Havard Business Review - -The future of Energy _march13.pdf

8/13/2019 Havard Business Review - -The future of Energy _march13.pdf

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A REPORT BY HARVARD BUSINESS REVIEW ANALYTIC SERVICES

The Future ofEnergy

In association with


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THE FUTURE OF ENERGY

Executive SummaryTO CREATE A SUSTAINABLE FUTURE energy system, we must manage our energy production

and consumption much more efficiently, while rapidly increasing the reliable production

and distribution of renewable energy. The global energy supply chain needs to be a sus-

tainable one, not only to save our planet, but also to ensure our global economic future:

improved efficiency and economic success go hand in hand.

For many countries, the future supply of energy is high on the agenda, even though the

challenges vary. In developing countries, meeting the growing demand for energy is a prior-

ity. In industrialized countries, the goal is using energy more efficientlyand, in some cases,

protecting the climate. The key to the successful transition of the energy supply in all these

economies is sustainability.

But moving into an era of sustainable energy requires that a number of disparate measurespolitical, economic, and technologicalfit together like the pieces of a puzzle. The com-

plexity and enormity of the task are daunting. Yet for innovative minds, the challenge offers

possibilities.

The Future Influencers, an online think tank initiated by Siemens, took up this challenge

in preparation for a wide-ranging, interactive discussion held alongside the UN Confer-

ence on Climate Change, known as COP18, in Doha, Qatar. In a collaboration with the World

Resources Institute and Harvard Business Review, the Future Influencers group looked at

the hurdles standing between today and a sustainable energy future, and submitted creative

ideas for overcoming them.

Their conversation took many forms and pulled information and insights from multiple

sources. Harvard Business Reviewlaunched an online survey of an audience made up of

HBR.org readers as well as Future Influencers to determine what current and future lead-

ers perceive to be the challengesand opportunitiesaround this energy transition. The

results of that survey set the stage for the discussion in Doha. There three members of the

Future Influencers community joined business and policy leaders for a wide-ranging, inter-

active panel discussion that was broadcast on the Web. That discussion featured the win-

ning proposal developed by the Future Influencers community.

This report looks at that survey and the discussion in Doha as well as at the fertile conversa-

tions that took place on the Future Influencers website.

Copyright 2013 Harvard Business School Publishing. All rights reserved.

The Future ofEnergy

85%of respondents say

environmental issues are

increasingly important to them.

57%of respondents strongly agree

that the government should providetax incentives and research funding

to encourage innovation of

sustainable energy.

74%of respondents say open innovation

in energy will lead to faster

development of new technologies,

products, systems, and services.

SURVEY HIGHLIGHTS


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A HARVARD BUSINESS REVIEW ANALYTIC SERVICES REPORT

Some common themes emerged in these various discussions. TheHarvard Business Reviewsurvey found

that the major barriers to change are a lack of political leadership and energy companies resistance to

change. A large majority of respondents said that governments should provide tax incentives and funding

for research to encourage innovation and encourage uptake of sustainable energy in the market.

But business has a critical role to play as well. Although historically businesses have tried to limit policy

favoring environmental protections, that is changing to some extent. Some business leaders are working

with policy makers to help policy catch up to technology and level the playing field so that sustainable-

energy-based products, which typically require significant investment, will be more attractive to custom-

ers. In the end, there is only one definition of sustainability for a business, and that is profitability. When

investing in energy efficiency and renewal energy is in its interests, a business will make that investment,

panel members said.

Indeed, as more shareholders begin to care about sustainability, businesses are responding. And there

are hopeful signs: from just 2004 to 2010, the proportion of new electricity generation coming from non-

hydro renewable sources rose from 4.3 percent to 24 percent.

But businesses need favorable and stable policies in place to make the long-term investments needed to

develop and deploy sustainable energy technologies, the panel noted. The wind and solar industries in

Germany and China are the most advanced as a result of comprehensive national policies that encourage

investment in renewable energy.

Individuals also constitute a powerful force in moving toward a future free of reliance on fossil fuels. As

entrepreneurs, as concerned citizens, as business and community leaders, they wield considerable lever-

age, and even more so when they connect and they marshal resources.

