Disruptive technologies top the list of energy CEO insomnia issues
4 October 2018
The energy world is undergoing a grand transition driven by a combination of factors, including the fast-paced development of transformative technologies, accelerated by an unstoppable digital revolution, global environmental challenges and changing growth and demographic patterns.
Over the coming years, this energy transition will impact operating models and the economic foundation of both nation-states and businesses, leading to a rebalancing across sectors and regions with knock-on effects on the wider global economy.
Energy leaders face – and work hard to prepare for – profound and systemic change. The one thing above everything else keeping energy leaders awake at night globally is the impact of digitalisation on the future of the energy system, as it redefines roles among and boundaries between customers and suppliers. Much aware of rapidly evolving business models and increased opportunities for competition, industry leaders and policymakers across the globe are considering the impact of innovation with a mixture of excitement and unease.
The World Energy Council’s World Energy Issues Monitor shows innovation issues such as decentralisation, innovative market design, electric storage and blockchains are on top of CEO insomnia issues. It also highlights transition technologies, including renewable energies and energy efficiency, as top action priorities for energy leaders globally in 2018. As trust in renewable energies has increased hand-in-hand with their success on a global scale, they have become a key action priority for the industry. Meanwhile, growing prosumer models and the digitalisation of energy systems support the management of intermittence and integration of renewables.
How do we measure success in a dynamic energy transition context? At the World Energy Council we look at three fundamental objective dimensions: energy security, energy equity and environmental sustainability. These three constitute a “trilemma”, and we need to constantly strive for a balance between them. This is important not only because they are pillars of sustainability, but also because energy is a deeply political issue. In every society we need to keep the interests of three fundamental influence groups in balance: industry, households and environmental interest groups. Systematically neglecting the interests of one of these groups will lead to growing dissatisfaction in the relevant stakeholder group, which will ultimately result in a change of government. The new government will typically prioritise the interests of the neglected group and drive important policy change. This is called political risk.
Long-term investors will stay away from countries with high political risk. We have seen many countries which neglected balancing the trilemma, and then had to work very hard to correct the resulting problems. In South Africa or Argentina, to take two countries that are symbolic for many, it was all about cheap electricity for the poor. Governments in these countries wanted to deliver the cheapest electricity, so cheap that the companies could no longer afford to reinvest, with the result being brownouts and even blackouts and, in the end, a government crisis. Other countries, such as Portugal or Germany, have opted for a rapid (and early) renewables build-up and as a result struggle with higher costs. The council’s trilemma ranks countries in their success of keeping these three dimensions in balance and identifying best practices when doing so.
The new energy world is one of more players, different rules and new markets. The way the energy sector has developed over the past 100 years is about to change significantly and we need to be ready with agile thinking, flexible investments and dynamic policy frameworks to respond to this grand transition. What are great opportunities for some represent new risks for others.
Energy is not transitioning in isolation but along with a digital revolution and broader industrial transformation. If there is a digital rent to be harvested in the transitioning energy system it is vital that policymakers, energy leaders and industry work towards improving and developing standards and protocols, and consider policy preparedness in areas such as data ownership, privacy, and sovereignty, questions of price solidarity and cyber-security.
Learning from other industry transformation cycles, the digital transformation of the energy sector will go through the same disruptive journey, making the current status quo no longer an option.
As the finance community often reminds us, past performance is no guarantee of future success. This is now particularly relevant for the energy sector. We need to be open to the future and its new realities, so we can build a new energy system that provides prosperity for all.
Find out more on what is keeping the council’s energy leaders in almost 100 countries awake at night with our new interactive World Energy Issues Monitor Toolkit.
By Dr Christoph Frei, Secretary General, World Energy Council