Summit 2017: people, transformations and opportunities generated
2011 was the first time BNEF brought the Summit to New York. We met in the Pierre, right by the corner of Central Park, and partied in the Vanderbilt Hall. Late one evening, I was accosted by an experienced climate change diplomat. A stream of emotion – anger, hurt and fear – poured over me as I was accused of trashing the Kyoto Protocol and the work of so many people over so many years. How could we? Who on earth were we to say these things? And why was he (let’s say it was a “he”) not invited to the Summit anymore?
Gently chiding my questioner for accusing me of not inviting him to the Summit when he was standing in front of me wearing a Summit pass, I explained that, instead of focusing on Kyoto and the structural impasse it had created, the debates that week were reflecting our research on the evolving economics of energy technologies, and a growing realization that micromanagement of decision-making was at odds with the fundamental actor in the global order – the nation state.
We were not, despite what he felt, attacking the passion of people like him (precautionary action to mitigate the potentially serious risks of man-made climate change), only stressing trends that we saw as likely to be more influential in the years ahead. After that exchange, the temperature of the conversation lowered, but in my mind there was no getting away from the fact that the debacle of Copenhagen had created a vacuum into which new ideas were moving. Those who’d previously been in the driving seat were now asking “How did that happen? Who the hell are these people? What about my ideas? Will I still be useful? What about my future?”
The 2017 BNEF Global Summit, to be held on April 24 and 25, once again in New York, comes at another juncture when businesses, investors and policy-makers are looking afresh at the collision between the low-carbon transition and the people and the societies on which it depends.
POLITICS IN FLUX
Political upheavals in the last year have disturbed the air of euphoria that many engaged in the clean energy transition felt 12 months ago about the flow of events. The election of Donald Trump as U.S. President, the U.K. vote for Brexit, and new uncertainty in 2017 over the cohesion of the European Union and the future of free trade have given investors plenty to think about.
However, change implies action, bringing fresh thinking, experience and new stakeholders, often those previously ignored by past leadership, into the process. This may cause tension but is central to the creative process which drives continued progress. A McKinsey Global Institute survey recently studied levels of engagement for organizational transformations. It identified “a particular blind spot [as] the failure to involve frontline employees and their managers in the effort” and noted that “without employees at all levels having a stake in the outcome, the transformation might well be doomed.” Abraham Lincoln said (without a survey): “With public sentiment, nothing can fail; without it nothing can succeed.”
Mitigation of the worst effects of man-made climate change also involves a creative process and a transformation, and the same fundamental rules apply. If your front line doesn’t support what is being done, you’re going to struggle to be successful.
The lesson that some have drawn from this is that the public must be sold on one particular vision of the solution. The current most popular is what I like to call a Three-Miracle Vision – a 100 percent renewables power sector enabled by a global super-grid and full electrification of the transport sector. Not a terrible idea by any means, but also not one for the next few decades at least, in part because those countries that have got closest to one part of the vision – high penetration renewables enabled by strong electricity interconnection, such as Germany – are failing so far to decarbonize. Not good for public support, unless you’re a very wealthy country and have divided your energy consumers by exempting some (heavy industry) from the most painful costs, as Germany has.
An alternative for investors and policy-makers is to look to markets where clear progress on decarbonization is being made, such as China, the U.S. and the U.K. In the U.S., the Energy Information Administration reports that energy-related CO2 emissions were on course to be 5,173 million metric tons in 2016, down 14 percent on 2007 levels. In the U.K., total greenhouse gas emissions in 2015 were 26 percent down on 2007, and in the first half of 2016 were down 7 percent compared to the first half of 2015. In China, the International Energy Agency reckons that emissions dropped 1.5 percent in 2015, defying the agency’s prediction from 2010 that Chinese emissions would grow 1.6 percent per year between 2008 and 2035.
In these places, some combination of natural gas, renewables and, yes, even nuclear knocking coal out of the system is the thing that has worked so far, along with faster-than-expected gains in energy efficiency. Yes, you may not reach your 2050 or 2100 targets with natural gas in the system but to start us on the way, it’s one of the best things you’ve got.
The most efficient way to get there is to embrace the free market that allows gas to compete with renewables and work to remove trade, market and infrastructure barriers to the use of both. Some of the more open-minded climate change-centric greens have already made a similar leap with nuclear. It may only be a matter of time before they do it with gas.
Parallel with that, the conversation within society about low carbon can finally leave behind old sentiments such as “we must act now or we are all doomed,” or “even the fastest pace of change might not be fast enough,” or “we might lose all our country’s competitive advantages through unilateral action,” or a hatred variously of big oil, nuclear power, overbearing government or those who would interfere with market forces.
NAVIGATING NOT FOUNDERING
In 2015, I wrote about the shift from a top-down supranational approach to energy policy and climate change mitigation to one driven by more local factors – via the nation state. I mused about how, despite the fears of our climate diplomats, this would actually help move us along the path towards low carbon. Not an easy task – rewiring the plane as we kept it flying. I thought this might also help people – the voter, the consumer, the citizen, the subject, you and I – see fit not to bail out or – at least – look for new pilots. Little did I know that the pilots would change quite so dramatically and, although approaches to climate change were certainly not a primary factor in that shift, they were part of the mix.
