How to address non-technical risruptives in the energy sector



 

Credit rating movements, exchange rate volatility, political shuffles, legal challenges, foreign elections and local activists all add to the turbulence of the world in which we live and work. How is the energy sector impacted and how should it react?  Perhaps, like a super-tanker, the sector has too much inertia to be affected by short-term squalls. What steps should energy leaders be taking to navigate through these non-technical disruptives?

Panelists from left: Coenraad Vrey, Wendy Green, Haloise Nel (moderator) and Dudley Baylis.

The South African National Energy Association (SANEA) held its bi-monthly Energy Rendezvous in Johannesburg recently. Addressing the topic “Non-technical disruptives”, a panel comprising Coenraad Very of DRA Projects; Dudley Baylis of Bridge Capital Refco; and Wendy Green from Fusion Energy, under the leadership of SANEA’s Heloise Nel, discussed five factors which are likely to disrupt the energy sector in not-too distant future.

These factors, dubbed non-technical disruptives, include changing consumer behaviour, funding and financial models, political imperatives, tariff hikes, societal demands for clean generation, and the potential of foreign ownership of the power market.

 Disruptives on the horizon

  • Changing consumer behaviour: specifically more consumer awareness and social awareness. Changing consumer behaviour influences the cost of power, as users might for example be willing to pay more for power if they know where it comes from (i.e. renewables). Consumers also drive technologies, by self-generating and by creating a demand for distributed generation. In this way, consumers influence energy decisions and energy costs.
  • Funding and financing methods and models: are also likely to change, and will likely occur along with a shift away from big renewable energy projects. In the process the market becomes accessible to smaller investors, especially in places where banks don’t see large returns. New funding methods can unlock technological advancements.
  • Merger of political power and economy: which introduces hidden costs as commercial imperatives make way for political imperatives and political rent-seeking, all of which add to power costs for utilities.
  • Forced disruption: Eskom’s very low power costs of the last 30 years could now force it into positions it would not otherwise have considered had electricity been correctly priced.
  • Societal resistance and activism: in response to international energy policies such as US President Donald Trump pulling US out of the Paris agreement. The move was met with resistance by several US states and by the private sector, which plan to continue on renewable energy path.
  • Foreign ownership: in local power markets, as seen in the UK.

Challenges and proposals

The panel discussed the following challenges and proposed a number of solutions.

In order to separate politics and the energy sector, it was suggested that the energy sector could help establish mechanisms of electing leaders, such as calling for CVs from the energy industry to help elect the best board members for Eskom’s board.

To solve geographic power access inequality, it was suggested that South Africa should move away from a big utility approach to a distributed generation model and get local communities involved through ownership in such projects. This would entail focusing on smaller, modular and more flexible systems instead of large ones.

Although other modes of generation, such as distributed generation, should be incorporated, the country’s distribution network must be protected since they remain essential and could be used to connect micro-grids together. Faster moving technology processes, shorter project timeframes (e.g. renewable plant construction), and declining electricity demand all call for more flexible systems.

The panel said that the public has be made aware of the difference between consumer awareness (making energy choices) and consumer hysteria (influencing energy decisions without a proper understanding of the energy sector and long-term outcomes) so that rational decisions are made by the energy sector and supported by the public.

The panel said that investor confidence and a resulting trust deficit has been created by political decisions which have created policy uncertainty. This damage could be long-term, the panel said, with the full effect only felt in a decade from now.

“The arrogance of success is to think that what you did yesterday will be sufficient for tomorrow.” – William Pollard, 1828-1893.

 

 

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