significant. Although compliance with IEC standards remained voluntary, adopting them became essential for manufacturers aiming to operate at scale. Importers began to demand IEC-certified components to ensure compatibility and quality, further solidifying the standards in the industry. The existence of established global standards encouraged emerging economies such as India and China to join the wind power sector, and this broader participation drove down costs and opened new markets.
The establishment of standards not only streamlined the value chain, but also fostered confidence among banks and insurers. With standardized products, investors could more easily validate the quality and reliability of specific wind projects, which in turn helped projects attract investment. Simultaneously, turbine component modularization—the process of designing and producing machine parts in streamlined sections for convenient onsite assembly—permitted faster installation and simpler scalability, reducing costs and further improving turbine deployment.
Through an industry-led standardization and modularization effort, wind turbines achieved impressive technical development. Developed in the 1890s, the world’s first wind turbines had a maximum capacity of 12 to 18 kW with highly intermittent
Long before utilities considered using CCGT for large-scale power generation, niche applications in industries with a high willingness to pay helped commercialize the technology.
The military's initial interest in jet engine technology led to substantial advances in turbine design. Early jet engines, which shared many components and design principles with gas turbines, benefited from heavy R&D investments by the military. These investments drove innovations in materials, configuration, and high-temperature alloys that engineers later applied to gas turbines.
Later, the oil and gas industry’s need for reliable power for remote natural gas distribution drove interest in gas turbines, which were the ideal power source for the application. With the revenue generated from the oil and gas industry’s procurement of gas turbines, manufacturers funded further R&D, enhancing turbine performance and reliability.
Only after these early niche use cases achieved success did policy support (for example, in the form of deregulated natural gas markets in the US and the UK) ramp up toward today’s low-cost, low-risk CCGT market. Modern CCGT facilities now deliver efficiency rates in excess of 60% and can generate up to 2,000 MW of electricity, versus approximately 5 MW with 20% efficiency in the 1940s. (See Exhibit 2.) Today, CCGT is a key part of the US power generation landscape, surpassing coal capacity in
Renewables adoption benefited from a different approach to reducing offtake barriers: demand aggregation. One example is Clean Energy Buyers Association (CEBA)—previously Renewables Energy Buyers Alliance—a coalition of corporate and institutional energy buyers that are committed to purchasing renewable energy. By aggregating their demand, CEBA has helped its members secure large-scale power purchase agreements (PPAs) with developers of renewable energy and procure renewable energy at competitive prices. This collective approach also gives member companies access to options that they might otherwise not have due to size, location, or other factors. CEBA members have contracted for more than 84 GW of new capacity through US-based projects.
Tolling agreements were pivotal in overcoming market obstacles for large infrastructure investments in the LNG sector.
Introduced in response to the high financial risks associated with LNG projects, tolling agreements capitalized on the industry’s complex value chain in the US, where terminal operators charge a flat fee to reserve liquefaction capacity (calibrated to cover debt servicing, operations and maintenance, and profit margin) but do not take title of the gas itself. This arrangement enables terminal operators to isolate themselves from the risks of upstream and downstream activities. For example, terminals do not directly experience the risks that upstream producers face, such as exposure to natural gas feedstock price volatility or exploration and extraction
By decoupling investment returns from volatile market conditions, this structure effectively reduces financial risk and ensures a stable revenue stream for facility operators. And the lower level of risk associated with projects under these agreements increases investor confidence and prompts the offering of more capital at lower rates. (See Exhibit 3.)
The introduction of tolling agreements marked a turning point in LNG project financing. For instance, the Sabine Pass LNG project in the US successfully leveraged these agreements to secure financing and expedite
Germany’s integrated policy approach simultaneously combined financial incentives and regulatory measures, increasing demand for solar and reducing its green premium.
For example, the feed-in tariff introduced as part of the Renewable Energy Sources Act in 2000 guaranteed long-term payments to generators of electricity from renewable sources at a rate higher than the market price, increasing the attractiveness of solar investments. In addition, the German government provided low-interest loans, grants, and rebates for solar installations, further alleviating the financial burden and boosting demand.
In the US, consistent policy support, composed of supply-side incentives and demand-side mandates, have helped unlock solar’s potential.
Following the 2008 recession, the US passed the American Recovery and Reinvestment Act, approving more than $90 billion in clean energy investments and tax incentives. In the wake of this legislation, the costs of solar photovoltaic (PV) installations dropped by 60% from 2008 to
Thanks to this integrated approach of incentivization and regulation, solar has achieved remarkable progress. Since the 1960s, the cost of solar cells has plummeted by about 99.9% and efficiency has improved sixfold, and electricity generation from solar PV has grown by a multiple of 220 over the past 20
We have successfully overcome barriers and scaled energy technologies before. The pathways that solar, wind, CCGT, and LNG took to maturity provide an encouraging roadmap for how today’s emerging climate technologies can overcome obstacles to at-scale commercialization. (See “Applications of Legacy Technology Lessons to Today’s Emerging Technologies.”) But applying these lessons and accelerating deployment timelines requires support from all stakeholders:
In the course of maturing, earlier technologies had to overcome the same types of barriers that confront emerging technologies today. And because the nature of the challenges remain so similar, we can learn valuable lessons from past successes.
Viewed broadly, the barriers facing emerging technologies today, as in the past, resolve into four major categories: technical, offtake, market, and policy. In each case, a straightforward solution offers a way to surmount the central difficulty that the barrier poses.
Yesterday’s successes can inform tomorrow’s solutions. Overcoming the technical, offtake, market, and policy barriers to scaling climate technologies doesn’t require reinventing the wheel; we already know what works.
Acknowledgments
The authors would like to recognize the Breakthrough Energy Catalyst team for their helpful thought partnership on this work.
In addition, they would like to thank the following BCG experts and team members for their contributions: Pablo Avogadri, Preben Bay, Michael Bernstein, Alex Dewar, Andrew Foster, Vlado Georgievski, Robert Hutchinson, Marc Kolb, Jennifer Michael, Nairika Murphy, Cristian Navarro Delgado, Bas Percival, Daniel Quijano, Jared Russell, Arian Saffari, and Jessica Xu.