North American Perspective on the Grand Transition

North American Perspective on the Grand Transition North America Regional Forum Ged Davis 12 September 2017 Mexico City

World Energy Scenario Workshops Global Scenario Study Group Workshops (London: Mar 15, May 15, July 15, Sep 15, Jan 16, April 16 ) EU Regional Scenarios (Paris: 21-22 Mar 16 ) 22 nd World Energy Congress Launch of Global Scenarios (Istanbul: Oct 16 ) North America Regional Workshop (DC: 4-5 May 16 ) China WELD (Beijing: March 16 ) World Gas Conference ACN Presentation of 3 papers on Unconventionals. Global Gas Center Breakfast and Natural Gas KN Workshop. (Paris: Jun 15 ) Latin America Regional Workshop (Rio: 17 Nov 15) Subset of workshops executed Workshop executed 2015 WEC Executive Assembly Presentation of initial Global Scenario Findings, e-mobility and Natural Gas Reports (Addis Ababa: Oct 15 ) India Energy Congress India Regional Workshop (Delhi: Jan 15 ) Africa Indaba African Regional Workshops (Johannesburg: Feb 15, Feb 16 ) Asian Clean Energy Forum / WELS Smart Innovation and LNG presentations (Manila: Jun 15 ) 2

World Energy Scenarios 3

Pre-determined elements of the Grand Transition Population / Workforce New Technologies Factors shaped world energy 1970-2015 Global population grew 2x (1.7% p.a.) ICT revolution Productivity growth rate of 1.7% p.a. Pre-determined elements 2015-2060 Global population will grow 1.4x (0.7% p.a.) Pervasive digitalisation; combinatorial impacts and productivity paradox Planetary Boundaries 1,900+ Gt CO 2 consumed 1,000 Gt CO 2 consumed to 2100 for the 2 C target Shifts in Power Rapid economic rise of developing nations Growing role for global institutions, e.g. UNFCCC, IMF, WTO and G20 2030: India is most populous country 2035-45: China is the world s largest economy 4

New technologies 2015-2060 New technologies, including the full diffusion of information technology, automation, more productive resource technologies, and health technologies will have the potential to reshape the economy and society Automated, zero carbon, mass transit innovation Workforce of the future and digital productivity De-centralized home Wind and solar Digital health innovation Energy efficiency and demand side behaviour Electric vehicles Smart cities 5

Grand Transition Critical Uncertainties Pace of innovation and productivity Development of international governance and geopolitical change Priority given to sustainability and climate change Selected tools for action the balance between the use of markets and state directed policy 6

Productivity Prospects Global productivity growth % p.a. Range 2.50% 1.7% 1.00% Actuals Low High 1970-2015 1970-2015 2015-2060 2015-2060 Source: Total Economy Database, The World Energy Council 7

Grand Transition Critical Uncertainties Pace of innovation and productivity Development of international governance and geopolitical change Priority given to sustainability and climate change Selected tools for action the balance between the use of markets and state directed policy 8

Selected Tools for Action States and Markets States (governments) Taxes and subsidies Public research, development, demonstration and deployment Regulation Education National and sector planning Public investment State companies (monopoly) It doesn't matter whether the cat is black or white, as long as it catches mice. Deng Xiaoping Markets (businesses) Competition (efficiency) Private research, development, demonstration and deployment Innovation Training Corporate vision and planning Private investment Private corporations Public-private enterprises Which set of tools will be dominant? 9

Three Scenarios Modern Jazz Market-driven approach to achieving individual access and affordability of energy through economic growth Unfinished Symphony Government-driven approach to achieving sustainability through internationally coordinated politics and practices Hard Rock Fragmented approach driven by desire for energy security in a world with low global cooperation Market mechanisms Technology innovation Energy access for all Strong policy Long-term planning Unified climate action Fragmented policies Local content Best-fit local solutions Page 10

Power play: three new models for growth in the utilities industry Low-Carbon Energy Producer: players respond to demand for cleaner energy solutions and economics--a low-carbon energy utility-scale model emerges. The traditional power providers shift their portfolios to non-fossil fuel generation assets. For example, EON focusing on renewables, distribution networks and consumer solutions and off-loading fossil power to Uniper. Distribution Platform Optimizer: enables an industry shift from an obligation to serve to a commitment to optimize model and empowers utilities to serve as energy clearinghouses that deliver the optimal sources of supply to meet consumer demand. Some utilities are pursuing elements of this model, e.g, pilot projects are demonstrating the use of digital devices and battery storage to reduce system risks.

