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A new era of collaboration for the energy industry
Working as one to achieve growth and decarbonization for all
3-MINUTE READ
March 19, 2024
Powered for change: a new era of collaboration for the energy industry
Accenture’s recent Powered for Change research identified many of the barriers hard-to-abate industries face in their decarbonization journeys. It also discussed how these barriers can be overcome. Industrial decarbonization can only occur at scale if the cost of low-carbon energy and hydrogen can achieve price parity with existing, high-carbon alternatives. All stakeholders need to play a part and act in unison.
Although collaboration has been difficult to achieve thus far, it is required if we are to make meaningful progress toward net-zero. A new era of collaboration will unlock opportunities for all. This collective effort will accelerate the creation of an equitable, affordable and sustainable transition, making meaningful progress in only three years.
The emerging industrial cluster model lays the foundation for this new era of collaboration. Examples like the Houston Hydrogen Hub, the Net-zero Basque Industrial Super Cluster, and Zero Carbon Humber have shown how all industry players can come together in close collaboration.1
Hubs create a shared low-carbon infrastructure, rather than individual companies building standalone assets, significantly reducing costs and accelerating scale. Clusters also foster a culture of cross-industry knowledge sharing, which further reduces costs for everyone.
The challenge for the energy industry is how to work closer with industry, defining these frameworks, and creating a common technology platform that facilitates this collaboration. Accenture is already working with clients to define these platforms, and is excited to be part of the decarbonization of heavy industry.
Heavy industry and oil and gas are deeply entwined
As Powered for Change revealed, heavy industry is responsible for up to 30% of global CO2 emissions, and more than 40% if Scope 2 emissions are accounted for. Too few are decarbonizing at the scale and pace required to meet Net Zero targets.
Why are these companies hard to abate? It is a consequence of strong relationships that heavy industry built with oil and gas. The two have worked symbiotically for over a century.
Hydrocarbons have provided the most reliable source of affordable energy for industrial processes. In many cases, hydrocarbons are the only energy sources available. With no viable alternatives, industrial equipment design has been optimized for fossil fuel inputs.
While low-carbon generation is widely available, heavy industry cannot make a simple switch to greener sources. Much industrial equipment is incompatible with these low-carbon energy sources, so decarbonization requires significant investment in new infrastructure.
The scale and cost of this infrastructure is vast. In Powered for Change, we estimate that the total clean energy demand of the EU’s cement, steel chemicals manufacturers, and the power requirements of electric vehicles, is equal to 836 nuclear plants or an onshore wind farm the size of Spain.
Our research also shows that the most common challenges to industrial decarbonization are the high risk of green investments and their uncertain commercial viability. How much will it cost to make low-carbon products and services commercially viable in the next five to 10 years? 80% of heavy industry executives believe they would have to charge a price premium of more than 20%.
For most, the cost of converting manufacturing infrastructure is too high for heavy industry’s tight margins to bear, and its customers are not prepared to pay a green premium that could fund the investment.
The energy industry is central to industrial decarbonization
As the Net Zero deadlines of 2030 and 2050 come closer, heavy industry’s decarbonization struggles will increasingly fall under the spotlight. While it must decarbonize, it’s uncertain by how much, by when, and using which technologies.
It cannot be solved just by building new renewables. Many industrial processes cannot decarbonize through electrification, so other solutions must come to the fore. Low-carbon energy will come from many sources.
Some are more aligned to the energy industry’s core capabilities than others. Many have decided that renewables generation lies outside their focus. However, there are many other areas it can add significant value.
There is a swathe of clean fuels that will support industrial decarbonization, including biofuels, and blue or green hydrogen and ammonia. Carbon management will be critical to industrial decarbonization. Fossil fuels will be used by industry for years to come, providing low-emission natural gas for power generation, or blue hydrogen until green hydrogen reaches scale.
The energy industry has unrivalled experience in this space. Its subsurface capabilities will be crucial for carbon storage. Its experience in molecule management, liquid and gas transportation, and chemical transformation will be relevant for all these new energy sectors.
Accelerating the scale of low-carbon solutions
Before industry can start to decarbonize, we need to bring down costs. This will not be easy. Industrial decarbonization’s economics are challenging to say the least. By focusing on the largest contributor to cost—green energy—the biggest barriers will be overcome.
