understanding the future energy systemsource: delphi data, accenture analysis. 2010 2015 2020 2025...

Understanding the Future Energy System

3

ContentsExecutive summary 4

Change is coming quicker than expected 8

Climate change will emerge as the focus of energy policy, driving investment in sustainable energy 12

Current market structures are not ready to support fundamental change 16

The transition to a low-carbon economy will result in the spread of cap-and-trade schemes 20

Carbon markets must be supported by other forms of fiscal incentive 24

Industry and policymakers must look to build open and transparent engagement 30

Emerging players will take advantage of changing energy policy, posing a threat to existing players 34

Cautionary note: short-term concerns impact the evolution of long-term energy system change 40

Implications for the energy industry and formulating an appropriate business response 42

Endnotes 47

4

In recent times, the energy industry has experienced significant levels of volatility, adding a layer of complexity to an already rapidly evolving energy system. This volatility is being exacerbated by concerns over long-term supply constraints, geopolitics and climate change. Governments around the world are now redefining energy policies to address these challenges—a task made all the more difficult by the fallout from the economic downturn.

The pace of change and the shifting policy landscape has put businesses under severe pressure. Companies have been forced into a reactive mode as they deal with the changing circumstances, shaping their strategies around the opportunities and risks that the evolving energy system has unearthed, instead of proactively pursuing opportunities that add value to their business. To

be able to take a more proactive approach in defining their own destinies, companies must build a clearer understanding of the longer-term future.

Many attempts have been made to understand the future energy system, with numerous research bodies providing forecasts out to 2030. However, these reports present a range of conflicting views, and are insufficient for energy executives looking for further clarity to guide their investment and asset portfolio decisions.

To better understand potential long-term developments in the energy markets, Accenture conducted an extensive research program, based on the Delphi methodology, to help provide insight into the evolving “future energy system.” This study produced seven key findings:

Executive Summary

5

1. Change is coming quicker than expectedSignificant changes will continue to impact the energy system across all sectors and industries and stimulate transformational change. The majority of major changes will begin to occur from 2020 onward, with the years 2010–2020 a period of transition in which we will see the foundations of the future energy system laid. Major developments are expected to occur sooner than predicted by conventional energy commentators, even when the most aggressive scenarios are taken into account.

3. Serious questions remain about the ability of current market structures to support fundamental change in the energy systemCurrent market structures do not motivate investment in the provision of a sufficient energy supply capacity—with a supply crunch the likely result in the near to mid term. When the challenge of climate change is added to the equation, along with a set of technologies that do not sit comfortably within the current market structure, the apparent conclusion is that the old market model is not adequate for the evolving future energy system. It is likely that the coming years will see greater intervention on the part of regulators in energy markets.

2. Climate change will increasingly become the focus of energy policy, driving investment in sustainable energyIn the wake of the downturn, the economy is clearly the current key driver of energy policy. This will change as the global economy recovers and the effects of climate change begin to have a clear material impact. Climate change concerns are expected to help drive investment in sustainable energy to the levels required to attain a carbon dioxide (CO2) emissions peak by 2020.

6

4. The transition to a low-carbon economy will result in the spread of cap-and-trade schemes; as a result, firms must look to build robust carbon management mechanismsRegulation and reporting requirements in the United States and the European Union are increasing with the introduction of a number of forms of legislation, and “functional and efficient”1 cap-and-trade schemes are likely to be in place before 2020 in North America and Europe. With cap-and-trade schemes a real possibility, companies must look to improve their abilities to report and manage their emissions. Survey responses show that current mechanisms are far from robust.

6. Industry and policymakers must look to build open, transparent engagementAsymmetries exist in the attitudes of government and industry toward the input the latter is able to make into the policy-making process, suggesting there has been a failure in dialogue between industry and government. Given the likelihood of increasing government interference in energy markets, those in the energy industry must take a more professional approach to lobbying efforts, and must do so in an open, transparent manner that builds trust with policymakers and the public as a whole.

5. Carbon markets must be supported by other forms of fiscal incentiveCarbon markets cannot be used as a single stand-alone policy tool to drive down industrial carbon emissions, and pull new technologies into the asset base. Delphi survey respondents are clear that they believe the carbon market mechanism will require additional support from other forms of fiscal incentives.

7

7. Emerging players will take advantage of the changing policy landscape and will pose a serious threat to existing companies across the value chainThe changing policy landscape will help facilitate the emergence of new players across the value chain, potentially transforming the competitive landscape. Those companies in the renewables sector are particularly likely to pose a threat, with clean energy “majors” likely to emerge within the next decade.

As proof that the future energy system is continually evolving, a number of the key findings from our Delphi survey could be challenged by recent events, such as the lack of a global agreement at the December 2009 United Nations Climate Change

have on their industry and their specific business, and how they must position themselves as they strive to achieve high performance. Taking a proactive approach to strategic planning around energy policy is critical—interpreting, predicting, influencing and participating in the evolving energy policy landscape. The future of the energy system is still uncertain, but companies will play a major role in creating it. Therefore, it is key that companies act proactively so they are optimally positioned to achieve high performance in the future energy system.

Conference in Copenhagen (COP15) or the economic pressures affecting a number of countries. These types of events underline the sheer complexity in determining the long-term structure of the future energy system. Short-term concerns and pressures can overwhelm longer-term objectives. The challenge for parties interested in the evolving future energy system is to understand how today’s events will impact longer-term expectations and determine which steps they can take to help shape the short-term agenda.

Accenture believes that energy policy will drive the business strategies and investment decisions of energy firms. To address this challenge, business leaders will need to understand the implications that the changing energy system and policy environment will

8

Change has been a fundamental characteristic of the energy industry for some time. Even before the economic downturn, the energy industry was undergoing significant change and the recent volatility sparked by the downturn has only added to the change trend. However, as Delphi survey respondents look toward the longer term, the general consensus is that change in the future energy system will come more quickly than many conventional industry observers predict.

Survey respondents were asked to state when they expect eight key developments in the energy system to occur. Each of the eight developments were highlighted by participants as representing considerable change to the energy system, in terms of

important driver, policy and regulation was viewed as an additional catalyst in terms of investment and increased innovation in technology. Respondents suggested that stringent regulation, such as feed-in tariffs and the government backing of demonstration projects, would be required to help overcome some of the technical hurdles that face the commercialization of technologies such as carbon capture and storage (CCS) and on-grid solar.

both the nature of the supply of, and demand for, primary energy at a global level. Survey results show that these eight key developments will continue to impact the energy system across all sectors and industries, stimulating transformational change. Major developments are expected to be achieved as early as 2020, with the years 2010–2020 as a period of transition in which we see the foundations of the future energy system laid (see Figure 1).

For all the key developments, either technological innovation or policy and regulation were seen as the primary driver of change, as opposed to business innovation and consumer pull. Where technological innovation was expected to be the most

Change is coming quicker than expected

9

Figure 1. Mean time of occurrence of eight key developments for Delphi surveys I and II.

Note: Respondents were asked to state when they expect eight statements to come true. The chart shows the results on a mean value basis. Respondents also were asked to indicate the driver of change most important to enabling the statement to come true, choosing from technology innovation, business innovation, customer pull and policy and regulation. Figure 1 shows the most important driver for each statement.

Source: Delphi data, Accenture analysis.

