Updating of the scenarios has confirmed the unpredictable uncertainties facing energy players as they prepare for the coming decades and think through their strategic options. Clarifying complexity using scenario thinking yields seven key takeaways for energy leaders.
In all three scenarios, the energy world is shifting from a supply-side driven system – shaped by the availability and price dynamics of commodities – to one where the end customer has much greater decision power on which sources of energy and which players will win. With peak demand for fossil fuels expected to occur in the coming decades as a result of declining energy consumption per capita and an accelerating supply of renewable energy, oil and gas companies and major resource holders are facing a new phenomenon of “peak value” and the associated challenge of managing stranded assets. For example, coal players have already experienced a peak value effect, with the four largest US companies having lost nearly 90% of their value from 2011 to 2018. Some parts of the oil and gas business ecosystem, such as oilfield services, are already exposed to this dynamic, with valuation reductions exceeding 70% for the largest players.
The scenarios highlight how system-level disruption occurs from the interaction of technology, societal, business model and policy factors. In turn, these disruptions are having multiple ramifications that impact market structure, economics, consumer behaviour and national and international policies and regulations. Material impacts are occurring at many levels, from evolutions in primary energy mix to product designs that embed greater sustainability considerations to changing consumer influence on new product uptake or rejection, often amplified by the power of social media.
At the same time power over value capture is rapidly moving closer to end-consumers. Energy solutions and offerings are rapidly diversifying, driven by innovations in technology, service and business models, the entry of new players able to disrupt traditional offerings, and evolving poli- cies and incentives supporting cleaner and more efficient energy consumption. In turn, consumers are becoming more astute and selective in their energy choices. Industry participants will have to become more customer-centric to capture new demand-side value creation opportunities and to optimise decisions that create value by better matching supply with instantaneous demand for specific applications.
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PEAK VALUE – VALUE CREATION IS SHIFTING FROM BEING COMMODITY-CENTRIC TO CUSTOMER-CENTRIC
STRATEGIC CHOICES ARE GROWING AS THE POTENTIAL RAMIFICATIONS OF DISRUPTIONS EXPAND
REFLECTIONS FOR INDUSTRY LEADERS
Infrastructure emerges in all three scenarios as a key determinant of the pace, breadth and direction of change. It impacts the extent to which diverse sources and vectors of energy can be integrated into a manageable system, the health of regionally integrated solutions, the reliability and security of the energy system and the ability of new players to enter the market and provide new solutions and offerings. For example, in the mobility transition, the pace of electrification and adoption of alternative fuels such as hydrogen will be significantly influenced by new developments in charging and fuelling infrastructures, not just by improvements in underlying technologies, such as batteries and electrolysis. In a similar way, the rapid drop in costs of wind and solar power has been underpinned by a massive ramp-up in generation infrastructure. Policies, both national and international, will have a major role to play in enabling, incentivising and accelerating the mobilisation of the required invest- ments to maintain, upgrade and build the needed infrastructure across all major sectors, particularly in power and transportation.
Disruptive impacts are happening faster in both the uptake of new solutions and value propositions and the abandonment of old ones. This report has highlighted the urgency for business and policy leaders to shift their strategic mindset from linear improvements and technology bets to the drive to thrive using networked strategies and co-creation of new constellations of disruptions. Energy leaders must therefore invest more effort in creating, assessing and testing systemic ideas. They must also open up space for consideration of new and different possibilities, regularly revisit their assumptions and bridge multiple innovation horizons rather than simply rely on better long-term forecasting.
The stark reality is that none of these plausibility-based scenarios achieves the goal of limiting global warming to a global average temperature rise of less than 2°C. This report stresses the positive network benefits of international cooperation and integrated policies assumed in the Unfinished Symphony type scenario. But even this scenario falls short of reaching the target. Government and business leaders must therefore raise their game to accelerate and amplify the entire range of existing technology improvements and new solutions already in development and encourage wider innovation across the entire economic and societal landscape.
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INFRASTRUCTURE NEEDS SHOULD NOT BE UNDERESTIMATED
DRIVE TO THRIVE IS A COLLABORATIVE STRATEGIC IMPERATIVE
RAISING ONE’S GAME IS VITAL TO ACHIEVE CLIMATE CHANGE AMBITIONS
step-change energy efficiency improvements. Digitalisation can also play a pivotal and wider role in measuring and reducing the carbon footprint of other industrial and services activities, enabling greater stability of increasingly interdependent infrastructure systems, enhancing cybersecurity and providing end-consumers with the means to minimise their environmental footprint.
WORLD ENERGY SCENARIOS TO 2040