The Paris Agreement brought the imperative for the energy transition to a head. Following the first tentative steps by governments and companies, we are now on the eve of a large- scale movement. The need for change is clear, making the switch to sustainable energy sources is less and less of a choice, and we have passed the tipping point. Sustainability has moved from small-scale, experimental CSR measures into new ways of doing business - and new revenue models. Yet these cannot be isolated efforts, but rather require collaboration between stakeholders.
The Netherlands – energy transition microcosm. For the Netherlands, famous for its dikes, polders, canals and windmills, the interplay between wind and sea has long been central. However, recent decades have seen a strong reliance on fossil fuels, as evidenced by the port of Rotterdam and companies such as Shell. Indeed, the Netherlands is home to some of the world’s most important energy and infrastructure multinationals. This report views the energy transition through the lens of this fast-evolving market.
Global energy transition – a growing movement. Transforming the energy economy is no trivial task, and to succeed it is crucial to take a holistic and inter-connected approach, rather than a series of separate measures. Industries, companies and households must become more sustainable individually, whilst transforming entire energy systems. Countries must distribute burdens and benefits so that each stakeholder’s contribution creates optimal value in a clean and competitive energy economy.
As the energy transition gains momentum, it’s becoming clear that whilst the challenges are many, so are the opportunities. Companies can and must look forward to jointly growing new markets, backing their pioneering role with solid investments. And with the Paris goals already risk missing the mark, urgency is concentrating minds and money as never before.
Roland Theuws, Partner, Amrop, the Netherlands.
About this Special Report
Beyond the hype, this report contains:
- Honest reflections from the industry front lines
- Insights into energy transition innovations
- A window on the progress of sustainability post Paris
If you are an executive in the energy and infrastructure sector, if the energy transition is affecting your supply chain, growth or profitability, or to discover how leadership peers are tackling high-profile change in a fiendishly complex environment, we invite you to read the full report.
Our report has 2 parts. In ‘New Energy’, we set out a vision for the future and the key developments of different energy sources. In ‘Stakeholders’ we focus on the social ingredient examining 3 major groups: companies, consumers and Government.
PART 1 - NEW ENERGY
01 | The Power Grid
Once a simple connection from power plant to customer, the cumbersome fossil-fueled plant is no longer future-proof. The energy transition is fostering a spectacular nationwide growth in wind turbines and solar panels, clean but small power sources. Our report explores how:
- Demand for electric power will surge in the coming decade.
- Disconnecting power generation and supply will break up old monopolies.
- One-way grids are moving to interconnected, dynamic systems.
- Technology and digitization are putting customers in charge.
- Weather risk is offset by alternative energy sources, integrated markets, and storage.
- Energy supply means 3 A’s: Affordable, Available and Acceptable.
- Wind energy is gaining dominance in a mix of energy sources. The ultimate outcome is still open.
02 | New Heat Supply
For over half a century, the Netherlands has heated its homes and buildings with natural gas – a unique situation in the world. But as our report reveals, change is afoot:
- Neighborhood actions could free up the fossil fuel lock-in.
- Old gas infrastructure requires creativity and cooperation to find solutions.
- Gas, still the cleanest fossil fuel, is under threat from cheaper dirty relatives.
03 | New Fuels, Disconnected World
Contrary to grids, fuel has the capacity to bring power to mobile power consumers, which we call the “disconnected world”. Fossil fuels form the cornerstone of today’s energy economy: for the transport sector, as a raw material, for industry. The transition to sustainable fuels will be a far greater challenge than to green electricity. Making industrial processes sustainable is technically demanding, innovation involves high costs affecting the entire chain. Our report outlines that:
- Just as the clean energy agenda gathers pace, the global fossil fuels market is growing.
- Energy transition demands transition fuels: most-cited are liquid and compressed natural gas, ‘scrubbers’, electrical/hybrid and hydrogen.
04 | Storage
One of the most crucial innovations is decoupling electricity production and consumption. When demand is high, electric power must be generated, but in future wind and solar power can be stored for later, absorbing dips in the grid. Leaders tell us that:
- Batteries will need a technological breakthrough to leave the domestic niche.
- All storage methods will find their place, if molecular storage may best suit industry, the jury is still out.
PART 2 - STAKEHOLDERS
01 | Companies
Business front-runners are using energy transition to their advantage. They are making sustainability a fully-fledged earning model and securing an enduring competitive advantage beyond ‘business as usual’. This helps attract young talent and out-innovate rivals. But it cannot be a casual enterprise. It will take a balanced strategy, consistently followed-through, clear and public corporate declarations, and the involvement of employees. In our report you can find out why:
- Organizations who fail to plant the flag now risk falling behind.
- With creativity, and spin-offs, disadvantages can be turned into their opposite.
- Long-term advantage means allowing (cost-effective) sustainability to migrate from CSR into the core business.
- The energy transition is uniting sectors and competitors, and building new sectors and coalitions.
02 | Citizens
Consumers often lag behind companies in the energy transition. But public backing is crucial to building a critical mass of support. Business is trying to encourage consumers to think differently. Our interviews reveal that:
- Business is taking the lead over consumers.
- Green is still the domain of the well-off consumer, and needs to be democratized.
- Business must show consumers the way, giving insights and new financial instruments.
- New builds are increasingly (almost) energy-neutral, existing structures remain an unpredictable obstacle for householders.