2010 2015 2020 2025 2030 Post-2030

Never

25% quartile Mean value 75% quartile

6% 9%

3% 0%

3% 3%

3% 2%

23% 14%

3% 4%

0% 24%

6% 2%

D1 D2

Time of occurrenceStatements DriverD1 D2

Technology innovation Delphi IIDelphi I*

*Does not include Delphi 1 results for “2010”**Organisation for Economic and Co-operation and Development.

Post-Kyoto policies—binding targets

New buildings in OECD**• 40% smart technology

On-grid solar, no subsidies,commercially viable

Renewable energy sources 15%

Natural gas replaces oil

Advanced storage and smart grids• Commercial OECD

Carbon capture and storage(CCS)—12% global powergeneration

Alternative transport fuels >30%

Policy and regulation

P P

P

TT

TT

T

T

T

T

P

P

P

P

P

10

Overall, major developments are expected to occur sooner than predicted by conventional energy industry observers, even when the most aggressive scenarios are taken into account (see Figure 2). For example, Accenture Delphi survey respondents expect non-subsidized solar to reach scale in California and Spain between 2020 and 2025, more than five years earlier than the International Energy Agency’s (IEA)

Figure 2. Comparison between IEA scenarios and Delphi results for forecasts of major developments in the energy system.

Note: The IEA ETP 2008 Baseline scenario reflects developments predicted to occur with the energy and climate policies that have been implemented to date. The ACT Scenario envisages bringing global energy carbon dioxide (CO2) emissions in 2050 back to 2005 levels. The BLUE Scenario envisages halving those emissions, and is consistent with a global rise in temperatures of 2 to 3 degrees Celsius. Both scenarios explore what needs to happen if ambitious objectives are to be met, and contain “relatively optimistic assumptions for all key technology areas.” The IEA WEO 2009 Reference Scenario examines how global energy markets would evolve if governments make no changes to their existing policies and measures, quantifying the impact of existing trends and policies enacted as of September 2009. In the 450 Scenario, collective policy action is taken to limit the long-term concentration of greenhouse gases in the atmosphere to 450 parts per million CO2e in order to restrict the global temperature increase to 2 degrees Celsius.

CSP: Concentrated solar power; PV: photovoltaic

Source: Energy Technology Perspectives © OECD/IEA, 2008; World Energy Outlook © OECD/IEA, 2009; Accenture analysis.

more aggressive Energy Technology Perspectives (ETP) scenarios (ACT and BLUE) assume.2 The results around the installed capacity of CCS are more in line when comparing Accenture’s Delphi results to that of the most aggressive scenario (BLUE) in the IEA ETP study. Both studies expect the installed capacity of CCS plants to cover 12 percent of power generation by 2030.

Given that the timelines outlined in the IEA’s idealized 450 and BLUE scenarios depict a world in which collective policy action is taken to restrict global temperature rises to 2 degrees Celsius, the aggressive timelines predicted by Delphi survey respondents demonstrate their endorsement of efforts to tackle climate change, suggesting that this will indeed become a focus of government policy in the years to come.

Source Scenario On-grid solar (all technologies) commercially viable

Renewable energy sources 15%

Natural gas replaces oil as most used fossil fuel energy source

CCS—12% global power generation

Alternative transport fuels > 30%

IEA ETP 2008 Baseline Not commercially competitive by 2050

NA Does not happen by 2050

No significant deployment by 2030

NA

IEA ETP 2008 ACT CSP and PV both commercially competitive by 2030

NA Does not happen by 2050

9% of power generation by 2030

NA

IEA ETP 2008 BLUE CSP and PV both commercially competitive by 2030

NA By 2050 12% of power generation by 2030

NA

IEA WEO 2009 Reference NA Post-2030 Does not happen by 2030

NA 8% by 2030

IEA WEO 2009 450 NA Reached by 2020 Does not happen by 2030

5% of powergeneration in 2030

16% by 2030

Accenture Delphi Delphi II Between 2020 and 2025 Just after 2025 Between 2025 and 2030

2030 Over 30% prior to 2030

IEA and Accenture Delphi

Delphi II comparison with IEA scenarios

Ahead of most aggressive scenario

Behind most aggressive scenario, but ahead of baseline scenario


In line with most aggressive scenario


12

Through energy policies, governments address issues of energy development, including energy production, distribution and consumption. The specifics of a government’s energy policy are then shaped by a series of core objectives: the economy, energy security and climate change (see Figure 3). Ideally, these three drivers should balance, as reflected in the words of Ed Miliband, UK Secretary of State for Energy and Climate Change, “The central challenge for energy policy is to deliver on climate change and energy security at the least cost.”3

However, striking such a balance

is difficult to achieve. The three drivers are interrelated, and while fundamental policy drivers can be complementary, various trade-offs and tensions exist between them. While policymakers seek to balance these forces, one or more of the drivers may be given greater emphasis depending on the underlying situation in the country or region coupled with the current political mood. Assessing the emphasis behind each driver within a specific region is open to interpretation, with the pattern of underlying assumptions indicating the direction that future policy decisions may take.

Climate change will emerge as the focus of energy policy, driving investment in sustainable energy

13

Figure 3. Energy drivers are interrelated and present often competing motivations and policy objectives.

Note: Red arrow indicates “conflicting tension;” green arrow indicates “reinforcing tension”

Source: Accenture analysis.

Climatechange

Energy policy drivers

Adaptation

Mitigation

Energ

y sec

urity

Secu

rity o

f acc

ess

Meet d

omest

ic de

mand

Economy

Economic growth

Economic distribution

1414

In the wake of the downturn, survey respondents highlighted the economy as the primary energy policy driver for North America and the BRICS (Brazil, Russia, India, China and South Africa) countries (see Figure 4). As one respondent pointed out: “[during] the current recession, economic recovery has been the focal point of the US government.” The BRICS countries also were seen as being committed to continued development: “Growth and development are critical drivers of policy in these countries, and it will continue to be so.” In contrast, climate change was the number one energy policy driver in Europe, with the region having taken the lead in reacting to global warming: “It is impressive to see a leading role from the European Union on the post-Kyoto regime.”

to be a tipping point at which the negative impacts of a failure to adequately reduce carbon emissions will outweigh the cost of addressing it.

This cost is indeed high, and the growing focus on climate change will require a parallel investment in sustainable energy. To help ensure carbon dioxide (CO2) levels peak by 2020, a report issued by the United Nations Environment Programme (UNEP) and New Energy Finance argues that annual investments need to reach $500 billion by 2020, rising to $590 billion by 2030, representing an average investment of 0.44 percent of gross domestic product (GDP) between 2006 and 2030.4 This will require a significant increase from current investment levels, which have been hit hard by the economic downturn. Total sustainable energy investment fell, albeit less than expected, to $145 billion in 2009 (see Figure 5).

Figure 4. Which energy policy driver is the most important for policymakers in the following regions?

BRICS = Brazil, Russia, India, China and South Africa

Note: Respondents were asked to allocate 30 points across the three drivers (where 0 points = driver not relevant, points, 30 points = driver is the only relevant factor). In some instances, totals do not add up to 30 due to rounding.


