Ten Key Energy System Dynamics – And the Implications for Global Energy Company Communications
Burson-Marsteller Global Energy Practice August 2012
In this article we explore ten important dynamics of the global energy system, as it is currently evolving, and the implications for communications and positioning for global energy companies.
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The dynamics are:
Energy technology breakthroughs and innovations are more imperative now than at any stage in human history in order to maintain and improve living standards, secure our energy future and avoid a potential energy crisis. The technologies already being used today are as advanced as in any field of human endeavor. Yet we need much more to be able to meet the energy challenge that we know is coming. This is both to produce more energy, more cleanly and more cost effectively – as well as to consume and use it far more efficiently.
1. More challenging energy 2. Globalization of energy 3. Technology and innovation imperative
4. Increasing role of gas 5. Integration 6. Efficiency equation 7. Doubts about the alternatives
Technology and innovation imperative
The available technologies provide no grounds for complacency – indeed, some would argue they are still basically inadequate to meet the interlinking challenges of energy, economic and environmental security in the future. We need radical breakthroughs as well as continuous innovation of existing technologies. We absolutely need the pace to pick up in a number of areas if we are going to meet certain targets, such as the reduction of carbon emissions and energy intensity. We need to be thinking constantly about ways to use less energy – as well as about ways to produce more.
8. Growing focus on energy access 9. Green and carbon agenda 10. Energy jobs Parts 1-2 can be found at the following link: http://issuu.com/bursonmarsteller. In this installment we address the third key dynamic: Technology and innovation imperative. Note: This is the third part of a 10-part series on key energy system dynamics and the implications for global energy company communications.
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Life is Energy It is easy to lose sight of how much we rely on energy. Yet when we reduce things to the most elemental level – life is energy and energy is life in many ways. No energy, no life. Like all species of plants and animals on our planet, humans are energy converters. We need energy to live. The fuel we convert into energy to live is biomass, otherwise known as food. Yet we humans have taken energy conversion to another level completely by applying our brain power to create a series of energy innovations that have enabled us to harness and convert many other forms of energy besides biomass (and to harness biomass, too, in different ways that do not simply involve filling our stomachs). This enables us to live very different lives to other species, not to mention our hunter and gatherer forbearers.
steam power, gas power, coal power, oil, solar, nuclear, and so on. Think of the great transformational periods in human development – from the agricultural revolution to the industrial revolution to the digital revolution – and of the life-changing energy dynamics involved. Ask yourself where would we be without them? The good news is that with an increasingly connected global community – energy innovations can spread faster and wider across the planet than at any stage in human history. Energy Innovation Drivers To understand the energy innovation dynamic properly, we need to realize that energy players – particularly the traditional ones – are used to longer innovation cycles and time horizons – and to working on much larger scale projects, requiring much larger investments than in most other industries. This makes long-term planning and thinking imperative.
Energy innovation and conversion has been the basis for humans to transcend our physical limitations and, ultimately, to develop civilizations and complex modern societies, including in some of the most inhospitable and challenging environments on the planet. This has resulted in standards and modes of life and living that would have been unimaginable for our primitive ancestors huddled around the campfire.
As energy expert Daniel Yergin has noted, the pace and nature of technology innovation, regeneration, application and disruption associated with information technology and consumer electronics – the sectors most associated with innovation in the public consciousness – are, for example, quite different in many ways to how innovation and technology works in the energy system.
Think about every step of your day and where energy comes into it. Energy for your breakfast, for the hot water for your shower, energy for producing, cooking and storing food, for cars to get to work or school, for lights, heating and cooling for the buildings you inhabit (e.g., offices, hospitals and schools), power for the machines and devices you use to work, educate and entertain yourself – the list can go on and on for someone living in an advanced modern society (but not for someone still experiencing energy poverty).
Building a new coal power plant, hydroelectric dam or offshore oil platform – all of which can last for many decades – involves a different way of thinking and a different attitude to risk and innovation. With the amount of money and scale involved in building energy infrastructure there is less scope for placing lots of bets and seeing which ones come off. In some ways, there is also less scope for smaller industry players (e.g., start-up companies) to come along with a new idea or technology that can completely revolutionize the industry.
