Lost In Transition

<p>As we enter the energy transition age, there is plenty of intellectual, technical, business and policy activity. The extent and impact of the energy transition are not yet fully known although we may imagine how life will look like at the end of it, as a reflection in an old mirror. The energy transition is taking place alongside a world increasingly connected and automated, with strong pressure for transparency and a high risk for cybercrime.</p><p>&nbsp;</p><p>Technology is accelerating its progress and at the same time generating discontinuities and disruption of established business systems. The energy value chain is being realigned and combined with new segments as well as intertwining at times with segments from outside the energy ecosystem, enabling and reinforcing each other, fostering synergic developments. In addition, the sustainable development goals (SDGs) and the Paris Agreement targets have set up a roadmap for humanity that has to be implemented in the coming years. The extent and speed of this transformation is unprecedented and going swiftly creates a certain risk for economic, technological, and regulatory errors.</p><p>&nbsp;</p><p>Energy systems were made up of segments with defined roles and defined flows. Their infrastructure is still widely dominated by large items: oil &amp; gas pipelines, terminals, roads, electric power plants and networks. A narrow view of the energy transition focus on the shift of the electricity generation mixes from traditional sources such as coal to natural gas, and more recently towards solar and wind, mostly due to a combination of policy, environmental and market pressures. Yet, this is only part of the story.</p><p>&nbsp;</p><p>The energy sector is undergoing a profound change that will result in a complete transformation of the energy systems. It is an irreversible move towards a decarbonized, decentralized, and digitalized energy world, the &ldquo;3Ds&rdquo;. Each of these aspects carries specific challenges.</p><p>&nbsp;</p><p>Take decarbonization. The move towards renewable sources, initially led by national policies and incentive mechanisms, has entered the virtuous circle of decreasing power generation costs. The transformation will result in several stranded assets, and it may be painful for some players.</p><p>&nbsp;</p><p>Decentralization is also shaping our energy future. The traditional utility business model was largely based on centralized generation: high capex, long-term investment, with utilities earning their returns as patient capitalists. As economies of scale hardly apply for renewables such as solar, small, and microgeneration are proliferating at regional, local and home level. This is a low-capex, short-term investment, and granular-approach business. Energy efficiency solutions in a decentralized generation ecosystem will become more meaningful for consumers. This trend, coupled with the irruption of electric vehicles, will impose a new role for grid operators.</p><p>&nbsp;</p><p>Digital will be the great enabler and accelerator of the energy transition. Grid edge technologies, including decentralized generation and storage, smart meters and IP-enabled appliances as well as electric cars, are ready for massive deployment. This creates tremendous opportunities for incumbents but also for new players. Value-creation activities such as aggregation will optimize behind-the-meter assets. Electricity for households is most likely to become like the internet: a flat fee. All thanks to digitalization.</p><p>&nbsp;</p><p>Thus, the energy transition concerns everyone because it will lead to a true change in our energy behaviours.</p><p>&nbsp;</p><p>Business is increasingly aware of what the energy transition means. It is not considered a transition but a revolution according to several industry leaders. Most incumbents have already acted by re-inventing themselves as organizations, by proposing new customer-oriented and technology-driven business models and, as has happened in the past, businesses will come to terms with this transformational challenge.</p><p>&nbsp;</p><p><strong>What about governments?</strong></p><p>&nbsp;</p><p>Policy matters and if governments do not take the energy transition seriously, there are reasonable chances of significant policy failures. The public sector must prepare for a change of unprecedented scale. The speed of change cannot be tackled as in the past, with progressive policy adaptations resulting in half-measures giving at best half-results.</p><p>&nbsp;</p><p>Governments need to engage differently with stakeholders and to show strong leadership to maximize value for both society and industry along the path of the &ldquo;3Ds&rdquo;. They need practical expertise and know-how in shaping energy policies for their countries&rsquo; specific needs. By the nature of this technology-driven transition, central governments will no longer be the primary players: regional, local and city governments will have an increasing role to play in ensuring that the energy transition, however disruptive, brings value to their citizens.</p><p>&nbsp;</p><p>As it is already happening for corporations, the public sector will need to re-invent itself by becoming more adaptive, more open to new business models, more innovative, without relinquishing their role in defining adequate energy policies. It takes time, it may be painful and may cost money, but above all, it takes courage and vision. There are powerful and positive reasons to muster the efforts: the energy transition is irreversible, and the better prepared authorities are, the more their constituencies will benefit from it.</p><p>&nbsp;</p><p>The challenge for emerging economies and developing countries is even tougher, as substantial energy investment will have to be committed to support economic growth and alleviate energy poverty. Those countries&rsquo; governments need to tackle at the same time, increase in energy demand driven by economic and population growth, while embracing the technology-driven energy transition. Those countries could benefit from the deployment of grid edge solutions to solve current electricity system issues. In addition, increasing urbanization creates opportunities for improved urban conditions with effective energy efficiency standards for buildings and mobility. They will need to have a fresh, daring and ambitious look at their energy mix, their policies regarding energy subsidies, their tariff structures and their investment frameworks. Naturally, countries&rsquo; strategies should be unique, as their fiscal, social and geographic conditions differ, but the important thing is that they start developing these policies now. There is little time to lose.</p><p>&nbsp;Policy makers are certainly under pressure. They do not need a new compass to go through the energy transition, they need a new map altogether.</p><p>&nbsp;</p>
KR Expert - César Ortiz Sotelo

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