Once the global economy achieves a sustainable recovery, climate change is expected to increase in importance across all major regions as 2020 approaches. Justifications for the growing importance of climate change in policy tend to be closely linked with the other two drivers. Climate change in support of the economy or in support of energy security is critical, as opposed to climate change on its own. For example, emphasis was placed on the energy security benefits of renewable sources of energy as well as the long-term economic costs of inaction, with respondents arguing that, over the next decade, the impacts of climate change will become increasingly severe and will begin to have an obvious material impact: “As the economic consequences of global warming slowly start to materialize, climate change will become a more important driver.” There is anticipated

North America EuropeBRICS

Today 2020 Today 2020 Today 2020

Climate change Energy security Economy

5

11

15

8

10

12

7

10

13

11

10

9

12

9

9

13

10

8

1515

Figure 6. Global energy investment expectations.

Figure 5. Global new investment ($ billion) in sustainable energy, 2002–2009.


This raises the question of where the capital will come from and whether current market mechanisms will promote and support such a significant level of investment.

Note: New investment volume adjusts for reinvested equity. Total values include estimates for undisclosed deals.

Source: New Energy Finance, ©Bloomberg L.P, all rights reserved.

Despite these recent trends, survey respondents expect global investment levels across the energy sector to quickly bounce back. Off the back of this confidence, 59 percent of respondents expect investments in sustainable energy to reach $500 billion by 2020 (see Figure 6).

65%

30%

2% 3% 0%

2010-2015 2016-2020 2021-2025 2026-2030 Post-2031

Don’t know = 12%41%

59%

Don’t know = 21%

No

Yes

When do you expect global energy investment to return to the levels seen in 2007?

According to the United Nations, investments in sustainable energy need to reach half a trillion US dollars per year by 2020 to help ensure greenhouse gas emissions will peak by then. Do you think this is feasible?

65%

30%

2% 3% 0%

2010-2015 2016-2020 2021-2025 2026-2030 Post-2031


59%

Don’t know = 21%

No

Yes



65%

30%

2% 3% 0%

2010-2015 2016-2020 2021-2025 2026-2030 Post-2031


59%

Don’t know = 21%

No

Yes



Growth: 30% 71% 55% 59% 5% -16%

2003 2004 2005 20072006 20092008

2735

60

93

148155

145

16

Despite confidence in the future prospects for investments in the energy system, Delphi respondents felt that the drop-off in energy project investment seen during the economic downturn would result in a supply crunch in the short term5: “Recession has led to a decrease in investment and delay of projects. When the economy turns, growth will be faster than projects can be brought online hence a supply crunch” (see Figure 7). This view is in line

When the challenge of climate change is added to the equation, along with a set of technologies that do not sit comfortably within the current market structure, the apparent conclusion is that the old market model is not adequate for the evolving future energy system.

Greater intervention from regulators in energy markets seems inevitable—and this is the expectation among respondents. One example is the overwhelming expectation of greater intervention from regulators in utilities markets to address carbon-reduction targets in all major regions (see Figure 8).

with that of the IEA, which warned in February 2009 of a “looming capacity crunch” in oil markets. It similarly pointed to the postponement and cancellation of upstream projects in response to the downturn, as well as falling oil prices, and called for “investment, investment, investment.”6 Current market structures are failing to motivate investment in the provision of a sufficient surplus capacity.

Current market structures are not ready to support fundamental change

17

Figure 7. Do you agree with the IEA that increasing demand will lead to a supply crunch after the economic downturn?

Figure 8. Expectations of regulatory involvement in the utilities market.



41%

59%

Don’t know = 10%

No, a supply crunch will not occur

Yes, a supply crunch will occur

Strongly disagree

17%

25%

51%

57%

47%

7%

20%

7%

8%

North America 18%

Europe

1%

41%

BRICS

Disagree Neither agree nor disagree Agree Strongly agree

Please indicate the extent to which you agree with the following statement:"There will be greater intervention from regulators in the utilities market to address carbon-reduction targets."

18

The key here is that investment needs to be enabled by appropriate and clear policy directives. There was a clear feeling among respondents that the current state of regulatory uncertainty was by far the most significant noncapital barrier to investment: “The accumulation of different and often conflicting layers of regulation (national, regional, local) brings high uncertainty and is a clear obstacle to investments in this sector.”

Figure 9. Noncapital barriers to investment (number of survey responses).


A much-touted solution that will help enable the shift to a low-carbon economy is the implementation of a carbon market similar to that already running in the European Union. It is expected that by 2020, CO2 emissions from the power sector will be 24 percent below what they otherwise would have been without the European Union Emissions Trading Scheme (EU ETS).7 As cap-and-trade schemes are implemented around the world, firms will have to develop new mechanisms to help them cope.

52%

14%

8%

8%

6%

6%

6%

Regulatory uncertainty

Prices

Access to skills and materials

Political risk

Credit rating

Demand uncertainty

Public acceptance

20

Cap-and-trade is viewed by proponents as one of the most efficient ways to achieve dual aims: 1) lowering the level of CO2 emissions and 2) increase investment in sustainable energy. At its most basic, cap-and-trade enables policymakers to impose a carbon emissions target while allowing companies to determine their most optimum carbon abatement strategy (e.g., buying allowances, investing in clean technology). However, for cap-and-trade to function effectively, it does require adequate supporting mechanisms.

In line with the current policy pipeline, respondents expect “functional and efficient” cap-and-trade schemes to be in place before 2020 in both North America and Europe, suggesting a positive outlook for The American Clean Energy and Security Act of 2009 (Waxman-Markey bill) and the third phase of the EU ETS (see Figure 10). Schemes are also expected to be implemented in China and India at some point between 2020 and 2030, suggesting that nascent trading schemes, such as the pilot launched in the Northern Chinese city of Tianjin—that allows firms to buy and earn credits based on their performance relative to the gas emissions reduction targets handed down by the central government—may evolve into more formal institutions.

The transition to a low-carbon economy will result in the spread of cap-and-trade

21

Figure 10. When do you expect "functional and efficient" cap-and-trade schemes to be implemented in the following regions?


2010-2015

2016-2020

2021-2025

2026-2030

Post-2030

Never

North America

21

65

87

94

95

4

Timing by region (cumulative percentage)

Percentages in green = cumulative total reaches majority

Europe

56

89

93

95

95

4

China and India

4

24

56

82

91

9

22

Despite the fact that survey respondents believe cap-and-trade schemes are just around the corner, a number of organizations do not have robust carbon management mechanisms in place. Carbon accounting and reporting will be of increasing importance to companies in the coming years, as they are required to report and manage their emissions. Regulation and reporting requirements in the United States and the European Union are already increasing with the introduction of legislation from the EPA and Phase III of the EU ETS. There are further complexities in the pipeline, such as the next version of the Clean Development Mechanism (CDM), more industry sectors coming into the scope of the EU ETS scheme, the requirement to report emissions from the combustion of end products, and well-to-wheel life-cycle analysis. It also remains unclear where carbon credits or charges will sit in the value chain.

Some companies have taken a lead in carbon management through voluntary reporting schemes such as the Carbon Disclosure Project, a review of which shows that, across the board, integrated oil companies (IOCs) have carbon accounting and reporting mechanisms, and greenhouse gas (GHG) reduction strategies in place (see Figure 11). However, respondents in the Delphi study revealed a lack of consistency in the way that companies across the industry plan and account for the cost of carbon.

Environmental Conservation Association (API/IPIECA), EU ETS (MRG), the GHG Protocol and protocols developed by companies themselves. Companies also have to cope with a patchwork of regional initiatives. In the United States, consortiums of states have sought to establish their own mandatory reporting schemes, such as the Regional Greenhouse Gas Initiative. Some argue this represents an inefficient system that pushes back the pace of change.

