The Power of Change

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How much longer should you wait?

This might be the most important question business leaders should be asking themselves in the year 2019, and nowhere is it more true than when it comes to the issue of energy.

If you’ve been paying attention to the news for the last few years, you’d be forgiven for thinking that Australia has a serious problem on its hands. Away from the headlines though, there’s a very different story, being driven not by politics, or ideology, or even environmental altruism, but by the cold-blooded logic of the marketplace.

While politicians have been hurling insults at each other, technological innovation, economies of scale and price competition have been quietly working their magic in the background. The results speak for themselves. Since 2010, the price of onshore wind has dropped by 49 per cent, solar by 84 per cent and offshore wind by 56 per cent, and since 2012, battery costs have come down by an extraordinary 76 per cent. Those are eye-watering figures - especially if you’re an executive at a coal company.

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Australia’s energy market operator, its leading scientific research agency and its two largest power companies all now accept that clean energy is cheaper than dirty energy. Cynics point to the fact that wind, solar and storage are only a fraction of the supply, but they’re looking at the wrong indicators. The last few years have been about getting the prices down. This year is well and truly the crossover point at which we shift to the next phase of the energy transition.

The question now is no longer “is it cheaper?”

The question is “how fast can we deploy?”

The good news is that the technology is getting better all the time. Modern wind turbines are marvels of human ingenuity and engineering savvy. They have twice the capacity as their predecessors from just a few years ago, and we’re dragging their giant blades into our oceans, to harness the power of gales. In our cities and deserts, we’re building fields of glass and gleaming pillars of molten salt to concentrate the sun’s energy, and giant gigafactories are springing up in remote locations around the world to lubricate the grid for the next wave of the energy revolution.

That next wave isn’t just about wind, solar and batteries. It’s about electric vehicles, a lithium, copper and nickel mining boom, the build out of charging infrastructure, hydrogen fuels, smart sensors, machine-learning for management and blockchain for distribution, more efficient industrial processes, zero carbon building materials and eventually ‘deep decarbonisation’ for the entire global economy.

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Beware those on the wrong side of the transition. We’re talking here about the disruption of the largest, most powerful industry in human history. It’s not going to be pretty. Over a quarter of the world’s companies that own or develop coal-fired power capacity have left the business since 2010, and more than a hundred of the world’s major banks have restricted coal lending or gotten out altogether. Oil and gas stocks are looking like bad bets too. European utilities have already written down about $150 billion in stranded fossil fuels assets; according to a recent report by the investment consultancy Mercer, companies in the oil and gas sector, including Shell, BP and Exxon, could lose 95 per centof their value by 2050 if the world successfully limits global warming to 2 degrees.

Many companies won’t make it. Take for example, the stunning fall of General Electric. Once regarded as the world’s leading industrial giant, they’re now a thermal power basket case. Manufacturing turbines for coal and gas-fired power plants is a significant part of the company’s business; in 2015, it hugely expanded that capacity by buying its largest European competitor, Alstom. But then the bottom dropped out of the industry as proposed plants failed to find financing. The fall in GE’s stock has meant hundreds of billions of dollars of shareholder value reduction. In June 2018, after more than a century, General Electric was dropped from the Dow Industrial Index, replaced by a drugstore chain.

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Do not ever think about launching environmentally damaging projects for growth, or any attempt to breach the red line of ecological protection, even when we meet some difficulties in economic development. As we go from high-speed growth to high-quality development, pollution prevention and environmental governance are important barriers to cross … We must grit our teeth, climb over this slope and pass this ridge.

President Xi Jinping, 5th March 2019


Back to that opening question.

How much longer should you wait? Or to paraphrase legendary US civil rights activist, John Lewis, “if not you, then who? If not now, then when?”

Leaders today need to understand that their decisions matter not just in what they refuse to back, but in what they agree to fund. Many of today’s most innovative companies see an opportunity in owning clean energy assets, and have taken matters into their own hands. Apple for example, now runs all its facilities and retail locations entirely on wind and solar, and they’re working on cleaning up their supply chain too – they’ve persuaded the majority of their suppliers, including Foxconn and TSMC, to move to 100 per cent clean energy.

IKEA, the world's largest furniture retailer, has revealed that 70 per cent of the materials used to make its products are now either renewable or recycled, as it strives to reach the 100 per cent mark by 2030. ABN Inbev, the largest beer company on the planet, says they’ll run on entirely renewable energy by 2025. Budweiser, their flagship beer, is now powered entirely by wind energy, a fact they celebrated with a commercial at the most recent Super Bowl in the United States.

It’s not just the usual suspects. Volkswagen, the world’s largest car manufacturer, has promised to be fully carbon neutral by 2050 (not a bad move for a company looking to restore its reputation after a series of corporate scandals). They’ve committed 80 billion euros to develop electric vehicles and batteries, dwarfing the investments of their rivals. Thyssenkrupp, the German steel-making giant, has announced plans to phase out carbon-intensive steel production and replace it with a hydrogen-based process by 2050. “It is industry’s job to ensure we’re doing our share for climate protection,” said Andreas Goss, the CEO of Thyssenkrupp Steel Europe, when asked about the move. Most impressively, Bosch, another German industrial giant, says they will be carbon neutral by the end of 2020. This is not greenwashing – these are billion dollar decisions that will impose real costs on these companies. They’re making them though, not just because they’re the right thing to do, but because they make good business sense.

There’s been some encouraging leadership here in Australia too. Commonwealth Bank, Bank Australia and Atlassian were the first three Australian companies to join the RE100, a group of global companies including Facebook, Goldman Sachs and Walmart that have committed to 100 per cent renewable power. Dexus, the country's largest listed owner of office towers, has committed to a goal of zero net emissions by 2030, and the country’s largest owner of shopping malls, Vicinity, is rolling out a program they say will reduce their consumption of electricity from the grid by 40 per cent. Sun Metals, a zinc refinery in the heartland of one of Queensland’s most conservative electorates, recently installed one million solar panels to lower their power costs, and the South Australian Chamber of Mines and Energy recently secured a renewable energy deal they say will save their members 20-50 per cent on power bills.

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There’s also been a big push by local governments. A few years ago, a consortium of Melbourne councils got fed up with the lack of federal policy leadership, and decided to fund their own wind farm. At the beginning of 2019, that wind farm was switched on, making Melbourne the first city in Australia to have all of its council-owned infrastructure powered by renewable energy. And in June 2019, Melbourne, which has the biggest tram network in the world, announced that all of its trams are now running on solar power too.

The clean energy revolution isn’t on the horizon any more. It’s here.

In every sector, decision makers now need to evaluate what action they can take. If you’re the kind of leader that believes the bottom line is all that counts, can you confidently stand up at the next meeting of the board and declare your balance sheet safe from the carbon bubble? Are you sure your overheads aren’t unnecessarily high because of an over-reliance on older, inferior and more expensive energy technologies?

And if you believe that business stands for more than just the creation of shareholder value, there really is no better time and no better opportunity to put your money where your mouth is. This is a once in a generation opportunity to make a mark. The clean energy transition is the greatest technological challenge in human history. We’ve never done anything like it before. Forget trips to Mars or cures for cancer. It doesn’t come bigger. It’s a project being worked on by millions of people around the globe, and there’s a dazzling array of solutions to every part of the puzzle if you know where to look.


 
Angus Hervey