Powered for Change reveals that, in 2020, green power constituted 61% of the cost of green hydrogen. In turn, green hydrogen accounted for 46% of the cost of green steel and 87% of that of green ammonia.
We must ensure low-carbon options achieve price parity with high-carbon alternatives in the shortest possible time. How? Powered for Change shows that there is only one way—everyone plays a part, and everyone moves in unison.
The energy industry, power utilities, heavy industry and its light industrial customers should all contribute to bring down the cost of low-carbon options. While everyone has a role, each industry needs to focus on where it adds the most value. For oil and gas the task is simple—to accelerate the scaling of low-carbon energy and hydrogen to guarantee an affordable and secure supply.
Oil and gas companies are already spinning up projects in these new spaces. These pilot projects will identify methods to lower capital and operating costs, increase efficiency and reliability, and establish new business models for these new fuels. What we need now is to accelerate the speed these projects are deployed.
Optimizing capital projects
Powered for Change identified several areas where energy companies can further bend the cost curve, bringing down project costs even faster. The energy industry can play a key role optimizing capital projects and improving the efficiency of infrastructure deployments.
For example, capital projects are often slowed by many manual processes. Digitalizing processes such as system planning, design and engineering, permitting, logistics, construction, and asset and market operation will vastly improve their speed and efficiency.
Whole system solutions deliver scale at the lowest cost
It is still early days for the industry. It is still not clear exactly what role the energy sector will play in the future, or what their incentives will be. There is little regulatory certainty. Demand ebbs and flows, and few industrial customers ae willing to commit to long-term supply contracts. The problem is compounded by the unique needs of different industries, and how these change by global region.
Heavy industry can give energy suppliers the confidence they need by signing long-term low carbon supply contracts that can incorporate whole system solutions. For example, investing in sites with co-generation with hydrogen, and CCUS infrastructure. What is stopping these whole systems solutions is not necessarily a lack of will. These industries have not yet learned how to work more closely across the supply chain.
Deep and meaningful collaboration is critical if we are to build solutions that go beyond the walls of single companies. It will be incredibly inefficient to deploy low carbon infrastructure assets to meet the needs of a single plant.
Industrial clusters are a model for the future
That is why industrial hubs and clusters are so important to heavy industry’s decarbonization. Co-locating low-carbon assets among different players reduces the overall cost of new infrastructure build. The hubs also act as a forum for technology, knowledge, and best practice sharing, which will improve the efficiency of capital projects.
The cluster model requires a different way of thinking, and much greater openness than some companies will find comfortable at first. The industrial cluster business model is highly collaborative. It relies on shared data, shared governance, effective operational reporting, and aligning solutions to joint capital investment, R&D, and technology.
In late 2021, the Basque Industrial Super Cluster was launched. It is an initiative between the Basque Government, energy companies Iberdrola and Petronor-Repsol, and the Industrial Cluster Association, which represents industries including cement, pulp and paper, foundry, steel, and oil refining. By 2030, the SuperCluster aims to decarbonize approximately 7.2 Mt CO2 emissions, and create around 20,000-30,000 new jobs and €2-3 billion of economic benefits.2
The Super Cluster model emphasizes three types of industrial engagement: infrastructure planning for industrial clusters, funding across different industries, and knowledge sharing. It is a model that is being replicated worldwide.
For example, The World Economic Forum, in collaboration with Accenture and the Electric Power Research Institute (EPRI), has launched an industrial clusters initiative to connect private and public stakeholders to meet their decarbonization goals. The approach seeks to improve collaboration and the way companies can access public sector funding.3
Digital technologies will form the backbone of industrial clusters
As heavy industry decarbonizes, these industrial clusters will become more common, increasing the depth and breadth of collaboration across the supply chain. Given the closeness of these partnerships, and their long-term nature, industrial clusters will increasingly require a common technology platform.
Accenture has worked with multiple hubs helping participants define their business cases, operating models, partnership agreements, governance processes, core processes, and business models. We have developed technology solutions to support these consortiums, including the use of blockchain.
As the cluster model matures, so will the platforms that enable deep collaboration, especially how that collaboration is governed. The platforms will define the collaboration framework, and will be another tool to help accelerate the scale of low-carbon solutions. We’re excited about being part of this decarbonization journey and invite you to be part of it too.
1 More Industrial Hubs to Accelerate Their Net-Zero Transition