This week, Houston, Texas, will play host to government officials and executives of the world’s largest energy companies. As this group gathers at the CERAWeek conference, discussions will focus on a wide range of energy-related topics. While many of these topics have been on the agenda for some time now, such as the outlook for oil and gas prices, new themes are emerging and gaining relevance rapidly. A central theme for 2017 is the transition to cleaner, more sustainable energy sources.
The economics of traditional fossil fuels and clean renewables are in the process of converging, and in some cases – mainly hydroelectric power, and increasingly wind and solar power – already have. These shifting market forces are increasingly more aligned with policy goals and legislative agendas in countries around the world — especially after the signature of the Paris Climate Agreement by more than 190 countries last year — and are fully in line with societal demands. Citizens around the world are ever more asking that environmental concerns be top of mind for the world’s leading corporations. As a result, businesses are now pushing governments to recognize the reality and challenges of climate change for future generations.
Driven by its emissions-reduction potential, electricity consumption will grow twice as much as total energy demand, which is forecast to rise by up to 70% in the next 25 years according to the International Energy Agency (IEA). Sectors with low electricity penetration, such as transportation and heating and cooling, are demanding more and more power thanks to technology improvements in electric vehicles and heat pumps.
Meeting this incremental increase in consumption will require massive investments estimated at $19 trillion globally by the IEA. Much of this investment will be directed to renewable energy sources. In its central scenario, the IEA predicts that renewable power will contribute more to cover demand growth than any other energy source. Just as an example, the increase in renewable energy output will be three times higher than that of oil and seven times higher than coal. Of course, huge investments will also be required in other infrastructure, such as networks and storage.
In the U.S. alone, the IEA forecasts that investments of $2 trillion over 25 years will be required to make America’s electricity infrastructure more efficient, reliable, secure, and green. In addition, the electric grids of the United States present significant opportunities for system-wide efficiency gains thanks to automation and digitalisation, improving the service provided to citizens.
To achieve this, the United States will need the capital and know-how of the energy industry’s top firms in order to meet current and future needs. As we have seen in other industries, I am confident that the U.S. government will continue to be open to investment in energy infrastructure, which will in turn create jobs and wealth for Americans.
The implementation of all this capital expenditure will also encourage a deep transformation of the business models of utility companies. A recent study by MIT’s Energy Initiative entitled “Utility of the Future” stated that important changes in the provision and consumption of electricity services are now underway, driven to a significant degree by a confluence of factors affecting the distribution side of power. These changes will make efficient and smart networks more necessary than ever. Given the variability of renewable production in very short time frames, new investment in different forms of efficient energy storage will also be essential, from large hydro pumped-storage stations to a wide range of batteries. Also, thanks to smart grids and meters, customers will see their energy efficiency and quality of service improve, their costs reduced and their choices multiplied.
During the last two decades, some utilities have already been getting ready for this transformation. A change of this scale will require significant deployment of new technologies that are also compatible with the Internet of Things, along with the development of new skills. This will not only reinforce the need for additional engineers, but will require new types of expertise in the utility space, such as mathematicians, data analysts and experts in IT.
In order to meet the needs of tomorrow, more action is required today. With so much potential for investment, job creation and growth, the energy industry needs to work together, more closely than ever, to develop technology and skills that move the world towards a cleaner, more sustainable and efficient energy future that is economically viable for everyone.
Ignacio Galán is Chairman of AVANGRID and Chairman and CEO of Iberdrola, an electrical utility company headquartered in Bilbao, Spain.