Given that carbon reporting is a challenge global in nature and also stretches across industries, it would seem a coordinated solution is the best option. However far off it may be, if a global carbon accounting system is to become a reality, a considerable shift toward greater collaboration and alignment is required between environmental regulators, policymakers setting accounting standards and energy sector leaders. Only with cooperation on all sides will a universally applicable climate change reporting and auditing standard emerge.

One would expect companies to differ in how they optimize their carbon positions, since this is the activity where the cost or value of carbon can be most influenced, and is contingent on overall business strategies. The survey did indeed show that companies take a number of different approaches to reducing their carbon emissions, from identifying reduction opportunities and setting reduction targets to buying offsets, providing input to national policy development, and deploying new technologies.

In contrast, industry observers would expect the baseline degree of carbon accounting and reporting to be standard and consistent across organizations, due to its critical role in delivering optimization opportunities. However, 49 percent of Delphi respondents only calculate their carbon emissions footprint at a high level (measuring the total emission footprint of the entire organization), while 51 percent of organizations make detailed calculations, i.e., by business unit or product.

Company carbon data disclosures are currently incomparable across companies and inconsistent within companies from year to year. This may not be surprising: no unified international carbon accounting standard currently exists, with firms instead choosing from a number of different reporting protocols, such as American Petroleum Institute/International Petroleum Industry

23

Figure 11. Comparison of disclosures made to the Carbon Disclosure Project by IOCs.

*Converted from GJ to MWh using www.onlineconversion.com (as recommended by the CDP guidelines for conversion).

Note: CDP terminology: Scope 1 GHG emissions refer to those generated through the direct burning of fossil fuels (from sources owned or controlled by the reporting organization). Scope 2 emissions are those that do not physically originate from within the organization’s reporting boundary and are “indirect”—usually refer to greenhouse gas emissions generated from purchased electricity (also include cooling, steam, etc.). Scope 3 emissions are from other indirect sources not covered in Scope 2, e.g., the combustion of an IOC’s end products, or its supply chains and corporate air travel (i.e., greenhouse gas emissions from sources not owned or controlled by an organization, but which occur as a result of its activities)

CPRS: Australian Carbon Pollution Reduction Scheme; API: American Petroleum Institute; IPIECA: International Petroleum Industry Environmental Conservation Association; CCS: Carbon capture and storage; ICE: Internal combustion engine.

Source: Carbon Disclosure Project, https://www.cdproject.net; Accenture research.

Company Anticipate participating in schemes other than EU ETS over next two years ?

EU ETS allowance(mn MT CO2e)

Scope 1 GHG emissions (mn MT CO2e)

Scope 2 GHG emissions (mn MT CO2e)

Reporting protocols followed

Scope 3 emissions - combustion of end products only (mn MT CO2e)

Total energy consumption (purchased)

CO2 reduction strategy (initiatives, investment; disclosed internal targets)?

Key alternative energy investments

BP

Chevron

ExxonMobil

Shell

Statoil

Total

e.g., National schemes (Aus CPRS, NZ); US state schemes

• GHG protocol• API/IPIECA

• GHG protocol• API/IPIECA• SANGEA



• EU ETS (MRG)

~12.6 61.4 9.2 515

382

690

597

Not disclosed

Not disclosed

5.2

14

10

0.2

3.5

63

131

75

15.1

57.9

~2.5

~19

~20.2

~2.9

~26

e.g., Australian CPRS

e.g., Japanese “test” cap-and-trade

e.g., Australian CPRS; US federal carbon futures

e.g., United States, Canada, Australia

✓• Initiatives• Investments ($8

billion by 2015)

• Biofuels• CCS• Solar• Wind

• Biofuels• CCS• Solar• Wave/tidal

• Biofuels• CCS

• Biofuels• CCS• Wind

• Biofuels• CCS• Fuel cells• Geothermal• Solar

• Batteries (Li-ion)• Biofuels• CCS• Fuel cells/

hydrogen• ICE

✓

• Initiatives• Investments ($2.7

billion so far)

✓

• Initiatives• Investments ($1.5

billion since 2005)• Targets

✓

• Initiatives• Investments• Targets

✓

• Initiatives• Investments

✓

• Initiatives• Investments ($100

million budget in 2009)

• Targets

✓

✓

✓

✓

✓

✓ • EU ETS (MRG)

• API/IPIECA

~286mn MWh (2007)*

~13.7mn MWh

~417mn MWh*

~73.8 mn MWh

~3.5 MWh

~174mn MWh*

https://www.cdproject.net

24

The implementation of carbon markets requires not only the effective management and reporting of carbon emissions, but also a clear understanding of the business implications of a carbon price over the longer term. With respondents demonstrating a clear expectation of growing carbon prices, we would expect that companies are already integrating carbon price forecasts into their capital expenditure (CAPEX) decisions, but this is not currently the case for companies that responded to this study.

Despite the expectation that “functional and efficient” cap-and-trade schemes are just around the corner, responses indicate that companies do not have robust forecasting mechanisms in place (see Figure 12). For 17 percent of respondents, personal judgment or guesswork was selected as the current method for predicting carbon prices, with only around 20 percent using methods based on in-house forecasting, internal models and dedicated work units. Of those companies that do generate carbon price forecasts, a number are not doing so over significant time frames, while many are not “pricing in” carbon for new capital investments.

Carbon markets must be supported by other forms of fiscal incentive

25

Figure 12. Organizations surveyed do not have robust carbon price forecasting mechanisms in place.


1%

1%

2%

4%

5%

5%

17%

13%

24%

28%Use third-party price forecast

Use EU ETS price signal

In-house forecast

Personal judgment

Third party

Own model

Cost required to cut emissions

Policy indicators

Dedicated unit

Most expensive abatement option

“Other”responses

Total 1 year ahead

10 years ahead

20 years ahead

N/A

57%

43%

28%

44%

28% 57%

What approach have you taken to forecast the carbon price? We generate carbon price forecasts up to…

We “price in” carbon for our new capital investmentsOf those that responded

No

N/A = 56%

Yes 62%

38%

26

So why does this disconnect exist? A number of respondents highlighted the fact that carbon prices were incredibly hard to predict, particularly over long time periods. Indeed, over time the spread of the carbon price predictions from the survey increases greatly, with the price in 2030 ranging from $10 to $200.The considerable volatility seen in the EU ETS over the last few years is indicative of these concerns, with the carbon price falling from about €30 a tonne in the summer of 2008, to €8 in February 2009, before recovering somewhat in recent months to a price of around €14. This volatility is a consequence of the high political risk involved in carbon markets and the complex range of factors affecting the system, including:•Thepriceofnaturalgasrelative

to coal (on the basis of substitution economics).

•Emissionsreductiontrajectoriesand the marginal cost of abatement (itself impacted by allowances, offsets, internal improvements and energy demand).

•Theextentofindustrycoverage.•Oversupplyofallowances.

