The World Economic Forum has presented the Future of Electricity report, a set of recommendations for policy-makers, regulators and businesses to attract investment to the electricity sector in the organisation for economic co-operation and development (OECD) markets. Aiming to attract investment to build tomorrow’s electricity sector, it is written in collaboration with Bain & Company.
The report explains that the electricity sector is undergoing an unprecedented transition. In the past, the sector provided affordable, secure and reliable electricity by attracting investors with minimal challenges and stable returns. In the last decade, significant decreases in the cost of renewable technologies, combined with new sources of natural gas, have offered the opportunity to simultaneously decarbonise the sector while also increasing energy security and reducing dependence on imported fuels.
Furthermore, technology is playing a vital role in the sector’s efforts to become more environmentally sustainable, providing new methods for generating power from renewable sources and new ways to use energy more efficiently. Renewable sources offer the potential to reduce emissions and, for some countries, improve security of supply by reducing dependence on imported fuel.
OECD countries have invested heavily to achieve this, spending $3 trillion on new renewable and conventional power plants, transmission and distribution (T&D) infrastructure, and energy efficiency measures. This investment has helped reduce carbon intensity per unit generated by about 1 percent per annum and increase energy security by reducing imports of fuels by about 4 percent.
However, the report suggested more has to be done, especially as the industry is around 30 percent through the process, with a further $8 trillion needed from now until 2040 to meet policy objectives. Stating “to attract the necessary investment, all key stakeholders need to take action. Policy-makers need to create policy frameworks that are efficient, stable and flexible, recognising the current technological and economic environment we live in. Plot the most efficient pathways to policy objectives. Incentivise investments such as energy efficiency technologies, demand response services and the upgrading of network and generation plant efficiencies. Use the most efficient renewable resources within and across borders.”
The report also suggests that regulators need to provide clear direction to markets, while minimising interventions. By ensuring clear, effective signals and providing a clear, stable market signal on carbon pricing to incentivise decarbonisation. Reward efficiency, reliability and flexibility, encouraging predictable, fast responding supply to complement growth in demand response solutions in balancing increasingly supply and demand.
“Business and investors need to drive innovation in business and investor models to secure the necessary investment.” Suggests the report, explaining that for businesses they need to continue the engagement with policy-makers and regulators to identify the most efficient pathways. Evolve strategies and business models that take advantage of the opportunities in the evolution of centralised generation while also supporting the rise of customer-centric offerings and propositions. For investors, engage with policy-makers and regulators on how best to balance challenges and return to attract the required investment. Continue to innovate in investment structures to finance the evolving risk profile in different parts of the electricity value chain.
While there are many ongoing debates in global energy policy and regulation, these areas of general consensus offer a clear path forward for the transition in OECD markets, a journey that is going to be watched carefully by developing nations.
In addition developing a joint, cross-geography, multi-stakeholder task force is recommended to increase communication and share lessons and best practices across borders and throughout the industry. This might help address the current nature of supervisory and regulatory decision-making bodies. Only by ensuring the viability of investment can policy-makers successfully transition to a more sustainable and efficient energy future.
What is the best direction for the future of electricity generation?