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16 Dec 2022

Key strategies for global energy transition planning from COP27

Energy Transition, Green Growth
 Nikhil Kaitwade
Global Energy Transition

If the world does not band together to invest in various adaptation and resilience strategies, it could result in significant financial damage for all stakeholders and costs are anticipated to rise.

To avoid more serious climate change consequences, the global energy system must be completely transformed away from fossil fuels and toward renewables. Although technology exists, time isn’t on our side.

These were the underlying messages from the World Meteorological Organisation on Energy Day during the UN climate change negotiations, COP27. As a result, numerous industries throughout the world are implementing initiatives to reduce the negative climatic impacts and slow down the consequences.

The potential of new innovations and clean technology, as well as the significance of water and agriculture in the climate issue, were important focal points of the COP27 effort. Along with biodiversity loss, the energy transition, decarbonisation initiatives and funding, the importance of science will be stressed.

In this blog, we will discuss some of the important strategies and plans that various organisations and governments are planning to take up to mitigate climate issues and gain scalability with alternative and clean energy sources.

Remodelling energy security planning models

The unusually rapid economic recovery from the COVID-19 pandemic, as well as Russia Ukraine conflict, have revealed the weaknesses of energy security in some of the best-prepared countries. So far, the energy supply chain has shown to be a well-oiled machine, with a just-in-time strategy allowing for innovation and optimising efficiency across the value chain. The drawbacks of this method, however, are clear, with security concerns spurring a strong resurgence for coal-fired energy production in several nations.

As the energy systems reconfigure as a result of the energy transition, the energy security planning must shift from “just-in-time” agenda to a “just-in-case” one, necessitating the maintenance of adequate reserve capacity as well as storage infrastructure, along with market mechanisms to help encourage investments in such solutions. More energy security advantages may be obtained by focusing on the demand side of energy rather than only the supply side – energy savings and energy efficiency can also play an important role here.

Furthermore, the basic adage “don’t put all the eggs in one basket” pertains to energy security as well. Energy security may be increased by diversifying and broadening the energy mix as well as energy import equivalents. As an impact, for instance, after the COP27 session, some fossil fuel firms and Western governments have visited African nations, attempting to persuade them to utilise residual fossil fuel sources and later export the energy to them.

This has prompted the governments of certain African nations to press for an agreement that, within the short and medium term, coal and oil would continue to be essential components of the continent’s energy mix, while fossil gas will play a role in the long run.

De-risking renewable energy investments: A critical measure for preserving capital flow with rising interest rates

De-risking energy investments is essential, particularly in emerging nations where the financial gap is still significant. Over the past ten years, the amount invested globally in the domain of energy transition surpassed by more than 3x times, reaching $750 billion in 2021. Although this investment boom followed a decade of economic growth, it was partially made possible by expansionary fiscal policy as well as low target interest rates.

Given the prospect of increasing borrowing rates to combat inflation, rising commodity costs, and supply chain issues, the cost-competitiveness of projects utilising renewable energy compared to current fossil fuel assets may be jeopardised.

Compared to fossil fuels, capital-intensive renewable energy sources are more susceptible to rising finance costs. Addressing risks related to implementation, operations and policies might support maintaining the affordability of technologies for renewable energy under rising benchmark interest rates.

The necessary flow of investment opportunities in clean energy can be maintained by taking steps like providing revenue stability, enhancing off-takers creditworthiness, rebuilding infrastructure and gaining operational efficiency to reduce curtailments and providing clear demand signals to facilitate balance sheet funding by industries.

Three ways to accelerate the transition towards renewable energy

The rate of the energy transition is quite significant. The earlier clean energy is widely available, the less probable permanent damage to the environment will occur. The World Economic Forum has proposed three initiatives to help guide and accelerate the transition to renewable energy.

The energy-efficient opportunity

Aside from the fact that it is primarily reliant on fossil fuels, one of the most serious issues with our present energy infrastructure is its inefficiency. According to the International Energy Agency (IEA), global emissions can be further reduced by more than 40% by optimising energy consumption.

Just by utilising the most energy-efficient goods and modes of transportation available, both individuals and governments will be nearly halfway to meeting the carbon reduction targets, concerning the COP27 policies. Electric cars, energy-efficient equipment and lights, and legislative efforts to encourage or enforce energy efficiency are just a few of the ways emissions might well be minimised without even altering the present energy supply.

Using renewables as well as energy efficiency to increase resilience and flexibility

Making the transition from fossil fuels to renewable energy sources can lower emissions by an additional 50%. When combined with the energy efficiency approach, this accounts for 90% of the target.

