In a year of market upheaval and geopolitical shifts, energy industry leaders are adjusting their energy transition strategies to ensure sufficient access to power while continuing to move toward carbon-free, renewable sources, according to Womble Bond Dickinson’s 2023 Energy Transition Outlook Survey Report. These pressures – along with significant regulatory and legislative shifts – are also prompting many in the sector to reassess their priorities, needs, and capabilities in areas ranging from meeting reduction targets to implementing ESG policies.
Market Upheaval Deepens Focus on Clean Energy, but Brings Back Demand for Legacy Fuel Sources
The second annual survey, completed by 137 executives and investors across the energy industry, provides insight into international progress toward a net-zero economy and the sector’s response to a chaotic year – one that saw energy prices spike in the wake of Russia’s invasion of Ukraine. Most executives (79%) and investors (72%) say they have changed their energy transition strategies at least slightly since 2021. Further, both groups say they are accelerating their adoption of generally cleaner energy sources, such as renewables (64% of investors; 54% of executives), natural gas (54% of investors; 38% of executives), and decarbonization technologies (42% of investors; 44% of executives).
“Volatile market conditions are pushing industry leaders to increase their focus on renewables, with the high price of fuel helping to push the transition along,” said Jeff Whittle, Global Head of Womble Bond Dickinson’s Energy and Natural Resources (ENR) Sector.
The data also shows that some in the sector are dipping back into legacy fuel sources amid more recent supply and demand imbalances, potentially as stopgap measures to ensure near-term energy security. As high demand for natural gas and fuel outstrips supply, the sector is increasing its focus on traditional energy sources such as oil (24% of investors and 30% of executives are placing more focus) and coal (16% of investors; 12% of executives) – albeit to a lesser degree than with cleaner energy sources.
“Given the uncertainty of the times, energy leaders seem to be trying to extend the life of coal as much as they can, as a hedge,” Whittle said. “Still, the use of renewables is clearly on the rise across the board.”
Sentiment Split on Preparedness to Meet Emissions-Reduction Benchmarks
Since last year’s survey, executives and investors have become increasingly polarized about the ability to meet the Biden Administration’s goals to reduce U.S. greenhouse gas emissions by at least 50% by 2030 and to decarbonize the entire U.S. electricity sector by 2035. With regard to emissions-reduction goals, this year’s survey saw increases in both the percentage of energy executives and investors saying that energy companies are “not prepared” (19% this year vs. 12% last year) and those who say they are “very prepared” (29% this year vs. 25% last year). Similarly, 23% feel decarbonization goals are “very unlikely” to be met (up from 13% last year), and 22% feel they are “very likely” to be met (compared to 14% last year).
This split may reflect general upheaval within the industry, as government support for a clean energy transition bolsters a positive outlook for some while numerous challenges remain for a universal shift to renewables. Those who are optimistic about reaching decarbonization targets explain their confidence based on technological advances (39%) and new government incentives (35%), while those who are more pessimistic are concerned about compliance costs (37%) and lack of infrastructure (30%).
Still, despite the rise in those who are doubtful about energy companies in general meeting Biden’s decarbonization goals, executives are more confident in their own organization’s ability to do so, with 34% feeling “very prepared.” This gap may reflect understandable concerns about the global supply chain and ongoing geopolitical disruptions. Executives may be unclear about how their peers handle these issues but are close enough to their own operations to be confident that they and their staffs can withstand the pressures.
Concerns Linger About Electric Vehicle Adoption, Despite Governmental Support
Reflecting on the impact of the Infrastructure Investment and Jobs Act, half of respondents believe there will be a positive impact on electric vehicle infrastructure build-out – perhaps due to the bill’s attempts to address supply-side issues. However, while most Americans support incentives for increasing the use of electric or hybrid vehicles, the firm’s survey found that energy executives and investors are worried that high prices for such vehicles (62%) and the relative lack of availability of charging stations (60%) will impede the transition.
“The hesitancies expressed by energy industry leaders are not surprising,” said Womble Bond Dickinson ENR attorney Shawan Gillians. “Consumers are concerned about the effectiveness of electric vehicles as well, particularly their range, and that’s hampering adoption in the marketplace.”
Hydrogen Gains Favor, but Cost and Infrastructure Pose Challenges
Executives and investors alike are very interested in hydrogen's potential, but the technology remains in the development stage. More than two-thirds of respondents (69%) say economic incentives, such as tax credits, will have a moderate or significant impact on hydrogen infrastructure, which is important to achieving the scale needed to reduce production and distribution costs. Most executives (90%) and investors (84%) active in or considering hydrogen projects expect it will take five or more years for green hydrogen to have a meaningful impact on the clean energy transition.
Relative to hydrogen development, investors are most concerned about the cost curve (57%) and incentive scarcity (43%), while executives are more worried about the complexity of distribution (42%), the pace of development (38%), and the lack of infrastructure (36%). This divergence can be attributed to the differences in investor and executive goals. Energy executives are more focused on the time horizon and practicalities of getting the fuel where it needs to be, as evidenced by the 26% of investors that view complexity of distribution as a challenge (compared to 42% of executives).
Adoption of ESG Policies is Growing
Seventy percent of energy executives report having implemented environmental, social, and governance (ESG) policies or are in the process of doing so, up from 57% in last year’s survey. While this signals that ESG metrics and values have become a part of the calculus for energy companies, a subgroup of executives appears to have reexamined its priorities in this area or paused implementation of ESG strategies: 16% say they are not considering ESG policies (compared to 7% in last year’s survey). Once again, this may be due to the upheaval of the past year, which understandably redirected executives’ attention, or perhaps a lack of clear regulatory standards.
For executives implementing or considering ESG initiatives, fewer report being under pressure from boards (32% this year vs. 47% last year) or regulators (40% this year vs. 48% last year), suggesting the industry may be progressing toward more advanced ESG-related programming.
“While some consider ESG a potential hindrance to profits, energy companies that implement ESG programs aren’t just setting the stage for the energy transition; they’re also ensuring their organization’s long-term access to both public and private capital,” said Lisa Rushton, Co-Head of Womble Bond Dickinson’s ENR Sector (U.S.) and Head of its Renewable Energy Subsector (U.S.).
Womble Bond Dickinson’s 2023 Energy Transition Outlook Survey Report was completed by 137 decision-makers in the energy industry, including C-suite executives (29%), investors (36%), business or operations managers (14%), and in-house legal counsel (19%). Respondents represent a broad spectrum of energy industry subsectors, including oil and gas, nuclear power, renewables, utilities, and mining and minerals. To read the complete report and methodology, please click here.
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