Despite these issues, carbon markets do appear to be good at encouraging operating cost improvements or fuel switching where capital requirements are limited and the payback period is short. A recent survey on the impact of the EU ETS on power sector investments among European utilities by New Energy Finance shows that carbon markets are resulting in the addition of new biomass co-firing capacity and the early closure of older and dirtier oil, coal and lignite plants, particularly in the context of the Large Combustion Plant Directive.8

When asked which policy solutions and tools would best support developments in the energy system, respondents saw carbon markets as playing a key role, but other forms of fiscal incentive (such as grants, tax exemptions and feed-in tariffs) were viewed as being more important (see Figure 13). Essentially, while putting a price on carbon is a necessary step in promoting low-carbon energy, it is not in itself sufficient. This perception also was reflected in the $56 carbon price that respondents expected in Europe by 2030, which is significantly lower than what is believed to be required to support the development of a number of low-carbon technologies. According to New Energy Finance, the carbon price that would be required to make investments in solar cells without subsidy is $196.9

But while carbon markets may support smaller investments in mature technologies, regulatory uncertainty and the inherent scope for price volatility combine to produce a less than solid foundation for investors to make large-scale decisions, where huge capital commitments are required. This is particularly the case for utilities, which tend to have different leverage ratios to companies in the oil and gas industry, financing projects through a mixture of debt and equity. It is difficult for such firms to make an investment business case around a price that is currently low but that is projected to increase significantly in 20 years’ time, particularly where the increase is subject to significant political risk.

Carbon markets as they currently exist cannot be used as a single stand-alone policy tool to drive down industrial carbon emissions and pull new technologies into the asset base—they also require heavy additional support from other forms of fiscal incentive. This need was clearly brought out in responses to the survey.

27

Figure 13. Comparison of the views of industry and policymakers on the tools that would best support developments in the energy system.

*Fiscal incentives/penalties include: grants, subsidies, tax incentives/exemptions, tax penalties for the use of hydrocarbons, end to the subsidization of hydrocarbons and renewable energy/green certificates. Feed-in tariffs were categorized separately due to the large number of specific responses.

Note: Respondents were asked to name the policy solutions and tools that would best support the development of eight statements (see Figure 1). They also were asked to name the mechanisms that would enable investments in sustainable energy to reach half a trillion US dollars per year by 2020, and the policy and regulation required to ensure the EU 20/20/20 targets can be met in time. More than 350 qualitative responses to these questions were coded to provide the quantitative summary seen above.


Binding targets

Fiscal incentives/penalties

Carbon market

Building codes/certification

Energy-efficiency standards

Feed-in tariffs

Education

OECD support mechanisms

Not feasible regardless of policy

Policymakers Industry

30%

30%

18%

26%

15%

17%

9%

9%

9%

7%

5%

5%

3%

4%

4%

2%

3%

6%

Fiscal incentives/penalties: “Government policy enactments which make fossil-fuel alternatives much more expensive, together with RPS, and continued stimulus funding for investment.”

Binding targets: “Setting binding targets at national and sectoral level based on more robust evidence on damage costs of climate change.”

Carbon market: “Carbon cap-and-trade program with long-term liquid market for trading across regional boundaries.”

Building codes/certification: “Clear and transparent labeling of building classes offered by governmental body.”

Feed-in tariffs: “Feed-in tariffs as implemented in Italy, Germany and Spain.”

Energy-efficiency standards: “A stronger commitment to improving energy efficiency and energy saving in buildings, industry and services.”

OECD support mechanisms: “Support mechanisms for developing countries—CDM, only better.”

Education: “Citizens have to be educated to adopt a low-carbon future.”

Not feasible regardless of policy: “While I believe many nations will make commitments to reduce greenhouse gas emissions, I do not believe that they will be binding because there is no effective enforcement tool.”

Includes mechanisms that would enable investments in sustainable energy to reach half a trillion per annum by 2020, and policy and regulation required to ensure the European Union’s 20/20/20 targets can be met.

28

The $56 carbon price (quoted by survey respondents) also is lower than that estimated to support low-emissions scenarios (see Figure 14). The IEA calculates that to reduce emissions targets to 450ppm by 2030, the carbon price will reach $50 by 2020 and $110 by 2030 (as per IEA WEO 2009 450 scenario), with the rapid growth envisaged between 2020 and 2030 based on the implementation of more stringent caps and the resulting uptake of more costly mitigation options. Therefore, respondents may have lower expectations of the significant tightening of caps post-2020, with expensive mitigation options correspondingly left unapplied. However, given Delphi respondents’ belief that investment in sustainable energy will reach $500 billion a

year by 2020, and their view that expensive mitigation options such as carbon capture and storage (CCS) will take up a significant market share of power generation by 2030, it is more likely that respondents feel other mechanisms will be used to support more expensive mitigation options.

Regardless of the exact form of tools used by policymakers to support developments in the energy system and the transition to a low-carbon economy, one thing is clear: the expectation is that significant regulation will be put in place over the coming years. Companies should position themselves to take advantage of the changing policy landscape.

Figure 14. Please indicate what carbon price per tonne of CO2 you would expect to see in Europe (US dollars).

Note: Price forecasts for the Delphi survey are for Europe. In the IEA Reference Scenario, carbon pricing is limited to the power and industry sectors in EU countries and for the IEA 450 Scenario the price is for OECD+ (includes all OECD countries, as well as European non-OECD countries).

Source: World Energy Outlook © OECD/IEA, 2009; Accenture research.

2010

21

43 39

5054 56

110

2020 2030

Survey results IEA Reference Scenario IEA 450 Scenario

30

When dealing with policy change, companies often take a reactive stance—this means they only adjust once the policy is live and change is already visible. As a result, a number of companies stop short at policy issue and crisis management. Due to the increasing role of policy in the energy sector this is no longer satisfactory—and the energy industry must seek to actively engage in the policy-making process in order to benefit from it, incorporating policy perspectives into existing risk management processes and decision making.

it can. Policymakers disagree. They feel they could receive more support from industry, while also believing that industry is given sufficient opportunity to provide input to the policy-making process. This would suggest industry is given plenty of opportunities to provide input into policy decisions, but chooses to share little (see Figure 15). The disagreement between the two sides could imply a sense of protectionism and distrust from policymakers and industry leaders, with both parties looking to safeguard their own interests from the encroachment of the other.

Findings from the Delphi survey highlighted asymmetries in the attitudes of government and industry toward the input the latter is able to make into the policy-making process, suggesting there has been a failure in dialogue between the two parties.

Currently, those from industry believe they are doing enough to help policymakers come to informed decisions, but are not given sufficient opportunity to provide input to the policy-making process. This would suggest that of the few opportunities industry is given to provide input into policy decisions, it divulges all

Industry and policymakers must look to build open and transparent engagement

31

Figure 15. Industry/government dialogue.


13%

16%

11%

50%

11% 9%22%

56%

22%11%

37%

18%

34%

6%

38%

29%

24%

3%11%

33%

56%41%

3%

35%

12%

Industryn=53 n=49 n=11 n=53 n=49 n=11

Policymakers Academia Industry Policymakers Academia

Academia disagree significantly more than industry

No significant differences

Policymakers have access to all they need from industry to make informed policy decisions

Industry is given sufficient opportunity to provide input to the policy-making process

Strongly agreeAgree

Neither agree nor disagreeDisagreeStrongly disagree

n=12

Industry n=36

n=20

n=4

Strongly agreeAgree


33%

56%

11%

Dedicated department or functional unit

Senior person holds responsibility

We do not seek to influence policy

8% 25% 8% 58%

10% 20% 15% 40% 15%

17% 8% 75%

5% 45% 25%

50% 25% 25%

25% 25% 50%

25%

Industry is given sufficient opportunity


Policy makers have access to all theyneed from industry




Industry respondents Comparison: Agreement with statements

Caution: Low base sizes; No significant group differences

32

Figure 16. What type of capability does your organization have in place to influence policy?


