Trends impacting the Energy Transition | Part 1 of 3

The more we know about the dynamic changes and trends that shape our world, the more we can identify risks and opportunities on the horizon, plan for the future, and understand our respective roles in driving greater sustainability.

We know that we need a rapid and just transition to a responsible renewable energy system; therefore, we need to be aware of how the operating environment will change, what challenges it might bring with it, and how we might be able to take advantage of the opportunities it will provide.

As we put in place mechanisms and models to move towards our vision of a responsible energy system, there will be social, technological, environmental, economic, and political developments, ideas and innovations that will have significant impact on our ability to enable a rapid and just transition.

We have identified nine such trends that can help us–you–as part of the energy ecosystem to build an understanding of what might happen longer term; navigate complexity in a non-linear, disruptive future; be better prepared by identifying risks and opportunities; and develop flexible strategies to be more resilient in the face of rapid and sudden changes.

The nine trends are:

1. Equity crisis: Rising inequality calls for decent work creation
2. End of opacity: Demand for greater accountability and transparency
3. Power dynamics: Shifts in power could change ownership and governance structures
4. New tech wave: Digitisation and automation could reshape business models and the workforce
5. Shifting geopolitics: Changing dynamics between regions and countries will reshape supply chain
6. Climate adaptation: Shifting weather patterns profoundly impact society and the economy
7. Ecological emergency: Accelerating biodiversity collapse threatens the foundations of life
8. Resource overshoot: Tech advances and increasing consumption puts increased stress on raw materials sources
9. Land grab: Intensifying competition over diminishing land resources

We will explore all the trends in-depth and cover the first three in this post. When reading these trends, please bear in mind that these trends are not absolute predictions or forecasts; they are not linear in nature; and they are not exhaustive, as the future is dynamic and ever-evolving, not an extension of the past.

Trend 1 | Equity crisis: Rising inequality calls for decent work creation

The pandemic has been difficult and tragic for all, but especially for society’s most vulnerable. It has exacerbated myriad challenges, including access to energy, food, healthcare, education, and decent livelihoods.

Gender disparities — widespread across Asia before the pandemic — have significantly deepened because of COVID-19. In India, during the first lockdown in 2020, only 7% of men lost employment, versus 47% of women. These women had not returned to work even by the end of 2020. Meanwhile, India is already running out of time to make the most out of its demographic dividend, with many young people facing joblessness and increasingly at risk of disenfranchisement.

Exacerbating the situation is economic and social disruption associated with extreme weather events. The UN recently warned of a ‘climate apartheid’ risk, as the most vulnerable are again disproportionately affected.

Evidence of change

• In the context of widespread protests and social movement building such as Extinction Rebellion and Black Lives Matter, indigenous and minority rights are gaining more attention.
• In March 2021, the EU announced mandatory legislation on due diligence to protect human rights and reduce environmental impacts. Its scope will have far reaching implications for value chains beyond the EU.

Possible implications for responsible energy

• As rising inequality disempowers women and other marginalised groups, they become more vulnerable to exploitation in parts of the value chain with poor governance (e.g. through debt bondage, where a person is forced to work for little or no pay, with no control over their debt).
• The relationship between underlying deep racial/socioeconomic divides and civil unrest is also widely documented, with wide ranging risks for the security of RE infrastructure and the sector’s licence to operate.

Trend 2 | End of opacity: Demand for greater accountability and transparency

Business is under greater pressure than ever before to disclose plans, risks, and impacts on climate change and human rights. More and more stock exchanges, investors and governments are requiring more robust governance mechanisms as institutions face significant enforcement and litigation risk.

Thorough supply chain due diligence and accountability is the new baseline with many sectors affected when the European Union announced mandatory legislation that requires respect for human rights and the environment throughout the entire supply chain.

During last year’s Annual General Meeting (AGM) season, more human rights resolutions were raised, with more shareholder proposals than ever receiving majority votes.

Evidence of change

• In 2021, the U.S. announced a ban on imports of solar panel material from a Chinese company over Xinjiang forced labour allegations.
• The UK has indicated intentions to mandate Task Force on Climate Disclosure (TCFD) risk reporting for asset managers at product and entity level.
• In May 2020, a coalition of 335 investors representing $9.5trn AUM called on companies to respect the human rights of their workers and ensure their response to the pandemic would safeguard the health and safety of individuals throughout their supply chains.

Possible implications for responsible energy

• Increasing evidence that human rights performance has statistically significant effects on investor valuations and margins
• The Business and Human Rights Research Centre’s first global human rights benchmark of the largest wind and solar companies reveals that most companies lack the essential human rights policies or grievance mechanisms to avoid abuse of communities and workers. In the absence of such mechanisms, India’s RE sector risks being increasingly exposed as regulatory scrutiny intensifies.

Trend 3 | Power dynamics: Shifts in power could change ownership and governance structures

Internationally and nationally, two seemingly contradictory dynamics are at play: the concentration of power in the hands of a few large actors and the democratisation of the energy system–the latter especially as individuals and communities play an ever more diverse set of roles in the value chain.

The ownership models of even utility scale RE are changing, with community energy growing in popularity. Direct transaction mechanisms between producers and consumers are leading to a possible decentralisation of the energy markets. New actors and energy exchange mechanisms in the sector have led to new ownership and governance structures.

Meanwhile, a few large companies are investing greatly into renewables and concentrating their power in manufacturing and deployment.

Evidence of change

• Reliance and Adani are investing heavily in renewable energy deployment and manufacturing, with implications for the entire sector.
• In March 2021, Tata Power Delhi Distribution and Australian tech firm Power Ledger announced the launch of the first live peer-to-peer solar energy trading project in Delhi, signalling the possibility of innovative energy trading mechanisms in the future.

Possible implications for responsible energy

• Community-owned solar/wind and other plants with participatory governance structures could help develop trust in the renewable energy sector by allowing those impacted by the plants to be involved in decision making.
• Direct transactions between consumers and producers limits the role that discoms play in the system. This might impact revenue generation for discoms and affect households that depend on discoms’ subsidies.
• Concentration of RE manufacturing and deployment among a few companies could impact the cost of renewables and limit more participatory forms of ownership.

The Responsible Energy Initiative is looking to connect with others who are also exploring similar questions or working in a related area. Reach out to the programme manager, Saksham Nijhawan at s.nijhawan@forumforthefuture.org for more information.

These trends are written by Anna Biswas, Cynthia Morel, Sangam Paudel, and Saksham Nijhawan from Forum for the Future.

This post is part 1 of 3 in a series examining trends that are shaping the renewable energy sector. Stay tuned for Part 2 and 3, coming in the next two weeks.