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Five Energy Peaks Are Transforming the Market

Five Energy Peaks Are Transforming the Market

24 October 2019

The business need to navigate rapid change at scale is nowhere more pressing than in the global energy industry. This year’s World Energy Scenarios report, published by the World Energy Council in collaboration with Accenture Strategy and the Paul Scherrer Institute, drives this point home. 

Today, demand for carbon-based energy remains high – although the market for renewables has accelerated dramatically. But so too has market volatility: the geopolitical landscape is increasingly uncertain and poor economic returns threaten investment in a future-ready energy model. Meanwhile, energy leaders are struggling to make sense of the fast-shifting landscape of innovation and energy entrepreneurialism.

How will we manage these challenges and ensure a smooth transition to our energy future? The report outlines three potential scenarios that could play out in the years up to 2040:

1.      A market-led, digitally disrupted world emerges, characterized by faster-paced, uneven economic growth.

2.      A strong, coordinated, policy-led world emerges, with long-term planning and united global action to address connected challenges, including inequitable access and affordable decarbonization.

3.      A fragmented world emerges, based on inward-looking policies, lower growth and less global cooperation. 

All three world energy scenarios are entirely plausible and have been validated by market signals worldwide. They also offer a view on the challenges that lie ahead.

Scaling New Peaks

It now seems clear that the energy industry is at an important inflection point where the choices made will have a powerful effect on the future of the industry, global economies and the environment. This inflection point can be seen in five peaks:

1.      Peak (per capita) demand. While we were there momentarily a decade back, we are now fast approaching a more permanent plateauing of energy consumption per capita (expected in the coming decade), which implies that we will not need to use as much energy to drive prosperity as we have in the past. While this is great news for under-served markets, it does limit to some extent the headroom available for value growth for energy companies in the developing economies. 

2.      Peak value. The energy world is feeling endowed with an abundance of supply sources, both fossil and non-fossil based. This brings a flatter and lower cost supply curve. In turn, this has implications for value creation, which has stagnated and moved in the opposite direction to total energy demand growth. The industry therefore faces “peak value” that may be akin to what the coal industry has already been through – seeing a massive drop in enterprise value even with a relatively sticky level of consumption – and with it the specter of stranded assets. 

3.      Peak world. The overall effects of climate change are now well understood. What’s worrying is that not one of the three scenarios outlined above would see overall temperature gains stay within the 2˚C rise mandated by the Paris Agreement, let alone the 1.5˚C rise that many experts believe is needed. It seems possible that our very world may well have reached its peak. 

4.      Peak trust. The industry faces a (peak) trust deficit challenge as consumers, employees, and investors are all seeking a lower carbon footprint, greater operational integrity, and better returns. The energy industry is often viewed with suspicion and faces accusations of “green washing” where they do try and address climate and sustainability issues. This presents a real challenge to the industry’s licence to operate and invest, which is much needed to provide the energy for the nine billion people that will inhabit the world by the middle of the century. 

5.      Peak globalization. Globalization, once looked on as one of the finest achievements of the liberal economic story, is now in retreat. Across the world, multilateralism is losing ground to unilateralism, polarization and in the worst cases resurgent nationalism. Any serious attempt to solve the problems of climate change requires coordinated policy making, as evidenced from one of our scenarios – climate is not limited by geographical boundaries, hence it cannot be addressed locally or unilaterally. 

On the plus side, there may be a potential saviour for the industry in the form of rapid innovation. Technology and engineering have far from reached a peak, and in fact are driving changes faster than at any time in the history of mankind.

A plan of action

There’s no doubt that the energy industry faces challenging times ahead. However, there are opportunities too, but all of these require immediate action, including the need to:   

1)     Pivot and see the energy transition not as a threat but as a growth opportunity and an enabler/provider of a social license to operate.

2)     Shift from a commodity centric to a customer-centric world as peak value rears its ugly head. Energy underpins prosperity – and provision of energy will require investments nearing USD $100 trillion over the next 20 years; that will only be possible if investors get a return on their investments, and that return will come from value pools that are shifting closer to the end consumer.

3)     Embrace a consumer-centric, strategically diverse, and technology-led world. Digitalization is already at the heart of many transformation programs. However, digital can unlock an even greater level of trapped value through its role in connecting and serving the energy consumer of the future, integrating the energy system, delivering a step change in emissions and the climate agenda, while overall enabling a socially affordable energy transition.

4)     Avoid underestimating infrastructure needs and the role of ecosystem. Across all three scenarios, new infrastructure and cross-border partnerships are key determinants of the pace, breadth and direction of the change.

5)     Raise the bar on climate change ambitions. The reality is that every bit of policy, technology, business modelling, and social impetus will be needed to achieve a 50% reduction in emissions in the next decade or so and net zero by middle of the century.

6)     Respond to disruption as usual due to the pace of technology and innovation by designing for “constellations of disruptions.” Business and policy leaders need to shift their mindset from linear improvements and technology bets to networked ideas and implications.

It’s time to act

The latest report from the World Energy Council and Accenture Strategy shines a light on just how much change is going to occur in the energy industry. Businesses that start their transformations now will be better prepared for the energy transition and will put themselves in the best possible position to win consumer trust, while building market share in the energy industry of tomorrow. My message to all energy leaders is simple: identify the best route to change and start implementing it now.


24 October 2019
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