Find your place in the energy transition

The Situation: The energy and utilities industries are merging. The global energy transition is shaping new industries and influencing all others. To find their place in the new world, energy and utilities firms (and all those affected) must collaborate and align their strategies to this global context.

The energy transition dominated the conversations in our recent energy and utilities Top 10 studies. Under the global context of decarbonizing to avoid the worst effects of climate change and addressing all 17 UN goals covering environmental, social, and governance (ESG) factors, organizations worldwide are abandoning fossil fuels for renewable energy sources. But the transition so far is nowhere near fast enough.

Oil and gas firms are widely rebranding into the “energy” industry. Shell, bp, and TotalEnergies (formerly Total) are major European examples. This new energy industry is moving into the traditional utilities industry market, providing electricity and sometimes other utilities en masse to consumers, including broadband in Shell’s case. New industries are forming from the energy transition, including battery and energy storage, electric mobility, and all the associated supply chain, marketing, and retail operations that emerge with them.

The energy transition is driving growth in the demand for consulting, technology, sustainability, and managed services

The energy and utilities industry value chains are in transition, as Exhibit 1 shows; the same goes for the consulting, technology, and services industries. In the energy and utilities Top 10 reports, the demand for services is growing across the whole value chain, driven by the energy transition and the multiple interlinked and competing demands facing organizations. In our energy and utilities Top 10 studies, providers and clients wove sustainability services into 25% of their engagements. See our separate Sustainability Services Ecosystem Mapping study for a wider range of sustainability consulting, technology, and services firms. Service providers have seen growth across their revenues and headcounts over the past two years, at 22% and 7% respectively in the energy industry and at 11% and 10% in the utilities industry.

Exhibit 1: Consulting, technology, and managed services are merging across the energy and utilities value chain into the energy transition services value chain

Source: HFS Research, 2022

Attitudes remain unaligned—they vary globally toward the energy transition

Energy firms worldwide are trying to find their place in the energy transition and the future. Despite specific regional attitudes, there’s broad consensus among Global 2000 energy and utilities firms in Exhibit 2 that new markets and customers are key, as is divesting what is underperforming and unsustainable. The execs we surveyed also see data and digital technologies as critical in underpinning the energy transition, furthering the demand for services.

European energy firms (despite globally continuing to invest in fossil fuels) are investing large sums in renewable energy generation and producing net-zero decarbonization roadmaps. They’re also trying their hands across the utilities value chain as they develop high-volume customer contact operations; Shell, for example, now provides broadband (from a rented network). US supermajors like Exxon Mobil and Chevron are taking a more natural-gas-heavy approach combined with carbon capture and storage developments. This is an oversimplified illustration of the trend, and all energy firms of this size are taking a wide variety of approaches. The same variation goes for energy firms across continents—each has its interpretation of the “energy transition” and a different geopolitical context to navigate.

Decarbonization pathways also differ among energy firms. While the commitments of the three European firms mentioned above stretch across Scope 1, 2, and 3 emissions (direct, indirect, and value chain emissions, respectively), Exxon’s new climate strategy, despite showing promising signs of a detailed roadmap with interim targets and measured accountability across its organization, does not account for Scope 3 value chain emissions. These account for well over 80%—even 90%—of energy firms’ overall impact on global warming, whether through suppliers or the end-use of their products.

Exhibit 2: Energy and utilities firms are on the hunt for new sources of revenue, getting rid of the unprofitable, and using data and digital to help

Sample set: 63 energy and utilities executives across Global 2000 enterprises
Source: HFS Pulse, H2 2021

Sustainability is in danger of dropping off the energy and utilities industry priority lists, and firms must balance multiple competing transitions

Exhibit 3 shows how worryingly low sustainability across ESG factors is in many energy and utilities organizations. Environmental sustainability, diversity and inclusion, and supply chain risk and resilience are falling way down the priority lists of G2000 energy and utilities industry execs.

True, these industries are grappling with multiple, competing, interlinked demands alongside the energy transition: digital and technology adoption, the effects of global fossil fuel prices rising (in the case of gas, skyrocketing), geopolitics and energy security, cybersecurity of nationally and internationally critical infrastructure, what to do with existing assets, general efficiency and cost-saving efforts, customer experience reinvention, and more besides.

Some might even say that the industries were already prioritizing sustainability. However, given how far behind we remain in the journey to decarbonize and address broader sustainability, all ESG factors must continue to rise rapidly on the agendas of all levels of organizations (see our separate take on the sustainability views of industries).

Exhibit 3: Sustainability across ESG is frighteningly low in energy and utilities firms’ outlooks. Hopefully, it means many were already prioritizing it… or embedding it throughout other efforts!

Sample set: 63 energy and utilities executives across Global 2000 enterprises
Source: HFS Pulse, H2 2021

The Bottom Line: To survive the next 30+ years where climate change and sustainability dominate, organizations must align everything they do to transition roadmaps that cover themselves, their industries and ecosystems, and the global context. Collaboration is critical to achieving this.

We often see fragmented systems and unaligned business functions as barriers to technology or sustainability goals in organizations (see our research outline this at COP26, the recent UN climate summit). But it’s not just internal disconnects that must be overcome. Industries and ecosystems must align and collaborate if any organization within them stands a chance of navigating the energy and other transitions. Their consulting, technology, and service partners will have an important role. They are plugged into ecosystems and their leading organizations.

Organizations, industries, and ecosystems need aligned goals. They must collaborate to share data to benchmark their starting points—essential for any transition roadmap—as we discuss here—and plan journeys where all can (deep breath) survive and thrive.