It is fascinating to contemplate the extent to which energy innovations have provided the foundation for human civilization, progress and development through the ages. Think of breakthroughs made possible with innovations in wind power, hydro power, horse power,
In some cases – such as where the energy can be developed and produced cheaply with
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existing technologies, and the company’s position is secure based on long-term contracts and high barriers to market entry – the incentive to invest in new technologies is weak.
Government-driven Innovation and Research Innovation and technology are vital to securing the energy future and limiting the environmental impacts of energy production and consumption. They are also fundamental to national competitiveness. Given constraints companies face in investing in energy innovation, there are increasing calls for governments to play a larger role in driving the development of technologies that can secure the energy future while enhancing the competitiveness of their countries. Proponents of a larger role for government include those in industry that understand the critical role government played in developing new technologies that provided the basis for entire industries (e.g., the Internet and nuclear energy) in the past.
Innovation drivers, on the other hand, are often created by policies that require companies to meet tougher standards, to face more competition or when the main growth opportunities exist only in new and more challenging areas. Indeed, energy players will typically move to invest in R&D and innovate when the price is right – whether because of higher revenues or lower costs (as long as there is a profit in it), or because they need to have an edge to compete. While the situation varies considerably across the energy system and economy, there are many energy sub-sectors where technology and expertise are the key source of differentiation and competitive advantage for energy companies. It may be the core value proposition potential partners or customers are looking for in choosing one company over another. So large investments in energy technology and science are made because they are imperative for sustainable business success (and survival).
According to the American Energy Innovation Council, a group formed by CEOs of some of the world’s largest companies, arguments for government to play a leading role in energy innovation include: • Energy is not valued in and of itself, but rather for the goods and services it provides. This means that product differentiation does not drive innovation in energy supply options in the same way that it would for other types of products and services.
As an example of this dynamic, investments by international oil and gas companies (including service companies) in new technologies for unconventional oil and gas picked up significantly once the global opportunities to develop conventional oil and gas fields became much more scarce (in part because national governments increasingly reserved these opportunities for state-owned national oil companies). Prices also rose to a point where there was a profit in it, and competition increased.
• Many energy technologies are capitalintensive and long-lived, with the result that many require significant up-front cash with a slow return. In turn, the energy sector as a whole is subject to a high degree of inertia, a tendency to avoid risk and domination by incumbent firms. • Energy markets are not perfectly competitive, due to regulatory uncertainty, market fragmentation and distortions introduced by past policies – all of which generally slow the adoption of innovative technology.
In certain situations, the incentive to invest is not strong enough because no one company would be able to adequately monetize the technology. In others, the scale of investments required is too great for any company to bear. These are among the arguments used to urge governments to play a larger role in fostering early-stage energy research and technological development.
China’s Innovation Investment China is a prime example of a country that has decided to plan and invest in developing technologies and industries to enhance overall national competitiveness and meet the energy
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technologies to energy challenges, there is also much more intelligence within the system. New energies like solar and wind can be deployed much more quickly. Options for energy consumers and for where and how energy can be produced are also increasing thanks to continuous technology innovations (with a trend towards increasing decentralization and distribution of energy production closer to where energy is used, for example). And there is still very significant potential for transformative techniques and approaches to develop and be applied quickly in the fossil energy sectors. The combination of 4D-seismic imaging, horizontal drilling and super fracking (hydraulic fracturing) to develop shale gas, for example, has led to what some refer to as the “golden age of gas” – with major implications for energy security and geopolitics (as will be discussed in the next installment on the increasing role of gas).