Respondents suggested a number of steps that would improve levels of engagement between industry and policymakers. Having a more professional and focused unit in place to interact with policymakers was viewed by survey participants to result in a more positive outcome. For those from industry that have a capability in place to influence policy (see Figure 16), the responsibility falls to a senior person (56 percent) in the majority of respondents, with only 33 percent having a dedicated policy department or functional unit. Eleven percent did not seek to influence policy at all. Those companies that have a dedicated policy department or functional unit are much more likely to believe that industry is given sufficient opportunity to provide input to the policy-making process

very high and industry’s knowledge is therefore disregarded.” Changing this situation first requires an improvement in lines of communication, whether verbally or through the sharing of data, to enable “appropriate consultation before decision making,” and help policymakers develop a clear and holistic understanding of the energy system.

(58 percent) compared to other respondents (25 percent), and also are more likely to believe that industry is providing policymakers with all the input required (75 percent), compared to other respondents.

In order to build greater traction with policymakers, those in the energy industry must not only take a more professional approach to lobbying efforts, but must do so in an open manner that seeks to build trust with policymakers and the public as a whole. As one respondent pointed out, “Public distrust for industry is

33

Secondly, industry should consider how to improve the diversity of inputs into its own cohesive lobbying efforts; for example, looking to include businesses from a range of different backgrounds as well as representatives of civil society, to help change industry perception amongst policymakers. This will require a clear separation of individual corporate agendas from the overall interests of society, and a highly transparent approach consistent with modern societal values. Indeed, respondents overwhelmingly agreed that greater transparency needs to be brought to lobbying (see Figure 17).

While a small minority of respondents felt that the legislation required to enforce transparency would actually harm engagement, the vast majority believed it would remove the influence of “special interests” from the policy-making process, creating a level playing field that would improve the quality of information passing between industry and government, facilitate more honest discussion and ultimately lead to a greater understanding of the issues the energy industry faces.

Figure 17. Do you agree that efforts should be made to bring greater transparency to lobbying?


3%

13%

48%

36%

8%

14%

12%

52%

36%

22%

44%

33%

46%

32%

Total Industry Policymakers Academia

Strongly agreeAgree


34

By 2030, increasing government intervention in energy markets, combined with the rapid pace of technological change will have transformed the future energy system. However, will the key players have dramatically changed?

During the previous Accenture Global Energy Board meeting in Abu Dhabi in January 2010, Lord John Browne of Madingley remarked, “I expect clean energy ‘majors’ to emerge over the next decade or so. Incumbent energy

players will face competition from new entrants, as well as from businesses from other sectors, in the race to build these clean energy companies of the future.” Respondents had mixed views on the extent to which this would be the case, with the real picture being one of uncertainty (see Figure 18).

Emerging players will take advantage of changing energy policy, posing a threat to existing players

35

Figure 18. How much of a threat will emerging players pose to established companies in the energy industry?


3% 7% 16%

41%

16% 20% 16% 10%

38%

11% 1%

1 2 3 4 5 6 7 8 9 10

Little/no threat Major threat

Little/no threat

Major threat

42%

38%

36

Respondents did clearly believe that emerging players will compete across the value chain (see Figure 19).

Figure 19. Emerging threats and disruptive technologies for incumbents in the energy industry.

Note: Survey respondents were asked to indicate where in the value chain emerging players are most likely to compete, and to specify the threat posed by potential players. The figure summarizes these comments. Respondents also were asked to choose the one technology they think has the greatest potential of disrupting the current energy system (e.g., energy mix, sources, etc.) between now and in 2030.

EVs: Electric vehicles.


Oil and gas Utilities Chemicals Renewables Automotive

NOCs controlling supply, forming alliances and operating outside their home country

Firms specializing in alternative energy will compete in power generation

Bioplastics will begin to compete successfully with conventional fossil-fuel based plastics

Huge opportunity in this area across the value chain—will we see an integrated renewables company?

New business models will enable electric vehicles to make big inroads into the market

Service companies extending their offering

Asset ownership by financial players rather than utilities

Carbon-leakage investments pushing activity into Middle East and Asia

Developing world—particularly Brazil and China—has stolen a march in areas such as wind, solar, and biofuels

Battery manufacturers and utilities will emerge as new players

Second-generation biofuels

Smart grid applications will drive competition from information and communications technology (ICT) firms, among others

Chinese manufacturers of both batteries and electric vehicles will represent major competition

Independents competing with unconventional production plays

Traditional transmission and distribution networks will be challenged by decentralized supply and international networks

Disruptive technologies (size of bubble indicates proportion of responses):

Solar Biofuels Storage Nuclear Wind Battery CCS EVs Smartgrid

Unconventionalgas

Greatest potential

27%

37

Less favorable34%

The same 35%

More favorable 31%

Major shift14%

Minor shift61%

No change 25%

Will fiscal terms in resource-rich nations become more or less favorable for foreign investors?

Can we expect to see a shift toward the international oil company as service contractor?

Figure 20. Changing operating landscape for IOCs.


Oil and gasIn the oil and gas sector, it is not so much a case of emerging players as it is a case of emerging threats. The balance of power has begun to shift. For IOCs, national oil companies (NOCs) will pose the greatest threat as they become more independent and begin aggressively expanding outside their home countries. Indeed, the past year has seen a spate of activity on the part of NOCs. In 2009, overseas investment announced by NOCs doubled compared with 2008, reaching $26 billion. This was a record 17 percent of merger and acquisition spending, and 44 percent of spending outside North America, generally the most active market.10

Respondents did clearly think that over the next few years there will be some form of shift toward the IOC as service contractor (see Figure 20), suggesting a decline in equity-based deals. If this shift takes place, IOCs will face stiff competition from existing oil services companies, who respondents highlighted as posing a threat due to extensions to their offerings. Independents competing with unconventional plays also were highlighted as posing a threat. This can clearly be seen in the North American market, where independents drove the development of shale gas reserves.

The increasing concentration of fields in the hands of NOCs also may help them gain ground over their rivals. Overall, three-quarters of the world’s reserves are now controlled by NOCs—eight-tenths of the world’s largest producers are now partly or fully state-owned and operated, with private access to reserves often strictly limited.11 Responses were mixed on whether such trends would result in fiscal terms in resource-rich countries becoming more or less favorable for foreign investors, as seen in Figure 20, perhaps reflecting the recent volatility in oil prices. While high prices prompted NOCs like PDVSA to claw back control of fields, such as those in the Orinoco Basin, the recessionary fall and subsequent stabilization of oil prices at relatively low levels, at least in comparison to recent years, is likely to diminish the short-term prospects for creeping and outright expropriation.

38

UtilitiesIn the utilities industry, respondents believe incumbents will face the greatest competition in power generation from firms specializing in the alternative energy sector. Indeed, when asked which technology has the greatest potential for disrupting the current energy system, respondents highlighted renewable energy generation technologies, most notably solar power, both photovoltaic (PV) and concentrated solar power (CSP) as well as, to a lesser extent, wind power (see Figure 19). More traditional forms of power generation were also highlighted, including nuclear and coal-fired generation when combined with CCS.

