Energy and utilities firms should transition while leading is still an option

HFS Research sets out a new energy and utilities research framework and launches the Horizons study

For more than 70 years since discovering—and masking—its role in fueling the global climate and sustainability emergency, the energy and utilities industry has managed to throw away any trust and goodwill earned from its role in positive economic and technological development. Examples range from oil and gas to water and mining. But there is still time to regain that trust if the industry’s leaders stand up to short-termism and politics—and put their technological, innovative, and lobbying resources toward the energy transition.

A successful energy transition will work for everyone. Collectively, as a sustainability movement, we must improve our ability to tell the story of the benefits to the planet, people, and business: clean air and water, a stable climate and biodiversity, sustainable businesses, happier employees, sufficient resources, less waste, affordable energy, and warm/cool homes as needed, less anxiety and improved health, calmer commuting and closer communities, better news and less conflict, and stable, fulfilling jobs contributing to these possible futures.

Despite positive global signs, few energy and utilities companies have met the energy transition challenge

Fossil fuels still cost businesses, governments, people, and the planet vastly more than renewable energy, despite positive signs that new investment in clean energy is double that of fossil fuels ($2 trillion vs. $1 trillion in 2024), explicit and implicit subsidies overshadow clean energy investment. The recent US election results will not help; we’ll analyze that in more detail soon.

Solar and wind power costs are plummeting, and tech giants are boosting nuclear power as they seek to decarbonize their data centers. However, the IMF estimates fossil fuel subsidies exceeded $7 trillion when accounting for explicit and implicit (wider, non-priced harm from pollution, health, productivity, climate, nature, etc.) sources.

Looking specifically at oil and gas firms, their spending shows a damning lack of priority for clean energy. Upstream oil and gas investment is on pace to rise 7% in 2024 to $570 billion after rising 9% in 2023. Those same companies will spend only $30 billion on clean energy. Coal investment is also increasing globally. Renewable energy investment must triple by 2030 to meet the Paris Agreement target of net-zero emissions by 2050 and limit global warming to 1.5 degrees above pre-industrial temperatures.

HFS Research launches its Energy and Utilities Horizons report and research framework to tackle the failures of the energy and utilities industry to transition

Beyond the traditional view of the energy transition and our guiding beacons of the UN’s 17 Sustainable Development Goals (SDG), our research will incorporate shifting trends in technology, business models, and operations (our frameworks for energy innovation will be published soon)—the outcomes of which all connect back to one of the five key outcomes identified in our research framework (see Exhibit 1). HFS also recently published a report on the intersection of sustainability, reliability, and viability as the energy and utilities industry merges across upstream, midstream, and downstream operations—as well as retail customer engagement.

Exhibit 1: The HFS Research Energy and Utilities research framework

Source: HFS Research, 2024

Collaboration still isn’t where the energy transition needs it to be

At COP28, the UN climate summit held in Dubai in 2023, the extent of the gap in global collaboration was clear: developers and governments—especially in Africa—with shovel-ready energy transition projects are saying, “I can’t see the funding” while those with the trillions in funding necessary to fuel the energy transition are saying “I can’t see the projects.” This came from an Africa Investor summit bringing together developers, government leaders, and senior finance executives to explore Africa’s vast renewable energy potential—for its people and the whole world, without needing to be either or if we get it right (this time). The lack of collaboration often comes down to risk and the unknown: The energy transition needs the finance, insurance, and technology ecosystem to be WAY more connected with the energy and utilities sector.

Two years ago, HFS identified a shocking lack of collaboration regarding the energy transition. Less than half of senior energy transition enterprise leaders collaborate internally toward their transition goals, and collaboration drops significantly throughout the ecosystem.

Underpinned by our visions of torn-down organizational and ecosystem siloes—the HFS OneOffice and OneEcosystem models—is the HFS Horizons study for energy and utilities.

Energy and utilities companies need help: the HFS Horizons study will look at the sources of that help, from functional transformation to systems change

This research will evaluate how service providers help their energy and utilities clients embrace innovation and realize value. Based on a range of dimensions to understand the Why, What, How, and So What of their service offerings (see Exhibit 2), the study examines providers’ capabilities across the energy and utilities value chain (see Exhibit 3).

Exhibit 2: Horizons are HFS Research’s vendor evaluation research vehicle designed to assess the innovation and value potential of vendor capabilities across three distinct horizons

Source: HFS Research, 2024

We’re inviting diversified consulting, technology, IT, engineering, and business process services providers with established business lines focused on supporting the industry-specific needs of energy and utilities companies to participate in this study.

Please reach out if this study sounds like a fit for your organization.

Exhibit 3: The HFS energy and utilities value chain

Source: HFS Research, 2024

The Bottom Line: Energy and utilities firms can change now or when it’s time to frantically catch up.

The fossil fuel sector is doing its best to create a “greenlash” by lobbying against renewables and even pushing to jail climate protesters. Policymakers are far too quick to capitulate (see our separate POV on unmasking the greenlash). The UN Peoples’ Climate Vote study found that 72% of people globally want to move from fossil fuels to clean energy, and a majority say the same in nine of the 10 largest oil-producing countries. Beyond oil and gas, the majority of enterprises in most industries are increasing their spending on sustainability.

The glacial pace of change relative to the global context means energy and utilities firms—even those that have not yet invested in the technologies and business model shifts to align with the necessary transition—have time to become leaders. But that time is rapidly running out—as is political and public goodwill. We might hit the positive climate inflection point too late. But when it comes, there’s still room on the right side of history for any energy and utilities firm that wants to be there.