challenge. Of the seven strategic emerging industries in China’s 12th Five-year Plan (20112015) – all have energy dimensions and some are pretty much all about energy. The seven strategic emerging industries are: • Energy-saving and environmental protection: Advanced and eco-friendly products, cyclic utilization, industrial equipment and services • Next-generation information technology (IT): Advanced communications network, cloud computing, three network convergence, highperformance integrated circuits, high-end software, Internet security and artificial intelligence • Biotechnology: Bio-medicine, bio-agriculture, bio-energy, biomanufacturing, drugs/vaccines • High-end equipment manufacturing: Carbon fiber, battery industries, high-speed railway, aerospace, marine engineering and high-end smart equipment
Controversial Technologies and Practices New technologies, techniques and practices, however, can sometimes involve greater or new types of risks (e.g., those involved in ultradeepwater oil and gas exploration and production), generate significant controversies and present a new set of communications challenges. The deployment of such technologies may in fact be held up by concerns about how risky they are and doubts about the wider benefits. Indeed, in communicating about both old and new technologies, energy companies need to be adept at risk communications. This requires an understanding of how people respond to and perceive risk. As Peter Sandman and other risk communications pioneers have noted, risk perceptions and responses can often be way out of sync with the real hazard posed by a technology.
• New energy: Nuclear, solar, wind, biomass, geothermal and ocean energy • New materials: High-performance composite materials, nanomaterials, rare earth, alloys, membranes and high-end semiconductors • New-energy vehicles: Plug-in hybrid vehicles and pure electric vehicles, fuel cells, hydrogen cars and solar cars Note: The Five-year Plan is the guiding framework used by the Chinese government to help achieve its development objectives. It defines the government’s overall objectives, as well as specific goals related to economic planning and promotion of key sectors, industries and regions.
In many cases, people are prepared to accept certain technologies that may pose very real hazards – because they benefit directly, because they feel like they can personally control their exposure to the risks, or because the risks are so familiar and well understood as to be taken for granted, or because the companies involved are being regulated and held accountable by government.
Diversification and Change Energy innovation is having a major impact in transforming the energy system on many levels and in many ways. There is more and more diversification with new technologies and new sources of energy. With the continuously increasing application of information
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Cleaner Fossil Fuel Technologies We don’t just need technologies that can help produce more energy or use it more efficiently – we also need technologies that can help address the impacts of our dependence on fossil fuels in more direct ways. Promising technologies in this area include carbon capture and storage (CCS), underground coal gasification and those that significantly improve the efficiency of coalfired power plants.
Conversely, people react in a stronger way to risks that are poorly understood and not well known; where they feel like they have limited control personally over their exposure; where the main beneficiary seems to be a big company (and not them); where the technology is new and unusual; where the experts are debating intensively among themselves; or where there is limited accountability, transparency and openness on the part of those applying the technologies. The situation can be much worse if there is no consensus among governments and experts about how to regulate and supervise the application of the technology in question – especially if there is not enough scientific evidence to draw a firm conclusion.
In the coming decades, countries like China and India – two key global growth engines and home to around one-third of the world’s people – will still need coal for a majority of electricity. For the period 2008-2035, reliance on coal for electricity generation is predicted to fall from 80 percent to 66 percent for China and from 68 percent to 51 percent for India. But with rising overall energy demand, this does not necessarily mean that less coal will be used. Indeed, in China, which currently uses around 40 percent of the world’s coal, coal-fired power generation will increase by 600 GW to surpass the current capacity of the U.S., the EU and Japan combined. Meanwhile, gas – another fossil fuel, albeit less carbon intense – will be increasingly utilized during this timeframe. Oil will also still be the main fuel we use for transportation. So the hydrocarbon era still has a way to go, and we urgently need technologies that can mitigate related environmental impacts.
Meanwhile, NGOs and internet-empowered individuals have proven very adept at building opposition to specific technologies and practices. This is in part because they understand how people perceive such risks and what moves them to act. This can involve emphasizing scientific uncertainties or selective emphasis on specific research (rather than the weight of scientific evidence or the consensus of expert reviews by relevant scientific authorities), painting things in terms of a “David vs. Goliath” struggle between “big heartless corporations” and “defenders of the people and environment”, utilizing graphic and symbolic imagery, accusations of opacity, deceit and arrogance, and so on. They have also been effective in harnessing new digital and social media technologies that are reshaping and, in some ways, leveling the global communications playing field.