The big elephant in the room is the need for a political frameworkthat will create the level playing field for the right technologiesand products to move forward.

Anna Leidreiter, Future Influencer

FUTURE INFLUENCERS

The Future Influencers are an online think tank initiated by Siemens with the goal of bringing together tomorrows

thought leaders to drive action toward a sustainable future. Currently numbering about 150 members, the Future

Influencers include journalists, students, engineers, architects, and urban planners from around the world. Although

Siemens supports the community, it does not influence their discussions.

Twice a year, the group engages in a collaboration around a specific topic. The subject of the latest one was The

Future of Energy. The Future Influencers were asked to consider these questions: What are the main hurdles to

overcome in order to move into an era of new energy? And what opportunities does the change process hold?

Some twenty ideas were put forth during the initial phase of the collaboration, ranging from plans for fostering

energy literacy to different ways to finance sustainable energy. All members of the Future Influencers community

voted for the idea they considered most promising. Anna Leidreiter, a climate and energy expert working for the

World Future Council, an international NGO headquartered in Hamburg, received the most votes for her proposal,

an online forum for 100 percent renewable energy.


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To enable business leaders, policy makers, and individuals to work together for the future that must come

about, the Future Influencers proposed an online platform that will aim to help communities transition

to 100 percent renewable gridsby turning best practices into best policies, fostering political will, and

informing policy making around the world. The Future Influencers on the panel emphasized that this

platform is not only for discussions but also about driving action. Its about getting peoplebe they entre-

preneurs, business or community leaders, or just concerned citizensto take tangible steps toward a sus-tainable future.

The following report takes a deeper look at the survey results and the discussion in Doha as well as the

conversations and blogs on the Future Influencers website. The hope is that this report will inspire you

and your business to envision our energy future, work toward it, and grab hold of its opportunities.

Energy Innovation: What Stands in the Way?Harvard Business Reviewlaunched an online survey to find out what todays and tomorrows leaders see

as the greatest barriers to energy innovation, inviting HBR.org readers, readers of the Energy Collective

,and members of the Future Influencers communityan online think tank of young leaders initiated and

supported by Siemensto respond. The majority of respondents were business executives, and morethan a quarter of all respondents reported working in the energy/petrochemicals/mining/utilities sector.

The environmental impact of our current energy sources was a major concern to this audience. More than 65

percent said they strongly agreed with the statement Environmental issues in general have become increas-

ingly important to me. Survey respondents reported that the top two barriers to moving toward a future

of sustainable energy are energy companies wanting to maintain the status quo and a lack of leadership by

Figure 1

Importance in moving towards more sustainable energy systems

Development of new energy infrastructure 73%

More widespread use of efficient energyby municipalities

69%

Changes in international regulatory policy 65%

More widespread use of efficienct energyby businesses

64%

Collaboration between the public- and private-sector decision makers

60%

Changes in national regulatory policy 69%

Development of storage capabilities forrenewable energy

Collaboration by energy companies 37%

Carbon capture and storage 25%

76%

QUESTION: HOW IMPORTANT ARE EACH OF THE FOLLOWING IN MOVING TOWARD A MORE

SUSTAINABLE ENERGY SYSTEM? PLEASE USE A SCALE OF 1 TO 10, WHERE 1 MEANS NOT AT ALL

IMPORTANT AND 10 MEANS EXTREMELY IMPORTANT.

PERCENT RATING 8, 9 OR 10


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The Role of BusinessGregory Unruh, director of the Lincoln Center for Ethics at the Thunderbird School of International Man-

agement and author of the bookEarth Inc., picked up on Achim Steiners remarks about the importance of

the private sector in creating the future Leidreiter described. The role of business historically has been to

either try to scuttle [environmental] regulations through political strategies, delay their implementation,

or water them down, he said. But that is changing.

What were beginning to see now is a transition as companies like Siemens and some of the other com-

panies represented at this conference actually [have] begun to take CSR and sustainability quite seri-

ously, said Unruh. Not only have they tackled the environmental and societal impacts of their own

operations, but theyve invested in new technologies, and as weve heard in the case of Siemens, those

technologies can go a long way to solve the issue of global climate change. When youve made those kinds

of investments, you can benefit by policy makers raising the policy floor so that your products become

more attractive to customers and your competitors dont. So theres actually an economic or competitive

incentive to work with and try to encourage policy makers.