03 | Governments
Government has the muscle to determine the playing field for the energy economy and set the conditions for a coherent transition, from setting business objectives, regulatory and energy provision frameworks, to providing technical education. However, government will have a lesser role than business in effecting the actual change. According to the business leaders interviewed:
- Government policy must be decisive, predictable and forward-looking to reassure business investors – and answer social need.
- Government must lead the big investments in clean energy, innovation and creating new sectors, and make brave social and fiscal choices.
- Regulation means setting the goal, not the way, business need room to find creative answers.
- The market will ultimately decide which innovation has the most traction, and help it grow.
- Too much restriction will backfire and damage business and the economy.
New Leadership in the Energy Transition | 5 Drivers
Energy transition leaders report a multi-faceted set of challenges and responsibilities. Technology is advancing rapidly alongside ever more demanding standards and regulations. Our interviews surface some clear recommendations.
- Keep a dual focus - external and internal. The energy transition is having a tentacular effect on daily operations. Successful leaders balance an inquisitive attitude to the outside world with close attention to internal process improvement. “What’s incredibly important for a company in such a disruptive environment is that your people – and you of course – keep a really good eye on the outside world,” says Ingrid Thijssen, CEO, Alliander
- The energy transition is unexplored territory. Map, anchor, and reshape. This challenge is the first of its kind, shaped in new ways by leaders every day. There is no blueprint, but incremental steps and improvisation. In this technical environment, dynamism and creativity are critical to guide companies through alternatives and adopt best practices. Exploring unconventional solutions can put an organization in the lead once a strategy starts paying off. Luckily, the desired result can serve as an anchor point. Wim Pelsma, CEO, Aalberts Industries: “Leadership is about setting a course. Choosing a dot on the horizon, but to reach it everybody must support the journey. That road can be pretty bumpy at times, but by always maintaining that dot, everybody will know what you’re working towards. Then you can very gradually re- shape an organization, step by step. That’s what we have taken 4, 5 years to do.” Invest to prepare - and prepare to invest. Throughout the energy transition, companies may well need to invest quite ambitiously. Several CEOs interviewed are dedicating serious resources. Ingrid Thijssen explains: “We have an innovation focus group and an energy transition portfolio. That entails 36 or 38 capabilities that we work on and we know need to be installed to maintain a high standard of performance when energy grids run on sustainable energy in the future.”
- Blend vision and pragmatism - integrate quarterly reporting into the long term whole. For a sustainable transition, organizations must balance ambition with a realistic pace, balancing shareholder and stakeholder perspectives. “Now and then also look past quarterly figures and even years to study what the future holds, and invest in it , says Atzo Nicolaï, President, DSM Nederland. “As we all know, it takes a long time before these investments start to pay off, so the right balance is needed. You can’t forget your quarterlies for two years.”
- Finally, engage, empower, and listen. We conclude that during piloting and experimentation phases, management must give talent space to adapt, listening to issues and adjusting. Senior executives also need courage to change or cancel their own plans in favor of the bigger picture — even their best will not be failsafe. Clear and honest communication can make the difference between a steady, successful transition and a counter-productive, strategic mess.
- Talent Strategy in the Energy Transition – 6 Keys
Our exploration of this complex territory, and our interactions with energy and infrastructure hiring organizations, lead to the following findings and recommendations from the executive search perspective:
- The best leaders will be agile, connected and forward-looking. These characteristics, in Amrop’s view, define ‘Leaders For What’s Next’. In the energy transition, they are vital. Agility: executing incremental change in a fast-evolving, innovative environment, adjusting, re-thinking legacy approaches, alliances, infrastructure. Connected thinking: joining traditionally-separate sectors, fostering new links between companies, organizations and citizens. And looking forward beyond the horizon, making sense of ambiguity.
- Green is the new employee branding proposition. Leading energy and infrastructure organizations are broadcasting their commitment to sustainability, and their progress. From strategy to culture and business/revenue models, consumer groups, investors, and tomorrow’s talent are all playing close attention.
- Digital and customer journey leaders will be vital. Digital professionals, ‘T-shaped’ profiles, combining technical and strategic weight, will be a critical ingredient of boards driving the energy transition. But energy and infrastructure companies are under-equipped: only 6% of profiles of listed boards fit the bill according to a recent Amrop report. The energy transition is putting the customer in the driving seat, as digital devices enable decisions regarding consumption and choice. Virtuoso engineers of win-win customer journeys will build sustainable relationships across a consumer base spanning income, energy-literacy, and need.
- As sectors blend and connect, lateral thinking will facilitate hiring. A special breed will be needed to lead organizations through the turbulence of the energy transition. The talent pool within energy and infrastructure industry verticals is limited and hotly-contested. Savvy talent strategists take a creative, cross sector approach to hiring: from profile design, to search, selection, and closing negotiations.
- A war for technical talent is brewing. Technical talent is thin on the ground. To be positioned as the employer of choice will take a compelling employer value proposition, cutting-edge training to bring talent up to speed in new technologies and applications, and working hand-in-hand with government institutions to inform and support state provision of the next generation of skilled technicians.
- Wise decision-making must underpin the energy transition. A recent Amrop global study makes the case for a new kind of leader: one who addresses the dilemmas of modern business in a holistic way. Creating and capturing vital economic value, whilst building a more sustainable, legitimate organization. However, examining 3 pillars of wise decision-making, our study finds gaps between intentions and reality.
Read the full report here.