Innovative Practices and Partnerships It is also important to remember that innovation applies to organizations and partnerships, to management, policies and practices. Such innovation, it can be argued, has just as much potential to help transform our energy system. This applies to governments and regulators, to companies across the energy value chain, as well as to a host of other stakeholders such as NGOs, research organizations and think tanks. Innovative partnerships and policies are imperative for transforming our energy system.
Such groups play a vital role in society and are, of course, in many cases justified to oppose potentially dangerous developments or technologies. Meanwhile, they can be champions of new or alternative technologies and of efforts to expand energy access. So it is important to distinguish between those that are committed to a reasonable and equitable outcome and those that aren’t. Indeed, the former could become advocates as opposed to opponents if they can be convinced of the benefits and that certain risks are worth taking.
Such innovation might, for example, focus on approaches that address the energy technology
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divide between developed and developing countries – recognizing that less-developed countries may need to tackle problems differently because they can’t afford to deploy the most advanced technologies and systems.
possible. Global energy companies can learn by looking at examples of how technology companies have communicated innovation through integrated communications platforms and narratives.
Technology Dissemination It is important to remember that the dissemination of technology and expertise globally is impacted by competitive dynamics and the self-interest of those that developed and possess them (and related intellectual property). Many technologies that exist are not being widely applied in developing countries, for example, because they are considered too expensive and there is limited capacity to develop them independently. Arguments about quality, total cost of energy produced and externalities (e.g., health and environmental impacts) in relation to different energy technologies are used to justify what may seem to be more expensive technologies – but may in fact be more cost-effective from a holistic perspective. Some developing countries meanwhile are seeking to reduce their reliance on “foreign” or “imported” technologies for economic reasons – and so that they can help foster the development of local energy industries and economies. Global companies are also responding to these dynamics – including by developing technologies tailored for developing countries (which in most cases means more affordable, with less bells and whistles, among other value propositions) and by highlighting various contributions they are making to local development.
Meanwhile, we should also not lose sight of the fact that technologies – and our demand for and utilization of them – create new energy demand. Think of all the energy required to run the Internet and the devices connected to it. Think of all the energy that will be consumed by the predicted 1.7 billion passenger cars on the planet in 2035. That is double the cars we have today! So we need technologies that last longer and are much more energy efficient and recyclable – with a lower energy footprint over their lifecycle. Energy innovation is needed across the industrial value chain and throughout the global economy and society. We need to do much more with less energy for many more people if we are going to meet the energy challenge of the future. Lagging Reputation The 2012 Global Corporate Reputation Index (released by Burson-Marsteller, Landor Associates, Penn Schoen Berland, and BrandAsset Consulting) found that the technology industry has a very strong reputation overall (the strongest of all industries covered by the research), primarily due to the halo it gets from performance strengths around “innovative” and “visionary” attributes – regardless of its citizenship efforts. Meanwhile, as this chart indicates, the oil and gas industry struggles the most of all the industries covered by the research, particularly on citizenship. These findings are based on an extensive review of over 40,000 consumer interviews across six countries (Brazil, China, Germany, Japan, Russia and the United States).
Innovation Halo It is also worth noting that innovation and technology enjoy a very significant halo effect in most of the world – as evidenced by the high standing of technology companies in relation to other industry sectors. Energy players would do well to focus more on telling their own innovation and technology stories to build business and reputation – for example in countries which seek the knowledge and technology spillover benefits from allowing foreign players with technology advantages to participate in developing local energy resources – as well as the more tangible benefits from securing more energy than would otherwise be 6
fracturing) and to convince stakeholders that they have the expertise and technologies necessary to protect human health and the environment in risky situations. This requires that they have the ability to communicate smartly about science, related policies and risk assessments. (One un-replicated scientific study does not equal the international scientific consensus, the weight of scientific evidence or the view of independent panels of experts that have reviewed the various branches of science in a particular area!)
