Making of a Megatrend: Episode 3 – Energy Security

Along with geopolitical empowerment, humanity’s insatiable desire for energy is a major driver of the alternative energy megatrend. It fuels the economy, allows us to travel, keeps us warm (and cool), keeps the lights on and Netflix streaming. The U.S. Energy Information Administration projects that world energy consumption will grow by nearly 50% between 2018 and 2050. For countries, the primary energy security consideration is the ability to obtain secure supplies of energy at reasonable prices. In the context of the alternative energy megatrend, the key questions are: what are – or will be – the primary energy sources and who controls them? Energy has assumed a place of its own as a factor in the survival of states.

For most of the 20th century, actors grappled with the energy security challenges associated with disruption and manipulation of fossil fuel supplies, predominantly from the Middle East. Toward the end of the century, the geographic focus expanded to include other regions, such as Latin America and Russia. Depletion, supply and demand volatility, and the capacity of actors to restrict access to conventional fuels has turned lack of access to energy supplies into an existential threat.

With the alternative energy megatrend gaining momentum, energy security calculations are broadening to include resources beyond fossil fuels. Other factors also explicitly or implicitly drive energy security calculations and could shape the energy landscape during the 21st century. These factors include the emerging global regulatory framework for greenhouse gas emissions, international public pressure to tackle resource depletion and environmental sustainability, and the unrelenting pace of technological development. Taking these factors into account, the impact of the alternative energy megatrend highlights a spectrum of possible effects on global energy security.

The governance of energy, for example, has expanded to include the broader impact of energy on habitats and ecosystems. The International Energy Agency is at the heart of the global energy dialogue. Although it was created in 1974 in response to major disruptions in the supply of oil, its mission now includes renewables, energy efficiency and clean technologies.

On a national level, the Biden Administration has been particularly active in its first 6 months. From shutting down the Keystone XL Pipeline project to setting a goal for the U.S. to reach 100% carbon pollution-free electricity by 2035, President Biden is pushing a green energy agenda on all fronts. As noted in Episode 2, Xi Jinping has called for an “energy revolution” with a focus on electricity security. By 2060 China aims to transform its power generation mix from roughly 70% from fossil fuels today to 90% from renewable sources.

The board rooms of energy giants have also experienced a sea change in energy governance priorities. Over the past five years, the largest institutional investors have been increasingly vocal and specific about their expectations of boards and directors regarding board composition and ESG. Topping the 2021 list of governance trends most relevant for corporate boards was “Climate Change Risks.” The ExxonMobil – Engine No. 1 proxy contest is perhaps the most notable example. Engine No. 1, an activist hedge fund with just .02% ownership in the company, argued that there were shortcomings in oil and gas experience on ExxonMobil’s board, slow strategic transitioning to a low carbon economy, and historic underperformance and overleverage relative to peers. They won, ousting 3 sitting board members.

The global technological revolution is bolstering expectations for renewables’ contribution to energy security strategies. The exponential advancement of nanotechnology, automation, artificial intelligence, bioengineering, and the Internet of Things within the Fourth Industrial Revolution adds new elements to the very notion of energy security. Beyond the availability of natural resources, access to technologies that propel distributed energy storage technologies, 5G communications networks, the ability to bioengineer materials such as lithium for batteries, and the creation of smart utility and electricity networks are becoming as indispensable as having access to oil, gas, sun, or wind.

At the same time, these technologies introduce new threats such as the possibility of cyberattacks. The increasing interconnectivity of energy systems means that conflicts can have ripple effects on energy markets and prices. New technologies, such as grid-embedded generation, are making the cybersecurity of grid systems more vulnerable.

The technological revolution also creates new and sometimes unexpected drivers for energy demand growth that can also push forward renewable energy production. For example, in 2018, Morgan Stanley analysts noted that the energy needed to create cryptocurrencies could rival the entire electricity consumption of Argentina, contributing to global energy demand growth by up to 0.6%. Technological development engenders power, but powering technology requires energy.

The energy security impact of renewables will likely coalesce around two main focal points. First, alternative energy can wield a stabilizing influence over the global energy system by broadening choices, reducing barriers to access, and buffering/reducing price shocks. However, despite alternative energy’s propensity for introducing new resources, options, and ambitions for different actors, it could also prove to be disruptive as it disturbs the status quo of the global energy system. The global balance of power could be reshaped if developed economies achieve advances in alternative energy development that enable them to export energy. This could lead to the creation of a “renewables OPEC,” which in turn could generate new sources of tension.

The megatrend is already altering approaches toward energy security, offering options that can contribute to the stability and safety of the international energy system, energy resilience, diversity of supply, local energy independence, and global interdependence. Alternative energy is seen as a future solution to a range of broader energy and economic security concerns, such as the manipulation of energy supplies, commodity price fluctuations, and resource depletion. Ultimately, the capacity of alternative energy technologies to complement and match fossil fuels’ role in the global energy system will determine the megatrend’s impact on energy security.