Why the energy technology revolution hasn’t happened

  • January 14, 2014
Why the energy technology revolution hasn’t happened

It’s always encouraging to see the nations of the world talking seriously about how to address the problem of climate change, and one can’t help but get a warm and fuzzy feeling from the recent announcement by US Secretary of State John Kerry that America intends to push more aggressively on this issue in the years ahead.  But, alas, we’ve seen this movie before: silver-tongued politicians have been delivering speeches on this very topic for decades, yet we have precious little to show for it.

In fact, 2012 was a rather unfortunate milestone for human civilisation inasmuch as it was the 20th anniversary of the much-ballyhooed Earth Summit.  In 1992, 172 nations came together in Rio de Janeiro and agreed that climate change was a major global threat that needed to be tackled in a coordinated way.  Despite this unprecedented commitment to change, however, very limited progress has been made since then.  There’s no denying that clean energy technologies have made some noteworthy gains over the years, but the brutal truth of the matter is that we’re still failing.  What’s the world’s fastest growing energy source today?  Coal.  The energy technology revolution that so many of us were hoping for still hasn’t arrived.

World Energy Consumption 1986-2011
Source: BP’s Statistical Review of World Energy 2012

The way I see it – and as I explain in a recent talk that I gave on this topic – there are a few explanations for this rather pronounced lack of progress.  Maybe the 172 delegates in Rio were being less than sincere when they made all those promises back in 1992.  But the discussion has continued and gathered momentum since that time, so I suspect that other forces might be at work here.  Instead, I believe that there were market dynamics that stood in the way between us and the well-intentioned agreements struck in Rio.  These forces and dynamics were less understood at that time, however, and were accordingly under-emphasised by policymakers of the day – but are now starting to come into focus.

Entrepreneurs and start-ups

Underpinning these forces are the mechanics of how technological revolutions tend to unfold.  Sometimes an industry incumbent comes up with an innovation that represents a fundamental departure from what was there previously, and the marketplace is changed forever.  Very often, however, these kinds of dramatic changes are delivered to the market by entrepreneurs and relatively small start-up firms.

Despite the nimbleness that their small size affords these startup companies, however, it often acts as a structural disadvantage in the energy technology space because of the industry’s extremely slow clockspeed.  The energy sector is uncommonly capital-intensive and involves assets typically designed to last for decades, and the sector tends to absorb new technologies much more slowly than many other industries as a result.  Whereas some sectors like IT and computing quickly develop and adopt new technologies within a few years, the better part of an engineer’s career can go by before promising innovations properly find their way into the energy sector.  The figure below compares the upstream oil & gas sector to other industries on this front, but many other parts of the energy industry – including nuclear power, electrical transmission, etc – also frequently behave in this same way.

Rates of Technological Change in Different Industries
Source: Shell International Exploration & Production presentation at SPE-IADC Conference 2005

And therein lies the root of the problem: small start-ups have trouble surviving for 20-30 years while they’re waiting for their promising new energy technology ideas to catch on in the marketplace.  Big companies can “play the long game” and be patient for innovation-related investments to pay off, but small companies usually have to fret over shorter-term concerns like making next month’s payroll and keeping the lights on.  My own research in this area over the past couple of years (which is still being groomed into a publishable form) shows that the industry’s extremely slow clockspeed frequently causes a lot of pain within energy technology start-ups, and other researchers looking at different data have landed on similar types of conclusions.  It therefore follows that a dot-com style revolution within the energy industry was probably unlikely.

So what should we be doing instead?  As MIT Technology Review’s David Rotman contends: “As venture investors and start-ups recognise how much time and money it takes to establish truly innovative clean-energy technologies, they’re embracing the value of working closely with the large companies that will dominate the industry for the foreseeable future.”  In the two decades that have passed since the Earth Summit, we’ve bet heavily on technologies and business models designed to set in motion a revolution that would effectively supplant all of the trillions of dollars in energy-related infrastructure that is already in place.  That strategy has delivered shockingly little progress.  There is an obvious romantic appeal and natural attractiveness to the idea of a revolution, but it’s becoming increasingly clear that this was always a long shot – and the stakes are simply too high for us to gamble away the next 20 years in the way we did the last 20.

It’s time to change gears and start developing business models and government policies that encourage large incumbents to work collaboratively with the start-up firms that are championing breakthrough energy technology ideas.  The energy revolution didn’t unfold in the way many of us hoped it would but, with a bit of ingenuity and fresh business models, we can still figure out how to make the world’s energy system evolve quickly enough to bring about the changes that we’ve been calling for since the Earth Summit.

*Robert Perrons [2001] was a Gates Cambridge Scholar at the University of Cambridge, where he received a PhD in Engineering.  He is currently an Associate Professor at the Queensland University of Technology in Brisbane, Australia.  His research mainly focuses on innovation management and new technologies in the energy and resources sectors. Top picture credit: xedos4 and www.freedigitalphotos.net.

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