The development of renewable technologies has seen the involvement of a number of unconventional players. For example, in 2007, Google launched “RE<C” (“Develop renewable energy cheaper than coal”) and has invested in technologies ranging from CSP to enhanced geothermal and high-altitude wind turbines.12 Google also has launched a PowerMeter, which is able to receive information from smart meters and in-home energy management devices before visualizing the information in iGoogle.13 This is representative of a wider shift by information and communications technology (ICT) firms into the transmission and distribution (T&D) and retail segments of the utilities sector in order to gain market share of the smart grid applications business, a development highlighted by survey respondents. Traditional transmission and distribution network operators will not only be challenged by smart grid applications, but also by both decentralized supply and international networks, according to survey respondents.

AutomotiveIn the automotive sector the clear threat comes from alternative transport fuels, with companies from the developing world (particularly China) highlighted by respondents as making significant plays with electric vehicles supported by improved battery technology. Indeed, the Chinese government aims to make China the largest market for plug-in hybrid electric vehicles and electric vehicles in the world. Its recent stimulus package included $1.5 billion in subsidies over the next three years (2010–2012) for automakers to develop alternative-energy vehicles, while it also announced plans to introduce nationwide charging station coverage by 2012.

ChemicalsThe changing policy landscape is expected to have diverging impacts on the chemicals industry according to survey respondents. While the shift to a low-carbon economy and technology innovation will enable bioplastics to compete successfully with fossil-fuel based plastics, the introduction of carbon markets to facilitate that shift may result in carbon leakage pushing activity from western-based chemical facilities into Asia and the Middle East.

RenewablesRespondents did clearly believe that the changing policy landscape will create huge opportunities for the renewables industry (see Figure 19), with emerging players in this sector well-positioned to compete across the energy system. Notably, the emergence of an integrated renewables company was highlighted as a possibility. Companies from the developing world, particularly Brazil and China, were noted as having stolen a march in this area. China, for example, is now the largest manufacturer of both wind turbines and solar panels, and is seen as “leading the global race to make clean energy.”14

40

The responses to the Delphi surveys highlight participant expectations regarding what the future energy system will look like over the longer term. The problem is that the path to the future is never that straightforward. As the foundations for the future energy system are laid today, short-term events have the potential to impact the plans for those foundations. In certain cases, the impact may simply be one of timing. In other cases the impact could be more radical.

Energy policy is being shaped in the short term by economic concerns. Recovery from the downturn has caused legislators to consider the impact of new energy policy on areas such as job creation/loss, price inflation and competitiveness.

Legislators concerned about reelection will likely place economic interests ahead of climate change. This has the potential to lead to watered-down versions of energy policy or delays in final policy decisions as plans are reanalyzed.

Once sustainable economic recovery has been achieved, focus would then shift toward energy security. For fast-growing economies, that will entail ensuring they have the energy solutions to support rapid expansion plans. For some of the established economies with aging infrastructure, the concern from the public may be less about climate change than it is about addressing “when is my electricity going to go back on?” following predicted power cuts. In both cases, the degree of urgency surrounding solving a country’s energy security issues could have repercussions on climate change-related energy policies.

One additional concern during the future energy system transition period (2010–2020) is the amount of debt that nations have amassed to support economic recovery. Over time, these debt levels will need to be reduced meaning cuts in government spending. This has the potential to delay critical government investment in expensive technologies such as CCS. Short-term national interests are one reason there was a lack of global agreement at the December 2009 COP15 conference. The shift to more national and regional climate change solutions will increase the complexity companies have to manage as they plan for the future energy system with the likely result a slowdown in the pace of change.

Cautionary note: short-term concerns impact the evolution of long-term energy system change

41

As proof that the future energy system is already being impacted by short-term concerns, the US Senate has created a watered-down version of the Waxman-Markey proposal, with Senator Lindsey Graham declaring economy-wide cap-and-trade "dead."15 In Australia, the parliament has voted down adoption of their emissions trading system. A number of energy firms have shied away from investing in CCS demonstration plants due to uncertainty about government support.

This underlines the sheer complexity in determining the long-term structure of the future energy system. Questions raised include:•Willcap-and-tradebe

supplanted by cap-and-dividend or carbon taxes?

•Willgovernmentshavethescopeto provide the necessary fiscal incentives to develop climate change solutions given concerns about national debt levels?

•Willthelackofaglobalclimatechange treaty delay the ultimate pace of change in the future energy system?

Short-term concerns and pressures can overwhelm longer-term objectives. The challenge for parties interested in the evolving future energy system is to understand how today’s events will impact longer-term expectations and determine what steps they can take to help drive the short-term energy policy agenda.

42

Accenture believes energy policy will drive the business strategies and investment decisions of energy companies. To address this challenge, business leaders will need to understand what implications the changing energy system and policy environment will have on their industry and their specific business, and how they must position themselves as they strive to achieve high performance.

On this basis, Accenture has developed the following framework (see Figure 21) to provide business leaders with a guide for making proactive strategic planning decisions:

As the future energy system continues to evolve, so too must companies continue to evolve their strategic plans when it comes to energy policy. The future energy system is uncertain but companies will play a major role in creating it. Therefore, it is key that companies take a proactive lead so they are optimally positioned to achieve high performance in the future energy system.

•Interpret:Businessesmustmonitorpolicy developments and understand where relevant policies are in the life cycle

•Predict:Policieswithahighdegreeof complexity and uncertainty will need to be factored into strategy and planning processes, requiring policy predictions to be developed

•Influence:Businessesmust engage in policy formulation to influence desired policy outcomes, operating within clearly stated ethical boundaries

•Participate:Businessesmustrelyontrends and early signals of policy direction rather than waiting for clear, stable policy guidance

Implications for the energy industry and formulating an appropriate business response

Figure 21. Making strategic planning decisions in uncertain times: a framework for business leaders.

The following framework provides business leaders with a guide for making strategic planning decisions

InfluenceBusinesses must engage in policy formulation to influence desired policy outcomes, operating within clearly stated ethical boundaries

InterpretBusiness must monitor policy developments and understand where relevant policies are in the life cycle

PredictPolicies with a high degree of complexity and uncertainty will need to be factored into strategy and planning processes, requiring policy predictions to be developed

ParticipateBusiness must rely on trends and early signals of policy direction rather than waiting for clear stable policy guidance

• Don’t wait for certainty—

make decisions now• Place bets based on informed

forecasts and analysis

• Decide whether to engage in the discourse

• Actively shape policy making?

• Monitor policy developments• Understand policy life cycle

and dynamics

• Include policy assumptions into strategic forecasts

• Evaluate potential business impacts

43

The Accenture Global Energy Board (GEB) is a self-directed global forum of business leaders established by Accenture in 2002 to gain insight into the major trends shaping the future of the energy industry. Its primary purpose is to establish a forum through which members have privileged access to ideas, projects, experts and organizations that focus on the top energy industry issues and challenges.

The board is chaired by Lord John Browne of Madingley and comprises leaders from the energy industry (petroleum, gas and power), some of the most energy-intensive industries (automotive, chemicals and resources), as well as leaders from the economic, academic and geopolitical spheres. GEB members cover all geographical regions.

The GEB focuses on the principal drivers of the energy industry—now and in the future: technology innovation, energy policy and the onward development of energy markets and consumer preferences. It seeks to help business leaders, academics and policymakers understand the major trends impacting the industry and provide a fact base to improve decision making and policy development on critical energy issues. The GEB also advises Accenture on issues in which original research and substantive points of view will be of greatest value to members as they weigh business decisions, investment priorities and policy considerations.

