We started off our series stating the obvious: utilities are in the critical path to solving the carbon problem. Power generation, buildings, industry, and transportation are responsible for close to 80% of carbon dioxide emissions. If utilities lead the clean energy transition by working with industry to find ways to safely remove fossil fuels from the power generation mix, we can rapidly electrify these carbon-intensive activities with clean energy. We can also offer new forms of resiliency and system reliability by incorporating renewables into the mix.
However, this transformation will require unprecedented levels of investment and innovation - the likes of which many argue the utility industry has not seen since the invention of the light bulb.
Source: Visual Capitalist
In this last installment of our four-part series on utility-driven innovation, we summarize the key lessons learned and close with why the urgent need to drive more innovation inside our utilities is now. It can’t wait.
Follow the Money: Overall Investment in the Clean Tech Sector is Growing But it is Not Enough
We started part one of our four-part series with the sobering realization that utilities invest only about 0.1 % of their net revenues into Research and Development (R&D) – only a portion is used to jump start innovation that could drive the clean energy transition. Thankfully, there is plenty of investment flowing in from other sources. Bloomberg New Energy Finance’s (BNEF) “Energy Transition Investment Trends” report cites overall global investment in cleantech is growing:
- $1.1 trillion was invested in the global energy transition in 2022; a 31% increase from 2021-22.
- This investment matched fossil fuel investment for the first time despite an uptick in spending for the latter as many regions focused their attentions on shoring up energy security.
Despite these trillions of dollars being invested, BNEF finds financial commitment must triple for the rest of the 2020s to be on track to reach the global net zero target (see figure below).
Another cautionary trend to watch is investments in startups. While climate-tech companies raised a total of $119 billion in 2022, these investments were down 29% from the year before after weathering a particularly challenging year in the markets. We argued in part 3 of our series, that it is the cleantech startups and their access to capital that inevitably aids utilities in a cost-constrained R&D environment through an ecosystem innovation model. Therefore, these startups are at the tip of the spear in driving transformational innovation inside utilities.
To make the transition, government infrastructure funding and utility R&D will not be enough. It will take private investors and private industry to take on the risk and create ecosystem of innovators working to solve challenges to pave the way to the clean energy transition. A nearly 30% drop in investments in the most innovative companies in this supply chain is startling and worth noting. There will be a ripple effect.
China is Leading the Clean Energy Investment at Double the Pace of the Rest of the World
Leading the investment category, without a question of doubt, is China. According to BNEF: “China’s energy transition spending hit $546 billion in 2021 – just shy of half the world’s total. Its lead over the US and other countries has grown as its renewable energy and electric vehicles sectors have ramped up.”
Source: Bloomberg New Energy Finance
What will this mean for North American utilities and their supply chains? Undoubtedly it will create ripple effects for compliance and cost competitiveness. Utility executives thinking about the global supply chain’s impact on delivering safe and affordable clean power to their local communities as geopolitical tensions rise, take note.
The Urgent Need is Now and it is a Matter of National Security
The effects of increased carbon emissions are no longer just an “environmental” issue; it is a security issue. Wildfires and overdemand on the system are causing system-wide blackouts is a life and death issue we see far too frequently these days. State Farm announced this week it would no longer insure new homes being built in California due to wildfire risks. The war in the Ukraine shows the vulnerability of oil and gas reserves – a lesson (again) that energy independence and the ability to tap renewables is not a nice to have; it’s a matter of national security.
This call was recently echoed at a Climate Change conference I attended at Harvard Business School that brought together some of the world’s most prolific investors. Sitting side by side with corporate, government and entrepreneurial leaders, their point was that climate – and the impact it has on our society – is a matter of life and death.
One such leader was Mark Carney, the former governor of the Bank of Canada, Bank of England and current Vice Chairman at Brookfield Asset Management. Mark was named to Time Magazine’s Time 100 in 2010 for his leadership to help Canada recover during the financial crisis where the Canadian economy was the first in the G7 to have both its GDP and employment recover to pre-crisis levels. He argued:
“We have a fossil-fuel based system that has been unreliable, unaffordable, inaccessible and unsustainable. It’s time to transition to a new system.”
Sitting next to him on the panel was Jeremy Grantham, the world-renown investor that predicted the dot.com crash in 2000 and the financial crisis in 2008. Now Grantham was making a different kind of crisis prediction and this time it was about climate:
“We are going to innovate our way out of this problem, or we will fail… and these days I believe the odds have dropped to less than 50/50.”
Later, Secretary John Kerry, US Envoy for Climate, in a fireside chat discussion with Lawrence Bacow the President of Harvard University shared his concern:
“If we don’t do something now to hit 2030, there will be no 2050.”
This isn’t about saving trees or debating climate science. That is the sideshow, and we shouldn’t let it distract us from our mission to act now to drive system protection from the threats utilities face every day: wildfires, violent storms and the prevailing risks of more blackouts and shortages. Our response should include investing in innovation that will bring the clean energy transition more rapidly.
From the perspective of the utility, we see this call to lead, an opportunity for utilities:
- To use our best engineering minds to increase system resiliency on the grid and reduce carbon footprint – at the same time!
- To decrease reliance on fossil fuels and gain energy independence – at the same time!
- To harness the free resource of the sun, deliver more affordable energy but also deliver better financial returns – at the same time!
- An opportunity to improve society and the communities we serve by removing the threats of wildfire and increasing system reliability – at the same time!
This is not an “either/or” situation. It is an opportunity for both. “Safe, affordable and clean” are synergistic, not divisive.
We’ll close with a message we shared in part 2 of this series: we find ourselves on a similar precipice Edison stood nearly 150 years ago. But this time, the new opportunity is to transform the grid by leading the clean energy transition and building a more reliable system overall. How exciting is it to know that this opportunity is occurring in our lifetime? It is a challenge we’ve been called to lead.
In Conclusion
Writing this series has been extremely rewarding. I’d like to thank Energy Central for highlighting innovation as a Special Edition topic and creating the space to host this important dialogue.
Ready to be inspired? Check out the 2023 Innovators of the Year
Ready to act? Read the earlier posts in this series (Part 1, Part 2, Part 3) or watch a recording of the PowerSession: “Innovation 2.0: The Human Side of Leading Innovation in Today’s Modern Utility” with Exelon, PGE, and the Harvard Business School moderated by InnovationForce.