A hostility that has practical repercussions: for companies in the sector it is one of the factors that make the ecological transition more difficult
Consumers are increasingly concerned about the environment, but do not seem willing to make too many sacrifices to protect it. Not even when it comes to the electricity bill: only 3 in 10 would accept a 2% increase to contribute to the energy transition. This is an opposition that has practical repercussions, being cited by companies in the sector as one of the factors that most make the transition to more ecological production and distribution systems difficult. It is the photograph, not encouraging, taken from the third annual report of Bain & Company, dedicated to the Energy & Natural Resources sector.
The survey, carried out on over 600 executives from 125 companies in 46 countries, analyzes the opinions and behaviors of companies regarding the progress of green transition, how they are managing the changes and what barriers they see in front of them. This year, executives said they expected in the short term (by 2030) a slowdown in the rate of decarbonisationbut their long-term expectations remain very positive.
The gap between theory and practice on the path to net zero
Not only on the customer side is there a certain distance between theory and practice in the green path. There are difficulties on the part of companies too. This is demonstrated by the fact that investments in clean energy are lower than necessary to achieve the transition objectives (i.e. the net zero by 2050): according to estimates from the International Energy Agency (IEA), annual infrastructure investments in green energy would need to be tripled to achieve the set goals.
Yet this does not seem to be a priority for companies in the sector, so much so that profits are redistributed to shareholders instead of being reinvested. In fact, the managers confirm that for 2023 they plan to allocate only around 25% of the total capital to the growth of new areas with low environmental impact.
Specifically, in 2022 in the industry Oil & Gas only 43% of capital was reinvested for growth and innovation, down from 58% in 2018. In the sector Mining the reinvested portion was 44%, down from 56%. In the segment UtilitiesFinally, capital reinvested for growth is constant and capital expenditure is increasing, but not sufficient to achieve the levels of renewable energy and electrification needed.
In this context, 36% of executives still believe that their companies are further along the path to net zero than their competitors and 67% think that they are moving faster than the world as a whole.
Yet at stake are not only ‘ideals’ or the survival of the human race (or at least of civilization as we know it in the West), but also the economy itself: the transition could generate a minimum of $55 billion annually of incremental margins if companies approached the required level of investment.
There are several obstacles paving the way to the energy transition. One is certainly the global geopolitical context, above all war in Ukraine erupted in 2022. An event that had a double effect on the energy sector (in addition to the increase in prices): on the one hand, the focus of investments shifted to how to make energy accessible in the short termon the other hand the race for renewable energyas the goal of countries and companies has become to be more self-sufficient.
“In the last 18 months, the energy security has assumed a leading role on the global agenda. The balance between energy supply and climate change represents an enormous challenge, which requires unprecedented change in scope and timing and, above all, major infrastructure investments. Unlocking capital proves complex for companies, which struggle to define paths that allow them to obtain returns on investments in relation to the mapped risk profile”, explains Roberto Prioreschi, Semea Regional Managing Partner of Bain & Company.
In any case, the Bain report highlights, there is no problem of funds: only 19% of the executives interviewed consider the shortage of capital as an obstacle to the expansion of low-carbon activities.
What worries companies most, however, is the almost zero willingness on the part of customers to pay more to actively participate in a green path: for 78% of those interviewed this is the main obstacle to decarbonisation, because it impacts the ability to create acceptable returns on green projects and makes it difficult for low-carbon businesses to scale. Companies therefore look to policy and regulatory support to fill the gap.
Following are considered as obstacles lack of regulatory clarity and the slowness of authorizations, even where the political context is more facilitating. Most North American utility executives cited them among their top concerns, although they see politics as much less of an obstacle than their counterparts in Europe and Asia. In this regard, the European Union has announced a draft regulation that aims to reduce the authorization times for large energy transition projects to no more than 12 months.
Other impediments mentioned, with less weight, include service providers (engineering, procurement and construction contractors, maintenance companies, etc.), availability of technology (critical in the Asia-Pacific region) and lack of understanding by policy makers, the media and the public on the interconnectedness of the energy system.
A new relationship with consumers
Consumers are therefore hostile towards a possible increase in their bill, even a low one, to contribute to the green transition. Instead, they prefer measures such asincrease in taxes on wealthy families and government intervention to lower the prices of new technologies.
This opposition opens up various fields of reflection: if on the one hand the last few years, between pandemic, wars, geopolitical tensions and galloping inflation, have impoverished the middle class and pushed even those who previously lived with dignity towards poverty, on the other hand the energy companies should think about build new relationships with customers.
A cultural change is needed, underlines the Bain report, which makes everyone aware of being responsible and protagonists of the transition, also through CSR initiatives and the involvement, above all, of young people. Otherwise an increase will remain just an increase.
“The sector must accelerate investments and make, without hesitation, strategic choices in the direction of innovation and modeling new relationships with consumers, finding a compromise between the need for adequate returns on investments and the opportunity to guide the transition process. Consumers, concerned about climate change but unwilling to pay higher bills, need to build with companies new pacts of collaboration and trust, possible only thanks to proposals based on an innovative interpretation of needs, the quality of solutions and maximum transparency. Adequate interventions on the regulatory level and the introduction of public finance instruments become fundamental enabling factors for the necessary acceleration”, concludes Alessandro Cadei, senior partner and EMEA head of the Energy & Utilities Practice of Bain & Company.