Is this fair given the job energy companies do in securing our energy, the fact that some of them are among the most innovative and forwardlooking companies on the planet and invest like few others in “corporate citizenship” efforts around the world? What about when we consider the massive energy demand and attendant environmental impacts generated by technologies produced and marketed by the technology sector? Communications Implications One thing this research makes clear is that energy companies need to better communicate the innovation and technology story and a vision for the future. Meanwhile, they need to also communicate a strong sense of purpose and show people the impact they have as global corporate citizens. As we have already discussed, educating people about the energy system will support such efforts by making it easier for people to understand how vital and important the role of energy companies is, and how massive and complex the challenges are that energy companies are meeting through technology and innovation.
They need to identify and know the most credible authorities on specific topics, whether organizations or individuals, recognizing that it is usually much more credible to reference the position of such experts and authorities than to say, “Trust me, I know what I am talking about.” Sometimes, they need to contribute to funding more research by independent scientists to reduce uncertainties (with controls in place to ensure reality and perception of objectivity). Meanwhile, they cannot afford to overemphasize technology and scientific arguments when a case might be better made in terms of the benefits to people and communities. Often both sets of arguments need to be made simultaneously – but some stakeholders may be far less interested in a technology discussion. It is also important to avoid being arrogant or failing to communicate because of an assumption that one is technically correct. Indeed, this can inflame public anger towards energy companies and play into the hands of opponents.
To compete and succeed, global energy companies need to be able to communicate the advantages and value propositions they offer from a technological perspective (so that they can be understood by the part of the global population that are neither engineers nor scientists). They should also ensure that efforts to develop and apply technology through R&D and collaborative partnerships are well communicated.
Openness, dialogue, transparency and mobilizing third-party experts and coalitions are important ways to build confidence about, and acceptance of, new technologies and solutions. So is basic education to familiarize people with the technologies and the wider benefits they bring, including energy access and economic development.
A focus on technology can help to demystify and legitimize companies that are sometimes more known for the power they wield or the damage attributed to them by their opponents. Communicating a vision for an energy future where technology solves key challenges can help to make clearer why energy companies are so vital and need to be able to get on with the job. Energy companies also need to help people understand and demystify what can be controversial technologies (like hydraulic
Douglas Dew, Chair, Burson-Marsteller Global Energy Practice – with Ryan Fenwick, Senior Associate
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About Burson-Marsteller Burson-Marsteller (www.burson-marsteller.com), established in 1953, is a leading global public relations and communications firm. It provides clients with strategic thinking and program execution across a full range of public relations, public affairs, reputation and crisis management, advertising and web-related strategies. The firm’s seamless worldwide network consists of 74 offices and 81 affiliate offices, together operating in 108 countries across six continents. Burson-Marsteller is a part of Young & Rubicam Brands, a subsidiary of WPP (NASDAQ: WPPGY), one of the world’s leading communications services networks.
About Burson-Marsteller’s Global Energy Practice Burson-Marsteller’s Global Energy Practice is an unrivalled global network of communications professionals focused on the energy industry and energy issues. Drawing on our worldwide Practice network of more than 100 communications and public affairs professionals with expertise and experience in the energy sector, the Global Energy Practice helps clients: • • • • • • • • •
Build compelling narratives that articulate value propositions and positions of energy sector players Develop and implement communications programs that impact energy sector stakeholders Map and identify energy sector stakeholders Develop common-cause partnerships Foster markets for new products and services Protect and extend licenses to operate Win public acceptance of needed energy infrastructure development Manage critical relationships with decision / policy makers Anticipate what’s coming next – and be prepared
Website: www.burson-marsteller.com Twitter: @BMGlobalEnergy Contacts: North America Jim Cunningham (jim.cunningham@bm.com) John Kyte (john.kyte@bm.com) Laura Sheehan (laura.sheehan@bm.com) Beth Diamond (bdiamond@national.ca)
Asia-Pacific Douglas Dew (douglas.dew@bm.com) Danny Phan (danny.phan@bm.com) Middle East Stephen Worsley (s.worsley@asdaa.com)
Latin America Ramiro Prudencio (ramiro.prudencio@bm.com)
Europe Diederik Peereboom (diederik.peereboom@bm.com) Roland Bilang (roland.bilang@bm.com)
Africa Hemant Lala (hemant.l@arcaybm.com)
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