When it comes to the energy transition, collectively, we’re in a pivotal moment and my utilities clients can feel it.
The energy transition is certainly accelerating in terms of scale and speed, and that’s good news. And in this “decade to deliver” on climate goals (and broader Sustainable Development Goals), governments and utilities have—quite rightly—focused heavily on environmental outcomes.
But the picture is more nuanced.
The World Economic Forum (WEF) recently launched its tenth Energy Transition Index in collaboration with Accenture. And a clear finding was this: delivering a resilient energy transition depends on delivering a just and inclusive transition. That is to say, resilience and inclusion are inextricably linked.
Why does that matter? Because it means that decisions about energy systems must be holistic, and incorporate factors such as jobs, health, air quality, energy affordability and fairness of access.
Ultimately, it’s about a broader definition of value (codified by the system value framework). And recognizing the nuances of different markets, and what those mean for the speed of decarbonization and fairness and access to resources.
So if justice and inclusion are what’s needed, the following are some of the key levers and tools to get there.
#1: Decarbonizing industry
Net zero depends on decarbonizing industry, which accounts for more than 30% of global emissions. Meanwhile, industrial emissions are some of the hardest to abate due to high temperature requirements, interconnected industrial processes, etc.
But decarbonizing industrial clusters can address these challenges in many markets. Essentially these clusters are geographic areas where industries are co-located, providing opportunities for scale, sharing of risk and resources, aggregation and optimization of demand.
One example is the Suzhou Industrial Clusters in China, whose goal is to achieve carbon neutrality by 2050. By applying a blend of integrated energy transition solutions from circularity, distributed clean energy microgrid, internet of things (IoT) services platforms as well as integrated clean transport system, Suzhou has already achieved more than 10% reduction in its energy consumption per unit of GDP as well as over 16% reduction in emissions intensity over the past four years.
#2: Decarbonizing cities
Cities are equally crucial: by 2050 over two-thirds of the world's population will be living in cities. And this shift will be especially pronounced in areas such as Asia and Sub Saharan Africa.
These will be challenging times for cities, more people equaling rising demand for resources, while the sustainability imperative remains as pressing as ever.
But it’s not all bad. Decarbonizing cities not only addresses climate risks, but can also have a hugely beneficial impact on public health, jobs, resiliency and even social mobility. And consumers are ready, with individuals increasingly receptive to energy efficient lifestyles.
With the stakes this high, getting it right matters. And with smart and clean cities already in progress in many locations around the world, such as Copenhagen, and multiple solutions already proven, lessons can be applied to “leapfrog” outcomes as more cities come on board.
So what does it take to get this right? In my experience, a lot comes down to bringing together the right group of stakeholders together to consider the full suite of policy, technology and digitally enabled solutions is critical to enabling and scaling change.
In collaboration with WEF, we developed a digital platform of solutions that help cities and their stakeholders to do exactly this, and have tested it with cities from Sao Paulo to Surat to Singapore to help determine their path to net zero.
#3: Digital as the sustainability enabler
Digital is the thread running through all these solutions, and the glue that holds it all together.
Think about cities: digital solutions are going to be critical to help match supply and demand. As an example of that, consider the shifting picture for demand/supply as electric vehicles (EVs) increasingly come online in large numbers, and the charging set-ups needed to facilitate that. Smart (managed) charging will be essential, with emergence of the prosumer, wanting to sell unused charge back to the grid. All of this requires hugely sophisticated systems, and without digital, none of it will happen.
The same goes for industry, as electrification scales up at pace. This means grid modernization and digitization will be critical. And again, a digital backbone makes it all happen.
But it goes further in reality.
Because our research shows there’s real value to be had at the intersection of digital and sustainability, with companies pursuing this “twin transformation” (digital + sustainability) 2.5X more likely to be among tomorrow’s strongest-performing businesses.
#4: Sidebar on funding
Funding the transition remains a major challenge, with the Intergovernmental Panel on Climate Change estimating that annual investments in clean energy and energy efficiency need to increase by a factor of six by 2050 compared with 2015 levels to limit warming to 1.5˚C.
The challenge is acute for some of the emerging markets, not least because of the effect of the global pandemic which has hit government finances hard.
In emerging markets in particular, it’s key to improve the bankability of infrastructure projects by allocating the risks fairly across all parties. Examples include appropriate covenants, presence of legal and economic recourse, robust right to payment and standardizing contracts.
And more generally, sustainability focused financial instruments from corporate power purchase agreements to green bonds will be key to closing the funding gap by attracting the diversified, resilient sources of capital needed.
Delivering this balanced and inclusive energy transition won’t be easy. But utilities will play an essential and unique role in enabling much of this, by providing clean and affordable power and services to industries and citizens alike.
But the time is now for utilities to seize the opportunities ahead—and lead the way to a just and inclusive energy transition with digital and sustainability at the core.
Contact me to talk more about what’s next.