How can we maximise the benefits of a system value approach?

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

Author: Kristen Panerali, Head of Electricity Industry, World Economic Forum & Stephanie Jamison, Senior Managing Director, Accenture Global Utilities Leader

• The path to an integrated zero-carbon energy system needs to take into account not only cost, but also system value.
• The journey towards a sustainable energy transition has three stages.
• Investments in renewables, efficiency and the grid come first and remain essential throughout the path.

With COVID-19 shining a light on societal disparities, and growing climate impacts making the energy transition more pressing than ever, governments and businesses alike are reconsidering and accelerating their ambition towards a net-zero carbon future. Think of Europe’s 2030 emissions targets, or Google or Walmart’s recent announcements.

But how will markets achieve this vision? Broader thinking is emerging on what value means and how energy opportunities should be evaluated. It’s about more than just cost; it’s also about the economic, environmental, social and technical outcomes of those possible solutions – from job creation and air pollution reduction to improved energy system resiliency and security. This is what we mean by the overall system value.

To expand thinking around value in this more holistic sense, the World Economic Forum’s Electricity Industry Action Group, which is comprised of more than 25 global energy technology and utility companies, has created the system value framework, with support from Accenture. A dozen dimensions have been defined, each representing an outcome that delivers value across the economy, environment, society and the overall energy system.

To drive further thinking around the system value framework, we analysed six very different markets – Brazil, China, Europe, India, South Africa and the US – to identify recovery opportunities for accelerating the clean energy transition. Through this work, a common path emerged to maximise system value and achieve an integrated zero-carbon energy system.

A common path to maximising system value

Wherever a market is along the journey, the path can be applied to drive conversation around solutions for today and the near future. So what does that really mean? There are essentially three stages to this path:

1. Core elements: The first stage is focused on advancing core elements to lay the foundation for transition: expanding variable renewables, enhancing grid capabilities and interconnections, and efficiency improvements. These elements don’t lose relevance as the market progresses – they remain essential throughout the path.

2. Transformational elements: As a market’s annual electricity generation mix hits 20%-30% variable renewables (wind and solar) – which means that at certain points in time, more than 50% of the electricity consumed will be generated by variable renewables – the market enters the second stage, in which it faces a series of pivot points. Here, a greater emphasis on power market reform and ancillary services markets, advanced capabilities in grid operations and the transmission-distribution interface, smart flexibility solutions and storage, demand optimization, and electrification of other end-use sectors such as transport and heating are needed to continue to drive system value.

3. Net-zero integrated energy system: Finally, to achieve a net-zero future beyond 100% renewable electricity to 100% net-zero energy, there must be an integrated energy system. This means large-scale electrification of buildings, transport and industry, which will require high levels of additional zero-carbon electricity. For hard-to-abate sectors such as heavy transport and heavy industry, solutions beyond electricity, such as hydrogen, will be needed. As the system becomes more and more integrated, cross-sector stakeholder collaboration is key to drive towards greater levels of systemic efficiency.

Markets are at different stages, but must all follow the same general trajectory

While baselines vary, most markets are currently in the first ‘core elements’ phase, with the goal of maximising system value while setting the foundation for a more integrated energy system.

For instance, India is in the core elements stage. It has made significant progress in recent years with renewables and ranks 4th globally by total generation from wind and solar. However, India’s electricity generation mix is still largely dominated by coal with a near-term focus on transmission grid expansion and modernization and renewables deployment, as well as improvements to efficiency. The US has a varied landscape for the energy transition, with most regions still working on core transition elements such as renewable expansion through offshore wind in the northeast US. A few US markets, such as California and ERCOT in Texas, are experiencing pivot points with higher variable renewable penetration, and seeing increased need for smart flexibility solutions and demand optimisation.

Across the Atlantic, Europe is at the pivot point with many markets – such as Denmark, Portugal, Ireland, Spain, Germany and the UK – already exceeding 20% annual variable renewables in their generation mix. By 2030, Europe is projected to achieve 55% variable renewable share and more than 70% total renewables in its generation mix. Transmission and distribution networks and power markets must be transformed to support increased variable resources through greater European grid interconnection, connected and harmonised balancing markets, and distributed energy resource participation in balancing markets.

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.

Additionally, the Mission Possible Platform (MPP) is working to assemble public and private partners to further the industry transition to set heavy industry and mobility sectors on the pathway towards net-zero emissions. MPP is an initiative created by the World Economic Forum and the Energy Transitions Commission.

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

Taking the path forward

Overall, the path to maximising system value is about supporting policy-makers and businesses to understand where they sit now, and where they need to be next. It’s about making recovery investments (for example in expanding renewables, grid upgrades or in modern energy-efficiency measures), while in parallel making plans to progress along the journey to a net-zero future.

We believe that articulating the path in this simple way, and showing it can be applied regardless of starting point, will enable faster progress as well as better planning. Science requires us to collectively achieve the energy transition. We must consider more than just the cost to get there, and bring system value into clear view.