Unfinished Symphony Circular Business Models Case Study Circular Supplies: Provide renewable energy, bio based- or fully recyclable input material to replace singlelifecycle inputs A. Circular Supplies Other loop C. Returning byproducts Resource Recovery: Recover useful resources/energy out of disposed products or by-products Product Life Extension: Extend working lifecycle of products and components by repairing, upgrading and reselling Sharing Platforms: Enable increased utilization rate of products by making possible shared use/access/ownership Product as a Service*: Offer product access and retain ownership to internalise benefits of circular resource productivity B. Waste as a resource Product Design Procurement A. Re/Up-cycle Manufacturing C. Remanufacture Reverse Logistics A. Resell Logistics B. Repair/ Upgrade End of life disposal n Waste leakage Sales and marketing Product use 12 Source: Accenture Strategy Circular Business Models, pg 12

Local Content Policy Maturity Level Hard Rock Local Content Case Study Outcome Small regional gains Small increase in employment of local labour Small gains for small local suppliers More suppliers in the chain Increased local medium / large suppliers Incentives to develop new business in country and increase local competitiveness Local industry internationalisation Competitive industry encourages development of pioneer technologies Colombia Isolated initiatives for local industry Nigeria Basic Local Content Model Brazil Emerging Local Content Model Norway Excellence in National Industrial Development Level I Level II Level III Level IV Isolated actions to promote local industry Often leveraged by foreign companies Focus on local workforce employment and local infrastructure improvement Local content concept defined Local content targets are set Main supply capabilities and gaps identified Local content regulation established Local content initiatives sponsored by government and private companies in place Supplier industry at worldclass level Reduced maintenance requirements Employment generation and maximized income 13

Current issues in North America 14

Energy Demand and Electricity Primary Energy Mix 2014 North America 9% 5% 17% 10% 5% 19% 5% 12% 7% 5% 7% 28% 2,717 MTOE 37% 28% 2,242 MTOE 36% 10% 31% 284 MTOE 35% 31% 191 MTOE 52% Electricity Generation Mix 2014 North America 18% 13% 5% 5,277 TWh 34% 19% 5% 6% 4,319 TWh 40% 4% 656 TWh 10% 9% 16% 13% 4% 301 TWh 11% 11% 58% 26% 27% 57% Coal Oil Natural Gas Nuclear Biomass Hydro Wind, Solar, Others 15

Issues Monitor 2017 - North America 16

Key Findings 17

1 THE WORLD S PRIMARY ENERGY DEMAND GROWTH will slow and per capita energy demand will peak before 2030 due to unprecedented efficiencies created by new technologies and more stringent energy policies. Final Energy Growth Rate (p.a.) 2.2 2.1 2.0 1.9 1.8 1.7 1.6 1.5 1.4 1.3 1.2 1.1 1.0 2000 2014 2030 2060 History Modern Jazz Unfinished Symphony Hard Rock Source: World Energy Council, Paul Scherrer Institute, Accenture Strategy

1a NORTH AMERICAN PRIMARY ENERGY DEMAND PER CAPITA Per Capita Primary Energy Demand (TOE) World (TOE) North America 7.0 6.0 5.0 The world s per capita energy demand will peak before at around 1.9 TOE/capita by 2030 7.0 6.0 5.0 4.0 3.0 2.0 1.0 4.0 3.0 2.0 1.0 North American per capita energy demand declines to 3-4 TOE/capita by 2060 0.0 2000 2014 2030 2060 0.0 2000 2014 2030 2060 Source: World Energy Council and PSI 19

1b WORLD AND NORTH AMERICAN TOTAL PRIMARY ENERGY DEMAND Primary Energy Demand (000 MTOE) World (000 MTOE) North America 20 3.5 18 3.0 16 2.5 14 12 10 New technologies to 2060 will keep global primary energy demand growth moderate relative to historical trends 2.0 1.5 North American primary energy demand will peak by 2030 8 2000 2014 2030 2060 1.0 2000 2014 2030 2060 Source: World Energy Council and PSI 20

