To address key challenges in achieving Energy Transition and Industrial Sustainability (ETIS) goals, industry leaders will benefit from positive impacts associated with new utility business models. In addition, utilities will form new solution provider partnerships with ETIS innovators. New initiatives in the EU, US, and other major economies are spurring investments in renewable sources of energy and in major infrastructure to support economic growth in the face of challenges associated with climate change and the energy transition.
The Utility Industry’s Unique ETIS Role
There are critical energy transition and infrastructure-centric capabilities regulated utilities and their non-regulated subsidiaries have developed over many decades, which are needed for ETIS success:
- Multi-stakeholder project development and financing activities to meet competing demands of shareholders, end use customers, and external advocacy groups.
- Planning long-term Operations & Maintenance (O&M) optimization.
- Ensuring reliable and safe infrastructure operation while integrating new equipment and digital transformations.
- Enabling ETIS innovations and R&D across complex cross-industry public/private frameworks and government-funded programs.
GDP/GHG Emissions and Infrastructure Mismatches
In developed economies there is a big mismatch between the size of the sectors of the economy directly responsible for most GHG emissions and for investments in infrastructure to meet ETIS challenges. [SP1] Consider the size of three sectors: Transportation, utilities (or electric power), and agriculture. In terms of 2020 GHG emissions in the US, these three sectors total 63 percent of GHG emissions, with the largest being transportation, followed by electric power, and then agriculture. But the closely-corresponding sectors categorized from a GDP value-add perspective only contributed 5.5 percent of GHG emissions.
This is a dramatic ratio, since 63/5.5 = 11 to 1. But there is an even greater economic disproportionality when it comes to the future investment in infrastructure required in these three sectors globally between now and 2050, vs. the size of these industries. Obviously, the larger sectors of the economy (industrial, manufacturing and service, etc.) cannot function if there is no secure infrastructure. In this regard, water-related infrastructure is particularly important as it requires trillions in investment worldwide, despite the water/wastewater industry typically being the lowest revenue component of the utility industry in comparison to electricity and gas.
Energy transition in coastal urban areas is critical as the economic impacts of turbulent weather can cause major damage to water- and waste- related infrastructure. Developing countries are more vulnerable to such vagaries of nature. Industrialization drives urbanization and increases the vulnerability of infrastructure and the economic value of making that infrastructure more sustainable. This again accentuates the need for externally-driven incentives and regulatory models to create the needed cross-sector linkages to drive positive ETIS-related changes.
Why Utility Business Models Must Change
The GDP/GHG emissions mismatch is not addressed in typical considerations about corporate business models. A company’s business model is typically viewed as fitting into one of the following four categories:
- Service oriented
- Technology provider
- Network operator
From the perspective of the energy transition and industrial sustainability, utilities and their non-regulated subsidiaries must decarbonize and play a leading role in paving the way for industrial, commercial, and institutional asset owner/operators to meet their own sustainability goals.
In the case of the electric, gas, and water utility industries, along with transportation and related critical infrastructure, mixes of regulated/ deregulated frameworks, and public/private ownership, are often in play, and have generally involved a difficult balancing act: On the one hand there is a societal obligation to ensure safe, cost-effective, and reliable operation of electric, gas, water, transit, and waste management infrastructure. On the other hand, potential abuse of monopoly power has led to greater emphasis on maximizing the economic benefits and technological breakthroughs associated with competitive markets.
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Keywords: Decarbonization and GHG Emissions Reduction, Energy Transition and Industrial Sustainability (ETIS), Infrastructure Investments, GDP, ARC Advisory Group.