At BNEF’s EMEA Summit in London back in October, Bryony Worthington, a Labour peer, and strong green advocate, castigated Green Member of the European Parliament Claude Turmes in a fiery exchange. She said: “The European [Union] 2008 [climate and energy] package, without realizing it, actually contributed and fostered some of the conditions that have led to Brexit because it was far too top-down in its view and too inflexible in its approach to climate change… this sense that European [Union] bureaucrats were telling us what we should do to solve climate change really did [cause] rancor at all levels of society, whether it was being told “you can’t use that vacuum cleaner” or being told about the Energiewende [showcase Germany policy literally “energy transition”], which, if you look at the numbers is not really delivering a low-carbon economy for Germany. It may get there but it will get there quite slowly and at very high cost.”
Over the last seven years, the politics of clean energy has moved from the mind-boggling complexity of additionality, the chaos of Copenhagen, and the wild excesses brought by fixed feed-in-tariffs to the relative freedom of the Paris agreement, the “golden age” of gas, the introduction of cost competition through reverse auctions for new generating capacity, and reductions of 68 percent in the levelized cost of solar generation and 29 percent for wind power.
OPPORTUNITIES GENERATED
These days I like to think I’ve become more adept at spotting bias – I am not onto fake news yet but give me a source and a line and I’ll attempt to tell you the bias in the choice of facts, in emphasis, in tone, in action. There’s a lot of it about, my own included (cf. this article).
Bias makes it even more difficult to chart a course in a fundamentally cost- and economics-driven industry such as energy. At the coming BNEF Summit in April, we invite you to turn off Twitter, shut down Facebook, put away your newspapers, think carefully about bias, emotion, perspective and get close to the primary source: the people and economics who make the energy industry what it is.
Through the Summit, we’ll hear about the possible impact on different parts of the energy sector from the shifts in politics and economics, starting straight off on the Monday morning with a high-level panel of policy-makers and investors on “Political, economic and energy environment post-Obama”. However, the U.S. is far from the only moving part in the global policy-making scene – the Summit will also explore the latest twists in international markets as wide ranging as Australia, Germany, Mexico, Chile, Canada, Brazil, China, India and Japan.
As business has always known (though still frequently complains about), policy is inherently volatile and the most sturdy foundations on which to build a long-term strategy are subsidy-free profits, customers’ needs, supply and demand, and competitive threats from new tech or other firms. Examining the regional and global trends in each of these will be central to our discussions in New York.
We will examine customers’ needs and the strategies being explored by utilities and developers to tap into them in sessions such as “New strategies to serve commercial and industrial customers” (developed markets) and “Powering the next billion” (developing markets).
In “Corporate procurement: the next frontier,” we’ll explore which types of corporate buyers have a propensity to source their electricity from renewables, which currently do not and how those that have, are tackling the procurement challenge. Then, in “Utility residential offerings: back to the old school?” we’ll examine how, having been perplexed rather than won over by smart homes and smart meters despite the regulated roll-out, residential customers are taking to new offerings in leading-edge markets such as California and Australia.
In “Gas to power: global gas consumers and demand,” we’ll discuss how the opening up of new gas supplies and transit routes (pipe or LNG) is creating demand for gas-to-power and the impact this is having on coal in markets such as North East U.S. and South East Asia.
How will the wholesale markets change in different countries? Now that we’re seeing the last of the fixed-price feed-in tariffs being phased out, how will price-setting evolve? The question on some minds will be “are we moving beyond large chunk national pricing towards greater granularity in pricing – time-of-day, locational hub pricing as we have in PJM and Chile – or will the growth in bilateral power purchase agreements marginalize these wholesale markets?” We’ll examine case studies in Mexico, Brazil, California and the PJM region in breakout sessions, and tackle the overarching issues facing the U.S. markets in the plenary “U.S. power market transformation.”
What transitions will major utilities make, particularly in their generation businesses, over the next five years? The plenary session “Electricity company transitions” will hear lessons from the accumulated experience of some very seasoned executives. And then these evolving utility strategies will be tested as we hear from hard-nosed money managers in the “Global investor” session.
We’ll also hear from key segments of the industry: with solar in “Does solar have a homegrown advantage in the U.S.?”, storage and system operators in “Energy transition – grids, storage and the future of electricity”, automotive in “How will EVs and mobility disrupt the energy system?” and nuclear in “Nuclear under the new administration”, as well as some of the latest thinking on technology and financial innovation via sessions to present the winners of the 2017 New Energy Pioneers and Finance for Resilience (FiRE) competitions.
In short, at Summit 2017 in April, we will hear not only about individual technologies and consumers but how the political, economic and regulatory framework in which these operate are changing, and most importantly – what opportunities are being generated. For more details, see https://about.bnef.com/summit/
We look forward to welcoming you there.
William Young is BNEF’s Summit Director. When he does go on Twitter you can find him @wr_young
