$38 trillion ‘needed to meet energy demand’

The global energy industry must invest a whopping $38 trillion to build the energy supply infrastructure by 2035 to keep up with an added 40 per cent rising energy consumption in the same time span, said a report by World Economic Forum (WEF).

The energy systems of 124 countries are currently not ready for a transition to a sustainable and secure energy architecture required to harness economic growth, the WEF stated in its report ‘New Energy Architecture: Enabling an Effective Transition,’ released last week.

WEF pointed out that the existing energy architecture was inadequate for balancing economic, environmental and energy security needs and added that country-specific approach was needed to enable effective transformation.

The way energy is produced, distributed and consumed is currently undergoing fundamental change of almost unprecedented proportion, it added.

The report, produced in collaboration with Accenture, revealed that countries which are managing the transition to a new energy architecture will have to deal with trade-offs and difficult choices, ranging from Germany’s nuclear shutdown following the Fukushima disaster and Nigeria’s removal of energy subsidies, to France’s ban on hydraulic fracturing.

According to the report, petro-states continue to struggle to maximize the value of their assets in a sustainable manner that supports economic diversification. The countries in the developing world, meanwhile, are focusing on economic growth and development, often at the expense of environmental sustainability, while a number of nations continue to struggle to supply citizens with basic energy needs; estimates show that 1.3 billion people worldwide are still without access to electricity at all, it added.

 “Never before have we experienced such pressure for change in the way we source, supply and consume energy,” explained Roberto Bocca, senior director, head of energy industries, WEF.

 “Decision-makers must understand how they are being impacted by the changing dynamics and how they can effectively create desired change, especially as the choices they make will determine the speed, direction and cost of the transition,” he remarked. Two in-depth country studies on India and Japan highlight practical applications that can lead to a new energy architecture.

The study on India underlines the challenges posed by supply bottlenecks, which present a considerable risk to the nation’s growth story, and suggests that India considers creating a unified energy regulator to support the expansion of its renewables sector, promote the development of decentralized distribution and generation to expand energy access, and rationalize energy prices through the gradual phase-out of subsidies.

The study on Japan underlines the “crisis of confidence” currently faced in its energy sector and suggests that the country considers establishing a fully independent regulatory agency, complete a full cost benefit analysis of market liberalization in the electricity sector and support the development of pan-Asian energy infrastructure.  “The scale and complexity of the energy industry demands a patient and incremental approach to managing change,” remarked Arthur Hanna, the managing director, Energy Industry, Accenture, United Kingdom, and member of the WEF’s Global Agenda Council on New Energy Architecture.

 “Our approach helps nations take stock of their energy architecture challenges and identify practical and cost-effective solutions,” he noted.

The New Energy Architecture report outlines a methodology designed to assist decision-makers in driving an effective transition.

While there is no one-size-fits-all solution, the report highlights different archetypes of change for nations to: rationalize and re-organize their mature energy systems; capitalize on significant hydrocarbon reserves; grow their energy supply to support economic expansion; and access basic energy services at affordable prices.

To achieve long-term objectives countries within each of the archetypes, enabling environments need to be created through policy initiatives, technology, infrastructure, market structures and human capacity, all connected by the flow of information, said the report.