Figure 2

Top three barriers to innovation, past and futureQUESTION: WHAT DO YOU CONSIDER TO HAVE BEEN THE TOP THREE BARRIERS TO ENERGY INNOVATION

DURING THE PAST FIVE YEARS? WHAT ABOUT OVER THE NEXT FIVE YEARS?

43%

61%Energy providers want to maintain the status quo

57%

50%Lack of leadership by policy makers

32%

39%Uncertainty over the viability of new forms of energy

41%

38%

Failure of markets to internalize environmentalexternalities caused by energy use

36%38%

Financial constraints such as high hurdle rate forenergy investments or excessive payback periods

20%

34%Corporate cultural resistance to new ideas

25%

30%Inadequate research and funding by governments

30%

28%Insufficient collaboration among stakeholders

32%

28%Leadership attitudes toward avoiding new costs

13%

21%

Inadequate innovation by suppliers and businesspartners Next five years

Past five years


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As a result, he said, were beginning to see a number of groupsCEOs and otherswork together to have

the policy catch up with where the technology and innovation have gotten to. He cited an example of this

that happened recently, when nineteen U.S. automobile manufacturers proposed raising fuel-efficiency

standards. On August 28, 2012, those aggressive new fuel-efficiency standards, which call for cars and

light-duty trucks to get 54.5 mpg by 2025, were established.

The Role of PolicyStill, though, the fact remains that businesses, however progressive, require a stable policy framework

before they will make investments in sustainable technologies.

Jennifer Morgan, director of the Climate and Energy Program at the Washington, D.C.-based World Resources

Institute, made the point that it is much more affordable for businesses to invest in sustainable technology

in Germany compared with America. Germany has very clear policies around renewable technologies and

offers financial incentives, so that companies can invest in those technologies and bring them to market

with some confidence. By contrast, the United States lacks those favorable, stable policies.

Moreover, incentives such as tax refunds are always changing in the United States. As a result, companies

lack confidence that a strong market will exist for the products, and they naturally want to avoid the large

transaction costs associated with starting up and shutting down production lines in response to a con-

stantly shifting policy landscape and the uncertain market conditions that can result.

The World Resources Institute recently examined the wind and solar industries in five countriesJapan, the

United States, China, India, and Germanyand found that Germany and China emerged as the most advanced.

Why? Because they have comprehensive national policies that encourage investment in renewables.

A majority of theHarvard Business Reviewsurvey respondents supported governments providing incen-

tives to companies that invest in energy innovation, and a third supported making intellectual property

developed from publicly funded energy innovation available for licensing. figure 3

Bringing Innovators TogetherThe panelists agreed on the importance of business and policy makers working together, and Gregory

Unruh acknowledged as well the important role that NGOs, such as the World Resources Institute, play in

formulating policies that favor the development and deployment of renewable energy technology. Mod-

erator Angelia Herrin pointed out that the discussion had thus far omitted another powerful constituency

the public.

Why arent the average citizens more mobilized to put pressure on policy makers around the world?

Gatien Bon, a Future Influencer who is a student at Harvards Kennedy School of Government, said that

the question was the focus of much of the discussion among the Future Influencers.

There is a massive need for youth to be engaged in thesechallenges today, not when were CEOs, researchers, andpolitical leaders twenty years from now.

Kali Taylor, Future Influencer


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There are plenty of new energy sources and policy ideas, Bon said, but there needs to be a way to facilitate

dialogue and create political will that will turn best practices into best policies. New resources are needed

that can provide scale for the best new ideas to reach the widest number of people.

The solution, voted on by the Future Influencers community, is an online forum, where innovators can con-

nect, exchange information, and drive action at the policy level toward the ambitious target of 100 percent

renewable energy. The Future Influencers on the panel emphasized that this platform is not only for online

discussions but also about driving action off-line. Its about getting peoplebe they entrepreneurs, business

or community leaders, or just concerned citizensto take tangible steps toward a sustainable future.