During the GEB meeting in Rio de Janeiro in 2008, members raised concerns about the reliability of energy demand forecasts produced by a number of research bodies. As a result, Accenture undertook an analysis of various future energy scenarios. The study found that established publications from organizations such as the International Energy Agency (IEA), Energy Information Administration (EIA) and the Intergovernmental Panel on Climate Change (IPCC) present a range of conflicting views with varying estimates of the speed and extent of change, with a more than 100 percent difference in 2030 energy demand levels between the highest and lowest scenarios.16 Such reports were therefore deemed insufficient for energy executives looking for further clarity to guide their investment and asset portfolio decisions.

The Delphi survey on the Future Energy System was conducted to better understand potential developments in energy markets and to help clarify the key concerns and uncertainties that decision makers in the energy industry are struggling to address.

The findings were presented at Accenture’s GEB in Washington DC in April 2009, with the results discussed in a live Delphi session, designed to aggregate participants’ positions in real time, allowing for live feedback. These discussions were used to shape the second Delphi survey, the findings of which were presented at Accenture’s GEB in Abu Dhabi in January 2010.

The Accenture Global Energy Board and its involvement in the Future Energy System Delphi

45

46

We utilized a systematic, interactive forecasting method relying on perspectives from a panel of independent experts (see Figure 22). Experts are chosen on the basis of their knowledge of the chosen topic, and are then asked to answer questionnaires in a number of rounds. After each round, a summary of the experts’ forecasts from the previous round is produced. On this basis, experts are encouraged to revise their earlier answers in light of the replies of other members of their panel. It is expected that this process will result in a decrease in the range of the answers, with the group ultimately converging toward the “correct” answer.

The first round of the Future Energy System Delphi study was conducted in February and March 2009. It examined broad change in the energy system, while drilling down further on two topics—the impact of the economic downturn and fuel transport diversity. More than 30 leaders and academics from the energy sector were surveyed, the majority of whom had a global responsibility within their role.

Analysis of the data from Delphi I, input from the GEB and feedback from respondents were used to shape the second Delphi survey, which focused on the future policy landscape, and was carried out in

October and November 2009. There were 130 experts who completed the survey, with a broader cross-section of respondents than Delphi I, both by geography and industry. All areas of the globe were represented with responses from Europe, North America, Asia Pacific, South America, Africa, Eastern Europe and Russia. Utilities (19 percent) and oil and gas (18 percent) were the largest participant groups followed by policy (17 percent), policy advisory (17 percent) and academia (8 percent).

The Delphi methodology

Figure 22. The Delphi methodology.

What is the Delphi methodology? How does it work? What are the benefits?

• Proven research method for gathering expert opinions on future developments

• Methodology differs from other approaches in that two (or more) survey rounds are conducted

• Key trends and disagreements between experts are probed in more depth

• In most cases, areas of convergence emerge that form a new basis of agreement

• Areas of divergence and different mindsets also are identified, which can be targeted for resolution

Insight on trends

Leadership alignment

Strategic choices

Clear communication

Q1 Q2 Q3 Q4 Qn

Q1 Q2 Q3 Q4 Qn

Delphi IQuestions informed by concerns of Accenture Global Energy Board

Live DelphiFacilitated workshop held with Accenture Global Energy Board

Delphi IIQuestions aligned with outcomes of previous work

Review processFacilitated workshop with Accenture Global Energy Board

Agreed set of externally driven research outcomes

47

1. We define functional and efficient schemes as any form of schemes that overcomes the typical problems of existing carbon market schemes (e.g., current European Union Emissions Trading Scheme). The criticism leveled at these schemes includes high price volatility, poor allocation of allowances, carbon leakage and issues with measurement.

2. Energy Technology Perspectives © OECD/IEA, 2008.

3. Ed Miliband, “We must work together to keep the lights on,” The Times, October 12, 2009, via Factiva, © 2009 Times Newspapers Limited.

4. "Global Trends in Sustainable Energy Investment 2009 Report," UNEP Sustainable Energy Finance Initiative and New Energy Finance, 2009, http://sefi.unep.org/english/globaltrends2009.html.

5. We define a supply crunch as a scenario where continued demand growth, combined with low excess crude producing capacity due to underinvestment in energy capital, leads to a spike in oil prices.

6. "IEA sees looming capacity crunch," March 11, 2009, Oil and Gas News, © 2009 Al Hilal Publishing & Marketing Group.

7. "EU ETS Deep Dive," New Energy Finance, November 2009.

8. The Large Combustion Plant Directive aims to reduce acidification, ground level ozone and particles throughout Europe by controlling emissions of sulfur dioxide and nitrogen oxides and dust from large combustion plants in power stations, petroleum refineries, steelworks and other industrial processes running on solid, liquid or gaseous fuel. "Carbon Markets - EU ETS Deep Dive," New Energy Finance, December 14, 2009.

9. "A special report on climate change and the carbon economy: Good policy, and bad," Economist Intelligence Unit - Executive Briefing, December 10, 2009, via Factiva, © 2009 The Economist Intelligence Unit Ltd.

10. "Upstream M&As seen buoyant in 2010 after strong pickup: Wood Mac," Platts Commodity News, February 12, 2010, via Factiva, © 2010. Platts.

11. "Leviathan stirs again," The Economist, January 23, 2010, © The Economist Newspaper Limited, London 2010.

12. Plug into a Greener Grid: RE<C and RechargeIT, http://www.google.org/rec.html.

13. Google PowerMeter, http://www.google.com/powermeter/about.

14. "China Leading Race to Make Clean Energy," The New York Times, January 31, 2010, via Factiva, © 2010 The New York Times Company.

15. "U.S. carbon traders fear pink slips," Reuters News, March 11, 2010, via Factiva, © 2010 Reuters Limited.

16. "Predicting the future: Forecasting future energy demand in a rapidly evolving energy system," Accenture, 2009.

Endnotes

http://sefi.unep.org/english/globaltrends2009.html

http://sefi.unep.org/english/globaltrends2009.html

http://www.google.org/rec.html

http://www.google.org/rec.html

http://www.google.com/powermeter/about

http://www.google.com/powermeter/about

Copyright © 2010 Accenture All rights reserved.

Accenture, its logo, and High Performance Delivered are trademarks of Accenture.

About Accenture Accenture is a global management consulting, technology services and outsourcing company, with more than 181,000 people serving clients in more than 120 countries. Combining unparalleled experience, comprehensive capabilities across all industries and business functions, and extensive research on the world’s most successful companies, Accenture collaborates with clients to help them become high-performance businesses and governments. The company generated net revenues of US$21.58 billion for the fiscal year ended Aug. 31, 2009. Its home page is www.accenture.com.

Contact us To learn more about how Accenture can help your energy company on its journey to high performance, visit us at www.accenture.com or call us at +1 312 737 7909 or toll-free in the United States and Canada at +1 888 688 7909.

For more information on this future energy system report and how Accenture can help you achieve high performance, please contact James Collins ([email protected]).

About the authorsJames Collins—Accenture Resources Strategy, London

Michael Moore—Analyst, Accenture Resources Strategy, London

Catherine Johnson—Accenture Resources Strategy, London

Executive sponsorArthur Hanna—Managing director, Accenture Energy industry group

Research supportAngela Murphy—Accenture Research, Pretoria

understanding the future energy systemsource: delphi data, accenture analysis. 2010 2015 2020 2025...

Documents