A new report from the World Energy Forum identifies a shift towards a more sustainable energy future and finds that a growing number of green-tech newcomers in the energy marketplace have the potential to fundamentally transform how energy is produced, distributed and consumed.
Providing secure, affordable, low-carbon energy to a growing global population will require a new level of energy innovation and cooperation, Cambridge Energy Research Associates (CERA) and the World Economic Forum conclude in Solving the Energy Puzzle Through Innovation .
The report, part of an ongoing collaboration between CERA and the World Economic Forum, includes expert perspectives from distinguished academic, energy, finance and technology leaders. It offers a broad-ranging discussion of the role that innovation and technology will play in meeting global energy demand which is estimated to increase by at least 50 percent by 2030.
“The challenge of transforming the energy system is tremendous, given the size of the capital requirements, the need for new technology and market adoption. Our report not only demonstrates the importance of combining the forces of investors, technology providers and policy-makers to boost innovation, but signals the need to engage energy customers and learn from innovative experiences in other industries,” said Christoph Frei, Senior Director and Head of Energy Industries at the World Economic Forum.
The good news is that the report identifies strong and converging forces at work that are pushing for a shift towards a more sustainable energy future: “High [energy] prices combined with concerns about energy security and climate change are stimulating the most widespread drive for innovation the energy sector has ever seen,” said Dan Yergin, Chairman of CERA. “And that’s true whether you’re talking about renewables, alternatives or traditional energy sources. Innovation follows need, and the need is certainly there.”
“An intensified drive for innovation will be required for the world to meet its energy challenge, requiring stepped-up collaboration among companies, governments, consumers and research institutions, as well as new participants such as venture capital and technology firms,” says Daniel Yergin, Chairman of CERA and Executive Vice President of IHS.
Investment in renewable energy and energy efficiency exceeded US$ 70 billion worldwide in 2006, and estimates of the 2007 total exceed US$ 110 billion.
Despite the impressive investment figures in clean energy technologies, they are only a small fraction of the amount invested in the energy industry each year. Moreover, fundamental breakthroughs are still needed before many innovative technologies can be adopted. In addition, when taking the long life-span of energy infrastructure into consideration, it becomes clear that transforming the energy system will most likely be a matter of evolution rather than revolution.
Although these types of innovation may well become part of the future solution, they will take many years to integrate into the energy system.
The most fertile ground for dramatic and rapid innovation in energy may be the smaller-scale technologies, such as “smart” meters, solar photovoltaics, micro control systems, plug-in hybrid electric vehicles, energy storage capacitors, etc. The development of these and other micro-level advancements is likely to occur on a relatively short timetable and may take us in new and surprising directions.
“We are seeing the most widespread drive for innovation that the energy industry has ever experienced,” Yergin added. “And that’s true whether you’re talking about renewables, alternatives or traditional energy sources. Innovation follows need and the need is certainly there.”
“No one answer or technology can single-handedly address the challenges,” says the report. “Many solutions and technologies will be required. The objectives are multiple: affordable, sustainable, clean and convenient energy – and scale. The energy future will no doubt belong to those companies able to find and apply innovative solutions scoring as high as possible along all these dimensions.”
“The challenge of transforming the energy system is tremendous, given the size of the capital requirements, the need for new technology and market adoption,” says Christoph W. Frei, Senior Director and Head of Energy Industries, World Economic Forum.
The industry’s long product life cycles – three to five decades for power generation plants – mean that incremental improvements to existing technology will be needed along with the development of new technologies.
Several interesting lessons flow from comparing energy to rapidly-changing high-tech industries:
- Incremental change is important. Disruptive technologies will take a long time to develop and take root. In the meantime, innovations within the current industry framework can be crucial. For example, the magic of cumulative effects allows an energy efficiency improvement of 2% per year to result in a 22% improvement over only 10 years.
- Open innovation serves to broaden the base of new technologies. No one knows which development will be the source of the next energy breakthrough. An atmosphere of open innovation is gaining ground and will be crucial to ensure that new ideas find applications in the energy industry. For instance, ICT technologies may help lower energy consumption.
- Opportunities exist for cooperation between incumbents and new entrants. Given the scale of growth in energy demand, there is room in the market for new entrants along with the incumbents. New entrants may rely on the incumbent’s infrastructure, and a culture of open innovation allows incumbents to take advantage of new entrants’ innovations.
- Energy customers will be part of the solution. Energy customers – individuals as well as commercial users – are the final arbiters of success for any innovative product. Technologies that allow better monitoring and the optimization of energy use can increase consumers’ involvement and change their behaviours. A shift towards increasing the “consumerization of energy”, similar to what has occurred in the ICT industry, would challenge traditional energy delivery models.
The report finds that an intensified drive for innovation will be required for the world to meet its energy challenge, requiring increased collaboration among the energy industry, governments and consumers, as well as new participants such as venture capital and technology firms. Any attempt to transform the current energy model will also demand innovative thinking, massive infusions of capital and some luck, in order to succeed. The interplay among the key “innovation catalysts” – technology, people, capital and policy – will influence whether lower-carbon energy at affordable prices is available for the generations to come.
Technology will be a key enabler but no single technological solution can do the job alone – the solution will require as many resources and technologies as can be developed and deployed. People drive the growing demand and changing consumer behaviour could provide impetus to change. Capital provides the financial fuel and expectations about the potential size of the market will be important for investment in innovative technologies. Policy sets the competitive playing field and can give early technology a financial nudge. Policy must also provide the necessary certainty for investors.
The way forward will require commitment, creativity and cooperation from scientists, engineers and business leaders within and outside the energy industry, from customers all along the value chain, and from policymakers around the world.