A ‘system value’ approach can accelerate the energy transition. Here’s how

wind mill

(Credit: Unsplash)

This article is brought to you thanks to the collaboration of The European Sting with the World Economic Forum.

Author: Henrik Andersen, Chief Executive Officer of Vestas Wind Systems A/S and Chair, Electricity Industry Action Group


  • The pandemic has presented us with an opportunity to accelerate the energy transition.
  • ‘System value’ is a method of measuring the impact of clean energy policies and solutions in a holistic way.
  • This can give policy-makers and investors the tools they need to make more effective decisions to hasten the dawn of a sustainable future.

COVID-19 has brought the global economy to its knees, but with this disruption comes an opportunity to rebuild with climate change as our centrepiece. We now have a chance to steer the world towards a transformative new age, where sustainable policies can give rise to clean industries that protect the lives of future generations. To get there we need to shift political and commercial focus from costs to value.

Thanks to technological advancements, scientific understanding and consumer appetite, we no longer live in an age where we must trade off net-zero carbon solutions with economic growth. The pandemic has generated an increased level of societal cohesion and public willingness to enact radical change. And herein lies the opportunity, the chance to reset. If we seize the moment, we can propel the world forward into a new kind of economy, fuelled by new industries and technologies that bring growth, jobs and long-term benefits that will stretch to future generations. Carefully designed polices and solutions that aim to maximise short-term impacts such as jobs as well as long-term positive impacts, with the climate crisis as a central consideration, could be our vehicle into this new era.

 

System value

The EU, the IMF and the Chinese government have all announced plans to put the climate crisis and sustainability at the centre of post-pandemic recovery plans. Whilst setting the intention for sustainable investment is encouraging, we now need to be concrete. Policies and solutions that nurture sustainable infrastructure must also be capable of supporting systemic value.

A new lens through which policy-makers and energy system stakeholders can make decisions is ‘system value’. Using this more holistic approach, the impact of policies and solutions can be measured taking into consideration not only the levelized cost of energy but also the broader impact in terms of emissions, water footprint, air quality and human health, job creation, energy access and resilience. Shifting the narrative of the energy transition towards system value is critical for society and the economy. COVID-19 has proved that decisive action can save lives in the present; now is the moment to protect the future. We have the chance to rebuild our economy by taking action against the climate crisis – and we cannot risk the lives of future generations by ignoring it.

By applying the system value framework to renewable generation, energy efficiency and grid enhancements, we can measure the impact on society and the economy.

How does the system value approach work?
How does the system value approach work?
Image: Accenture

Renewables

In addition to creating economy-wide jobs, renewable generation will be a cornerstone of the energy transition as it outperforms traditional energy sources in emissions, air quality and water footprint. Extensive investment in renewable infrastructure over the past decade has paved the way for renewables to overthrow fossil fuels in many markets. It is possible to run an electricity system without coal, as evidenced in countries like the UK, which has succeeded in running its energy system without coal for over two months. In the US, meanwhile, the Southwest Power Market (SPP), which encompasses 14 states, has retired and replaced coal and natural gas with onshore wind. SPP also has the lowest electricity prices in the US and the share of wind in its electricity mix is close to 25%.

Efficiency

Energy efficiency also ranks highly in the system value framework. It is the most immediate job creator for economic recovery – many projects are shovel-ready and could have boots on the ground in a short timeframe. The IEA’s Sustainable Recovery Plan estimates that 1.9 million jobs can be created annually through energy efficiency programmes.

In the wake of the 2008 recession, energy efficiency programmes weatherized homes and offices across the US and Europe, providing environmental and economic benefits. In 2020, energy efficiency has the potential to take on a new dimension – demand optimization. This includes retrofitting buildings to make them smart, so they can interact in real time with the grid, and electrifying heating and transport systems. These upgrades require labour, and benefit the system by improving air quality and health, by lowering pollutants and reducing carbon emissions fromour cities and industries.

What’s the World Economic Forum doing about the transition to clean energy?

Moving to clean energy is key to combating climate change, yet in the past five years, the energy transition has stagnated.

Energy consumption and production contribute to two-thirds of global emissions, and 81% of the global energy system is still based on fossil fuels, the same percentage as 30 years ago. Plus, improvements in the energy intensity of the global economy (the amount of energy used per unit of economic activity) are slowing. In 2018 energy intensity improved by 1.2%, the slowest rate since 2010.

Effective policies, private-sector action and public-private cooperation are needed to create a more inclusive, sustainable, affordable and secure global energy system.

Benchmarking progress is essential to a successful transition. The World Economic Forum’s Energy Transition Index, which ranks 115 economies on how well they balance energy security and access with environmental sustainability and affordability, shows that the biggest challenge facing energy transition is the lack of readiness among the world’s largest emitters, including US, China, India and Russia. The 10 countries that score the highest in terms of readiness account for only 2.6% of global annual emissions.

To future-proof the global energy system, the Forum’s Shaping the Future of Energy and Materials Platform is working on initiatives including, Systemic Efficiency, Innovation and Clean Energy and the Global Battery Alliance to encourage and enable innovative energy investments, technologies and solutions.

Is your organisation interested in working with the World Economic Forum? Find out more here.

Grids

Grid transformation determines the pace of the energy transition. Underpinning the massive deployment of renewables and energy-efficiency efforts are the transmission and distribution grids. Investment in transmission and distribution networks will facilitate further renewable penetration and increases in electrification while maintaining power system reliability. Looking through the lens of system value, transmission investment in the United States has the potential to create 60,000-110,000 jobs per annum while enabling a 3.7% reduction in 2025 emissions. Meanwhile, grid investment in India would help the government to achieve its ambitious target of 275 GW of renewable energy by 2027, increasing jobs and improving air quality as renewable generation replaces polluting fossil fuel power generation.

Partnership with the Forum

In partnership with the World Economic Forum and supported by Accenture, the Electricity Industry Action Group, which I chair, is analysing the system value of economic recovery policies and scenarios in major global markets. We aim to provide energy stakeholders and policy-makers with the tools to make decisions on investments which accelerate the energy transition and lead the world through the Great Reset into a sustainable future.

The following companies are members of the Electricity Industry Action Group:

ABB
Acciona
African Rainbow Energy & Power
Amara Raja
Centrica
DTEK
Electrobras
Enel
Engie
Envision
Eskom
GE Renewables
Hydro Quebec
Iberdrola
Naturgy
NTPC
ReNew Power
Schneider Electric
Sempra Energy
SP Group
State Grid Corporation of China
Vattenfall
Vestas

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