Report Highlights the Importance of Innovation in Solving "The Energy Puzzle"

• The World is facing a true energy dilemma: how to deliver secure, affordable, low carbon energy to growing economies and populations
• A report entitled “Solving the Energy Puzzle Through Innovation” addresses the crucial role of innovation to provide solutions
• The report was launched in the context of an Energy Strategy Meeting taking place during the World Economic Forum on Latin America

Cancun, Mexico, 15 April 2008 – How can we deliver secure, affordable, low-carbon energy to a global population that is expected to grow from 6.4 billion today to more than 8 billion by 2030? This question has captured the attention of the energy industry, policy-makers and consumers, but there are no easy answers. Through its Energy community, the World Economic Forum today launched a report entitled “Solving the Energy Puzzle Through Innovation”. Produced in partnership with Cambridge Energy Research Associates (CERA), the report includes perspectives from a number of prominent experts and decision-makers.

“The challenge of transforming the energy system is tremendous, given the size of the capital requirements, the need for new technology and market adoption. Our report not only demonstrates the importance of combining the forces of investors, technology providers and policy-makers to boost innovation, but signals the need to engage energy customers and learn from innovative experiences in other industries,” said Christoph Frei, Senior Director and Head of Energy Industries at the World Economic Forum. View the full interview.  

The report was launched at a press conference in Cancún, Mexico, in the framework of the World Economic Forum on Latin America. A number of senior business executives and policy-makers gathered for a private Energy Strategy Meeting in Cancún, organized within the Energy Industry Partnership of the World Economic Forum and co-hosted by Georgina Kessel, Secretary of Energy of Mexico. Participants discussed key issues on the regional and global energy agendas.

The Energy Dilemma
The current energy path is unsustainable. If the future patterns of global energy consumption and production mirror those of today, the world will need at least 50% more energy in 2030 than it uses today and carbon emissions are set to follow a similar track. Rising energy costs are already taking a toll on economies worldwide. The key to getting the global energy system onto a more sustainable path is to break the links between economic activity, energy demand and GHG emissions. This is by no means a trivial task and innovation will be key to solving this “energy puzzle”.

The Innovation Frontier
The good news is that the report identifies strong and converging forces at work that are pushing for a shift towards a more sustainable energy future: “High [energy] prices combined with concerns about energy security and climate change are stimulating the most widespread drive for innovation the energy sector has ever seen," said Dan Yergin, Chairman of CERA. "And that's true whether you're talking about renewables, alternatives or traditional energy sources. Innovation follows need, and the need is certainly there.” The current green technology boom appears to be a trend rather than a short-term deviation. The report finds that a growing number of green-tech newcomers in the energy marketplace have the potential to fundamentally transform how energy is produced, distributed and consumed.

Investment in renewable energy and energy efficiency exceeded US$ 70 billion worldwide in 2006, and estimates of the 2007 total exceed US$ 110 billion.

The bad news, however, is that, despite the impressive investment figures in clean energy technologies, they are only a small fraction of the amount invested in the energy industry each year. Moreover, fundamental breakthroughs are still needed before many innovative technologies can be adopted. In addition, when taking the long life-span of energy infrastructure into consideration, it becomes clear that transforming the energy system will most likely be a matter of evolution rather than revolution.

The term “innovation” calls to mind disruptive technologies and paradigm shifts, with visions of distributed electricity generation or vehicles powered by hydrogen. Although these types of innovation may well become part of the future solution, they will take many years to integrate into the energy system. The most fertile ground for dramatic and rapid innovation in energy may be the smaller-scale technologies, such as “smart” meters, solar photovoltaics, micro control systems, plug-in hybrid electric vehicles, energy storage capacitors, etc. The development of these and other micro-level advancements is likely to occur on a relatively short timetable and may take us in new and surprising directions.

Several interesting lessons flow from comparing energy to rapidly-changing high-tech industries:

• Incremental change is important. Disruptive technologies will take a long time to develop and take root. In the meantime, innovations within the current industry framework can be crucial. For example, the magic of cumulative effects allows an energy efficiency improvement of 2% per year to result in a 22% improvement over only 10 years.

• Open innovation serves to broaden the base of new technologies. No one knows which development will be the source of the next energy breakthrough. An atmosphere of open innovation is gaining ground and will be crucial to ensure that new ideas find applications in the energy industry. For instance, ICT technologies may help lower energy consumption.

• Opportunities exist for cooperation between incumbents and new entrants. Given the scale of growth in energy demand, there is room in the market for new entrants along with the incumbents. New entrants may rely on the incumbent’s infrastructure, and a culture of open innovation allows incumbents to take advantage of new entrants’ innovations.

• Energy customers will be part of the solution. Energy customers – individuals as well as commercial users – are the final arbiters of success for any innovative product. Technologies that allow better monitoring and the optimization of energy use can increase consumers’ involvement and change their behaviours. A shift towards increasing the “consumerization of energy”, similar to what has occurred in the ICT industry, would challenge traditional energy delivery models.

Creating a New Energy Future
The report finds that an intensified drive for innovation will be required for the world to meet its energy challenge, requiring increased collaboration among the energy industry, governments and consumers, as well as new participants such as venture capital and technology firms. Any attempt to transform the current energy model will also demand innovative thinking, massive infusions of capital and some luck, in order to succeed. The interplay among the key “innovation catalysts” – technology, people, capital and policy – will influence whether lower-carbon energy at affordable prices is available for the generations to come.

Technology will be a key enabler but no single technological solution can do the job alone – the solution will require as many resources and technologies as can be developed and deployed. People drive the growing demand and changing consumer behaviour could provide impetus to change. Capital provides the financial fuel and expectations about the potential size of the market will be important for investment in innovative technologies. Policy sets the competitive playing field and can give early technology a financial nudge. Policy must also provide the necessary certainty for investors.

However impressive the investment in clean technology may be, much more needs to be done. Therein lies in a nutshell both a tremendous challenge and a tremendous market opportunity. Innovative companies will capitalize on these opportunities. How many of them will come from Latin America? 
Acess the full report