5 Emerging Trends in the Energy Industry & Why You Should Care
Strategic takeaways from understanding the current state of the energy industry
The global energy demand will continue to increase for the next three decades, with renewables, such as solar and wind production, at the forefront in 2050 (see figure).
The rise in energy demand and consumption we’re experiencing creates an immediate need for further efficiencies in the industry as a whole. As a result, society is seeing disruptive trends on a global scale, bringing about changes for businesses, local governments, and individuals for years to come.
While important for those directly involved, these trends are just as important to understand from the perspective of a consumer. For example, power from renewables is expected to make up 50% of the generation, starting 2035 — this results in the overall costs to come down further, competing with prices of existing oil and gas providers.
To highlight specific trends we’re experiencing, Ernst and Young's 2016 study, The Future of Energy Series, Managing Uncertainty in the Energy Sector identified five key trends in innovation in the energy industry. While published some years ago, these trends have only gained momentum and can be reiterated in McKinsey’s Global Energy Perspective 2019.
The five trends are a drive for global decarbonization, a shift toward decentralization, disruptive innovation, and technological advancement, relentless focus on efficiency, and the rise of an ever more interconnected world.
Global Decarbonization
One of the biggest barriers to decarbonization is the lack of unified policy initiatives and mutual global commitments. However, at the 2015 Sustainable Innovation Forum in Paris, France, the COP21, 195 countries agreed to the Paris Agreement, then signed it in December 2016. The agreement is to limit the global temperature rise to only 2 degrees Celsius maximum and pursue efforts to limit the increase to 1.5 Celcius. Each country should thereafter plan and regularly report its active contributions.
Since the agreement, on June 1, 2017, US President Trump announced the withdrawal of the US participation in the agreement stating “The Paris accord will undermine (the U.S.) economy,” and “puts (the U.S.) at a permanent disadvantage.” While the effects can only take place in November 2020 at the earliest, this resulted in domestic and international outrage. Several governors and other leaders at the state level formed the United States Climate Alliance to continue the progress of the Paris Agreement, regardless of the withdrawal at the federal level.
This comes at a time when the projected demand for energy is expected to increase by 48% until 2040 (EY, 2016). With the world shifting from coal, the cheapest energy source, global natural gas consumption will still increase until 2035, then plateau as the competitiveness of renewables increase.
Energy Decentralization
The second biggest trend is a shift towards decentralization. According to the Oxford Dictionary, Decentralization can be defined as;
“The movement of departments of a large organization away from a single administrative center to other locations”
But what does that mean in terms of the energy industry? Due to the production efficiencies and continued government subsidies, there is an increase in generation plant installations and local power plants emerging in the power and utility market as the support for greener technology rises.
For example, the UK is predicted to grow from 16% to 49% capacity on the distribution network by 2030 (Future Energy Scenarios, 2016). However, this trend requires significant investment to alleviate the intermittent nature of renewables and promote continued investment in conventional sources. Thus, pressuring large-scale infrastructure for more agile and efficient means of energy delivery.
A Shift Towards Disruptive Innovation and New Technology
The third notable trend in the energy industry is the push for continued innovation and technological advancements.
Telecommunications and technology corporates have been at the forefront of new scalable developments, unlocking the potential of the energy sector. In the recent decade, a new range of offerings and innovations have been created for utilities, such as the connected home and the electric vehicle. According to the Clean Energy Finance Forum, 2016, technologies such as machine learning, the internet of things, big data, and analytics can allow remote access, and progress for development in more efficient systems with significant cost reduction. For example, the internet of things, also known as IoT, can allow for energy plants to monitor the machinery remotely, or in real-time, allowing for parts to be ordered immediately if a machine breaks down. This can reduce delays in production and avoid additional costs.
More Focus on Energy Efficiencies
The next trend is an unrelenting focus on efficiency in the energy industry. The Energy Efficiency Market Report, 2016, notes that efficiencies in energy production and disbursement have been a major focus and area of investment, with around $221 billion invested worldwide in 2015, and only increasing in recent years. This can be attributed to the desire for growth and development and finding ways to avoid further CO2 emissions and the rising temperature of the planet. According to McKinsey’s Global Energy Perspective, 2019, the plateau of energy demand in 2035 will be caused by the increase in more efficient technologies, driving down overall energy consumption — even in locations like industrial China.
From a consumer perspective, as a general rule of thumb, developments in more efficient production and economies of scale, come lower unit costs. Thus, the overall costs of energy, be that renewable or non, will decrease.
The Rise of a Connected World
Finally, the fifth major trend has been the rise of a connected world. The rise of digitalization has made industries more effective, efficient, and responsive. In the United States, LO3 Energy has created a system of microgenerators to sell their power to local consumers. This allows the power to travel directly to the consumer using smart contracts with blockchain technology without needing a central reconciliation authority. These initiatives have transformed the traditional value chains in the energy industry, calling for the use of innovative technologies and connectivity.
So, what can one do with this information?
The implications of these trends present (a very brief) introduction to a new energy era. While fossil fuels are still the most consumed energy source, there will be a shift in the future to alternatives, and possibly a fast shift.
Thus, it’s important to understand your options when it comes to energy providers in your local city, differences in costs — as costs for renewables decrease, as well as your specific energy needs.
For example, if further decentralization of renewable energy providers expands in your area, you may have a local energy provider which 1) costs less than the major players, and/or 2) is a more sustainable option to create a greener life, while not sacrificing comforts.
These trends will bring about changes to the way we, as a society, heat our homes or power our businesses. To find out more about energy options best for you, there are a ton of websites out there that help find and compare different energy providers. To name two, local to the US;
https://www.moneysupermarket.com/gas-and-electricity/
However, because I’m based in Austria, I found help through this website that gives a specific list of suppliers, prices, and information on how to switch energy providers.
https://www.e-control.at/en/konsumenten/anbieterwechsel
To conclude, while the five trends may not be obvious to the direct consumer, they’re here and only gaining momentum. So, take this information and use it wisely for yourself, your businesses, and your greener future.
