Choosing your energy transition pathway

Choosing your energy transition pathway

An energy transition is underway. Governments and energy consumers alike increasingly are coming to grips with the impact of climate change, and the need to change our energy use patterns. While this change is essential, it is fraught with challenges and uncertainties. To navigate the transition successfully, an organization must have strong alignment behind a clearly defined goal and be equipped to embark on its transition pathway with its eyes open to the challenges and uncertainties it faces.

Your Goal

Baseball philosopher Yogi Berra famously said, “If you don’t know where you’re going, you might end up someplace else!”. Where does your organization want to end up on your journey through the energy transition?

Some organizations are positioning themselves aggressively, with goals to be “net-zero” or even “carbon-negative” by 2035 or some other date. These goals are best seen as aspirational, intended to motivate large scale, fundamental change.

A realistic goal for some organizations may be simply to survive, by complying with regulations at least cost.

To be meaningful and realistic, your organization’s goal must be appropriate for the circumstances you operate in.

Organizational Alignment

For an organization to mobilize effectively around a goal, there must be alignment and commitment to the goal at all levels of the organization. A facilities manager cannot adopt a goal to achieve net-zero operation without gaining organizational commitment at the highest level for the capital spending and operational changes that will be necessary to achieve that goal. Conversely, a school board of trustees or a municipal council cannot adopt an ambitious goal and expect the facilities managers to “make it so” unless the council is willing to put its money where its mouth is.

Building alignment behind a goal requires that all decision-makers in the organization have a clear-eyed view of the costs and the risks involved. How can we achieve a goal if support for the goal crumbles as soon as we cost the first capital project? Establishing a goal that can sustain organizational commitment is best done through an iterative process. First, identify a goal and evaluate it to gain understanding of what the pursuit of that goal implies for the future of the organization. Assess those implications – can they be achieved and sustained? Can we do more? Should we dial back? Our existing consumption profile and future plans can help in determining what is possible or what is necessary. Support for a goal develops as understanding grows across the organization that the necessary steps to achieve the goal are realistic and doable.

The Pathway

Once the end goal has been established, it is time to turn attention to the pathway that will get you there. The energy transition will take most organizations many years to accomplish. There will be twists and turns – and maybe setbacks – along the journey. For example, “electrification” of thermal needs could at first appear to be the right path, but can the local grid support this change, and does your organization understand the cost implications?

Some measures that form part of the strategy for achieving the goal may not yet be feasible. Perhaps the technology is not yet widely available, or the technology’s cost curve suggests the time is not yet right for that technology if you want to get the “best bang for the buck”.

On the other hand, reducing GHG emissions is the goal, and the tonne of CO2 that is eliminated in Year 1 contributes more to the overall goal than the tonne eliminated in 2035. We may want to wait on some measures, but we can’t wait on all of them. Despite risks, action must start now.

So the organization’s pathway defines a rational, staged roll-out of measures, dictated to some degree by what is organizationally and technically feasible but also constrained by the availability of capital, the ability to absorb changes in operating costs, evolution in government policies and regulations, and the organization’s tolerance for risk.

Each organization will have its own goal, and its own pathway to get there.

Through the process of developing this pathway, the organization fosters alignment and commitment. We know where we are going, we know how we will get there, and we are committed to the journey.

Challenges and Risks

The key challenges organizations perceive on the energy transition pathway lie in the potential for increases in operating costs, and the need to deploy capital to support the transition.

Technology risk is a key consideration. Currently, there is not a ‘silver-bullet’, or singular technology that exists as a broad-based GHG emissions-reduction application. But many promising technologies continue to evolve. Do we adopt a technology now or wait for further improvements, more proof of its reliability, or perhaps lower costs in the future? The question is magnified for those where technology change is related to proprietary production methods.

What are competitors doing? Do I gain an advantage by being an early mover? Is the greater risk to move quickly on uncertain ground, or to wait and be a laggard?

It is important to recognize that the energy transition is shaped by evolving government policies and regulations. Governments change, and so do their policies and regulations, introducing a significant policy risk, especially when capital decisions are being made with 5-10 year planning horizons. What will be the future carbon tax regime? How will policy changes affect the future cost of electricity?

The appropriate energy transition pathway is one that enables the organization to move confidently towards its goal, while remaining with the limits of the operating cost impacts and capital requirements and risk tolerance, with key decisions staged to allow for mid-course corrections if necessary.

The journey of a thousand miles begins with a single step. The energy transition may be daunting, but the imperative is upon us. Each organization can decide for itself where it wants to go in the transition and the pathway that is best to get there. Despite the challenges and uncertainties, action is required now. Our future depends on it.