Increased investment in renewable energy to scale it and cut prices will stimulate behavioural changes in consumers, easing the transition. In other words, customers are critical to the energy transition plan. Rejecting harmful energy sources in favour of clean and renewable energy would accelerate progress.

Increasing the potential through collaborations

The last 10% of the emissions goal needs collaboration. Without global cooperation, achieving lofty goals is difficult. This entails nothing more than the collective interest of all the people who have a vested stake in the health of the earth.

To attain this universal aim, global collaborations and climate accords like the Paris Agreement as well as COP27 are required. However, negotiations can only go so far; whereas action and keeping pledges are the next stages. Despite being behind the track in terms of mitigating global warming, there’s still time.

Finally, continual collaboration between countries and individuals is required for an energy transition plan.

LNG: A renewable fuel to lower the impacts of climate change

Energy transition has become an immediate step globally to reduce the adverse climatic effects. As a result, various industries are moving towards opting for an alternative energy source – a cleaner fuel with better efficiency and lower costs. Such characteristics can be found in LNG. Experts claim that liquefied natural gas (LNG) offers itself as a “transition fuel”.

Natural gas that has been liquefied is usually regarded as a clean, secure and practical energy source. The variety of liquefaction methods has grown recently because of easier transportation and expanded storage capacity. As per Future Market Insights, the need to reduce emissions and the rising demand for alternative energy are likely to cause a significant increase in LNG usage globally from 2023-2033.

According to industry analysts, LNG can fill the need for gas while bridging the gap between renewable energy and conventional fossil fuels. Even though LNG emits fewer emissions and hence has a lower carbon intensity compared to coal or petroleum, it is still a fossil fuel. Even while LNG isn’t ideal, it’s a better choice than conventional, unclean fossil fuels. This is especially significant for Asia because the continent relies heavily on coal for powering its developing economies.

LNG may serve as a bridge between fossil fuels and renewable energy and it is a step in the right direction of achieving a successful clean energy transition. With only a little improvement, there is a risk that nations would lose their sense of urgency. In Asia’s energy transition plan, LNG must be considered as a transition rather than a solution.

Energy transition by a global oil and energy manufacturers

Private firms are a part of the worldwide collaboration required to tackle increasing temperatures. Companies such as energy producer Shell bear a huge responsibility in encouraging the global transition to renewables in the sector of oil and gas.

Shell has publicly stated its intention to become a net-zero energy company by 2050. They have also made the audacious claim of having net-zero carbon emissions in Scopes 1, 2, as well as 3. This implies that Shell’s direct and indirect business emissions, including those resulting from their external value chains, could become net-zero. Shell’s major initiatives for reaching net-zero emissions are to improve energy efficiency, increase low-carbon power generation and depend increasingly on natural gas while they phase out the production of oil.

Shell joins a growing list of firms and countries in making net-zero promises, emphasising the significance of global collaboration and cooperation. Energy producers, on the other hand, cannot lead the global energy transformation plan alone. It will need a team effort from manufacturers, politicians, governments, as well as consumers. The sooner everyone embraces the energy transition, the sooner the world will meet the carbon emission targets. This could not be more important, since the Earth as we know it is on the verge of irreversible transformation.

Conclusion for energy transition planning

Global climate meets like COP27 and the Paris Agreement have brought the urgency for an energy transition to a head. Following the initial cautious moves taken by governments and corporations, the globe is on the verge of a large-scale transition movement towards alternative clean energy sources and mitigating the various problems related to climatic changes.

The need for change is obvious, making the conversion to sustainable energy sources less rather than an option and we have reached the tipping point. Sustainability has progressed from small-scale and experimental CSR efforts to new business models – and new income patterns.

Transforming the energy sector is no easy feat and success requires a comprehensive and integrated approach, instead of a series of isolated actions. Individual industries, businesses and homes must become more sustainable, while entire energy networks must be transformed. Countries must allocate responsibilities and rewards such that each stakeholder’s participation adds the most value to a competitive and clean energy economy.

As the energy transition gets traction, it is evident that, although the problems are numerous, so are the prospects. Companies may and should look forward to cooperatively expanding new markets, with significant investments to back up their pioneering position. And, as the COP27 targets are already at risk of falling short, the sense of urgency is focusing minds and resources like never before.

Thus, the energy transition will not be an easy task but it is not an impossible one. The various levels of an organisation or a domain are required to work closely towards the transition operations as well as the financial costs involved. Only a balanced transition will let the world meet the goals of COP27. 

This blog is authored by Nikhil Kaitwade, an  Associate Vice President for Market Research at Future Market Insights, ESOMAR-certified market research and consulting firm Future Market Insights (FMI). It is originally published on ESI Africa

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