The way the online forum functions is straightforward: it will make information on how to move to a 100

percent renewable energy future available in a searchable network, enabling users to discuss that infor-

mation and apply it to a local context, because global solutions start with local knowledge. Ultimately,

Leidreiter said, one goal is to engage in off-line dialogue and information sharing. We want to connect

FEATURES OF THE ONLINE ENERGY FORUM

Informationdatabase

Member-restricted area for

personal/focused interaction

Visualizationof solutions

Interactive mapwith

community-specific information

Crowdsourcing,lawmaking

Expertroster

Interactive toolkitand

road map

Webinarhosting

Community assessment

tool for benchmarking

Figure 3

Role of Government in Energy InnovationPLEASE RATE EACH OF THESE POTENTIAL POLICIES ON A SCALE FROM 1 TO 10, WHERE 1 MEANS YOU

DO NOT SUPPORT AT ALL AND 10 MEANS YOU STRONGLY SUPPORT.

PERCENT RATING 8, 9 OR 10

60%

17%

11%

55%

75%My government should provide tax incentives andresearch funding to encourage innovation insustainable energy.

My government should provide additional taxincentives and increase regulation of traditional,nonsustainable energy use to encourage alternativeenergy innovation.

Intellectual property derived from publicly fundedenergy innovation should be available to all on alicensing basis.

My government should take control of key energyproduction and distribution.

Government should not be involved in energydevelopment and innovation.


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the site with a global campaign for 100 percent renewable energy, Leidreiter said, organizing policy

workshops and study tours to show people what is actually possible.

HOW THE FORUM MATCHES KNOWLEDGE ONLINE AND OFFLINE

Establish a series of policy workshops in local, regional, and national parliaments to present the online forumand its tools.

Identify places/occasions for change: where is the expertise of the online forum (and its members) needed?

Link the online forum for 100% RE with existing initiatives.

Collaborate with bloggers, journalists, and associations to create communication about the online forum.

Enable people to meet personally (conferences, study tours).

Kali Taylor, a Future Influencer who founded the organization Student Energy, emphasized that the site

is about driving people to take action, and not only at the policy level. Enlisting the support of partners

across multiple sectors is key. Having the right partners on board forms the basis of the community that

will use this in the future, said Taylor. So its twofold. Its not just getting the people in to provide theresources and the information and expertise, but also [having] them use it and extend it to their com-

munities. Whats more important is that by having a wide range of partners, we get all those major pillars

that weve talked about in this panel several times. We need industry. We need government. We need the

not-for-profits, and we need academia who have all this expertise housed.

Taylor ended her remarks by highlighting the urgency of the problem. Incremental change will not take us

where we need to be, she said. We need to start thinking about step changes and what will actually take

us there. The rising generation has to take action now, she emphasized, not when they are CEOs and

researchers and whatnot in twenty years, but today.

Sustainability = ProfitabilityBoth the live and the online audiences posed questions to the panel, several of which concerned a constitu-ency not yet addressed in the discussion: shareholders. Angelia Herrin, the moderator, put this question to

Barbara Kux: Are you seeing shareholders asking for more accountability around sustainability issues?

Absolutely, said Kux. More and more investors, especially large investors, are very interested in the

sustainability performance of companies. And for good, solid business reasons, too. Whereas financial

reporting looks back at the pastYou close the books at the end of September, and you report the status

of that company at that moment in time, said Kuxsustainability KPIs are more forward-looking and

thus give indications of the companys future performance.

Unruh said that he is seeing shareholders who care about sustainability issues pursuing two strategies:

either they will screen out from their portfolio those companies that are not progressive enough on sus-

tainability issues, or they will try to use their shareholder influence to change the companys policies.

From a businesss side, its quite simple, said Unruh. There are lots of definitions of sustainability, but

there is really only one fiduciary definition of sustainability, and that is: sustainability has to equal profit-

ability. Its fine that you take on other responsibilities toward the community and toward the environ-

ment, but that doesnt mean you abdicate your own responsibilities to shareholders.

In the case where investments in sustainability are not profitable, they are subsidies, continued Unruh, and

subsidies by definition are temporary. If the market changes, if leadership changes, if theres an economic


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