3 REASONS WHY THE ENERGY TRANSITION IS SLOW – AND 1 WHY IT WILL SUCCEED
At Branch Unlimited, we see three reasons why the energy transition takes place at a slow pace, and one compelling reason why we are confident that it will succeed nonetheless.
1. THE COMPANIES THAT ARE PART OF THE SOLUTION ARE CAUSING THE PROBLEM
The use of fossil fuels to provide us with all kinds of energy, is the main contributor to global warming. And the impact of global warming poses a major threat to our society. A transition to more sustainable forms of energy is therefore of the utmost importance to halt global warming. The problem is, it is the world’s largest companies that are serving us with fossil fuels, and they are only marginally planning or able to initiate that transition. Why? Because the incentive to innovate is marginal, particularly in the short term. Look at Exxon Mobile, which already knew in 1978 that global warming and the use of fossil fuels are related. But: the switch to new forms of energy supply would mean a massive write-down of the investments they have made to date. Not a pleasant message for a listed company. And how quickly are these companies able to change their organization? They stay, pun intended, oil tankers …
2. THE BUSINESS CASE IS NOT THERE (YET)
What of course does not help to boost the energy transition, is that the demand for sustainable solutions is admittedly increasing but is still limited in absolute terms. And the range of available solutions (therefore) is relatively small. Why is that? Many solutions offered to consumers, such as heat-cold installations, solar boilers and heat pumps, are expensive compared to the existing solutions that are geared towards existing (and thus fossil) energy solutions. There are two reasons for this. The first reason is that development costs still bear heavy on the consumer price. The average price-conscious consumer is therefore tempted to buy a traditional central heating boiler rather than a solar boiler. A second reason is that, partly because market development is still at an early stage, the size of the market is still small, which means that the benefits of market entry also remain relatively low for the short term. In short, it is all about volume. As the market grows, development costs can be spread. At the same time, the share of development costs in the price per product decreases. This allows the price to go down and the margin to go up. And that in turn attracts new entrants.
3. REORGANIZING CHAINS TAKES TIME
Energy transition roughly consists of three parts: production, distribution and purchase. In each of these components, a climate change-oriented turnaround must be made, which has to be designed in such a way that it also continues to function as part of the chain. In other words: all these elements must continue to respond well to each other in “the new normal” and in the transition phase that necessarily lies in between, while also being subject to change in itself. Deciding to stop producing natural gas is one thing, but how do you shape the production of alternative forms of energy? And suppose you as an energy company are used to taking care of the distribution of gas to households or companies. In that case, it means a considerable change to supply energy in the form of electricity or to respond to decentralized instead of centralized energy production. And as a customer, you must, of course, have the opportunity to purchase sustainable energy sources properly – or even produce them independently.
All these elements in the chain, therefore have to do with changes, while they must be and remain in tune with each other. And we must not forget that role changes are also taking place at the same time: take the consumer, for example, who is increasingly not only a consumer but also a supplier of (relatively small amounts) of energy. Energy transition is, therefore, also a transition of roles. In which professional parties have to deal with less professional parties, who do set requirements. And where existing interests are placed differently, and consequently also power relations. This is not insurmountable, provided that the process of forming new and innovative partnerships is properly guided (but more for that in a subsequent insight), but it does mean a delay in the transition.
4. ENTREPRENEURSHIP AS A POWERFUL WEAPON
If you add the above together, you might think that the energy transition is doomed or at least will take really long time. However, as Branch Unlimited, we are optimistic for the following reason.
Our experience is that there is an incredibly powerful movement of entrepreneurial people who do not wait for it to happen to them. They take the lead. From entrepreneurs who link new revenue models to solar panels or solar boilers, to entrepreneurs who can extend the lifespan of energy storage by building smart algorithms: their entrepreneurship is shaping the business case of the energy transition. Or take the entrepreneurs who have managed to convert electric car batteries into storage for energy in the home, or who have started to develop “home batteries“: they set in motion the chains that set an example for others. The large, international companies are watching, following and at best trying to keep up with these entrepreneurs. Still, one thing is certain: it is precisely that entrepreneurship that makes the energy transition happen because no one is stopping these entrepreneurs from being successful. At Branch Unlimited, we see it as one of our spearheads to use our entrepreneurship for the international expansion of these companies and to help speed up the energy transition.