The global energy industry is profoundly changing, transforming market structures, challenging existing business models and creating opportunities for new ones. Successful participants need a clear sense of where the industry and markets are heading and how to embrace and adapt to the climate and energy transition.
We know we are currently heading for a 3-4 degree temperature increase, and that mitigating this temperature change, and the physical and financial impacts of it, is going to cost trillions of pounds. We also observe that investor, political and public sentiment is shifting, and that the call to action is getting louder and clearer. Energy policy is in a state of flux and the role of government in balancing the energy trilemma (security of supply, affordability of energy and decarbonisation) is also evolving rapidly. The changes that lie ahead for the global energy system are going to be equivalent to the industrial revolution, but will need to be made in just one third of the time.
We started the journey to a low carbon future a decade ago, but the next 10 years will be about increasing the pace and scale of market, technology, data and business model changes that will transform the energy industry, and deliver that low carbon future. Managing legacy investments, creating new investment opportunities, building business models that are fit for the future, and funding the investment required will drive the global energy sector.
The next decade brings global opportunities in offshore wind, interconnection, LNG and asset management, as well as regional opportunities (Asia, Europe and US) in building ‘IPP-ready platforms’ for solar and onshore wind. Local opportunities are driven by market design and maturity, and lie in monetizing and accessing flexibility services, creating energy services companies (ESCOs), subsidy-free renewables, integrated electric vehicle value chains, and smart cities. Deeper decarbonisation pathways will need to address the heat and transport sectors by considering the role of gas, hydrogen and new technologies such as carbon capture and storage.
Whilst a wide spectrum of technologies and business models are available for participation across the energy value chain, navigating investment decisions in 2020 and beyond will require investors to take risks they were not prepared to or did not need to take previously. Contracting strategies will need to evolve to offer a real alternative to subsidies for long term revenue certainty, and new markets need to be created in order to unlock the funding required to finance a low carbon future.
Finally, with a likely rise in energy purchase costs over the next 7-10 years, and increasing stakeholder pressures around climate change, companies across all industries are focused more than ever on the levers to manage their energy cost, and simultaneously adopt low carbon solutions. Therefore, understanding the impact of climate change on these consumers of energy, and their subsequent needs, is critical. The challenge ahead of us is to create business models and solutions that connect capital to energy projects through markets and customers.