2 DEMAND FOR ELECTRICITY will double to 2060. Meeting this demand with cleaner energy sources will require substantial infrastructure investments and systems integration to deliver benefits to all consumers.. Electricity Generation (TWh) Source: World Energy Council, Paul Scherrer Institute, Accenture Strategy

2a DEMAND FOR ELECTRICITY IN NORTH AMERICA. will rise by a quarter to a third by 2060 North America Electricity Generation Mix 2014 2060 2060 2060 13% 5% 34% 24% 19% 25% 19% 18% 5,277 TWh 11% 6,936 TWh 40% 45% 6,491 TWh 17% 12% 6,827 TWh 28% 26% 13% 13% 14% Coal Oil Natural Gas Nuclear Biomass Hydro Wind, Solar, Others Source: World Energy Council and PSI 22

3 THE PHENOMENAL RISE OF WORLD SOLAR AND WIND ENERGY..will continue at an unprecedented rate and create both new opportunities and challenges for energy systems. World Electricity Generation by Fuel Wind, Solar, Others Natural Gas Coal (000 TWh) 20 18 16 14 12 10 8 6 4 2 0 2000 2014 2030 2060 (000 TWh) 20 18 16 14 12 10 8 6 4 2 0 2000 2014 2030 2060 (000 TWh) 20 18 16 14 12 10 8 6 4 2 0 2000 2014 2030 2060 Source: World Energy Council and PSI 23

3a THE RAPID RISE OF NORTH AMERICAN SOLAR AND WIND ENERGY..rise 6 to 11 fold by 2060; particular impact on coal & gas. North America Electricity Generation by Fuel Wind, Solar, Others Natural Gas Coal (000 TWh) 3.5 (000 TWh) 3.5 (000 TWh) 3.5 3.0 3.0 3.0 2.5 2.5 2.5 2.0 2.0 2.0 1.5 1.5 1.5 1.0 1.0 1.0 0.5 0.5 0.5 0.0 2000 2014 2030 2060 0.0 2000 2014 2030 2060 0.0 2000 2014 2030 2060 Source: World Energy Council and PSI 24

4 WORLD DEMAND PEAKS FOR COAL AND OIL having the potential to take the world from Stranded Assets to Stranded Resources. 7 Coal Demand ( 000 MTOE) 110 Oil Demand (mb/d) 6 Natural Gas Demand ( 000 MTOE) 6 5 4 3 2 1 0 2000 2014 2030 2060 100 90 80 70 60 50 40 30 2000 2014 2030 2060 5 4 3 2 1 0 2000 2014 2030 2060 History Modern Jazz Unfinished Symphony Hard Rock Source: World Energy Council, Paul Scherrer Institute, Accenture Strategy

5 TRANSITIONING GLOBAL TRANSPORT forms one of the hardest obstacles to overcome in an effort to decarbonise future energy systems. Electric Vehicles of Light-duty Vehicle Fleets Source: World Energy Council, Paul Scherrer Institute, Accenture Strategy

5a TRANSITIONING TRANSPORT IN NORTH AMERICA The diversification of transport fuels drives oil share in North America falls from 92% in 2014 to 48-64% in 2060 Transport Energy Mix in North America 2014 2060 2060 2060 5% 11% 13% 4% 13% 6% 776 MTOE 30% 489 MTOE 51% 31% 477 MTOE 48% 16% 575 MTOE 64% 92% 5% 4% 2014 2060 2060 2060 Oil Natural Gas Biofuels Electricity Others Source: World Energy Council and PSI 27

6 LIMITING GLOBAL WARMING to no more than a 2 C increase will require an exceptional and enduring effort, far beyond already pledged commitments, and with very high carbon prices. Annual Carbon Emissions (GtCO 2 ) 40 35 30 25 20 15 10 History Modern Jazz Unfinished Symphony Hard Rock IPCC 2 C Target 5 0 2000 2014 2030 2060 Source: World Energy Council, Paul Scherrer Institute, Accenture Strategy

6a LIMITING GLOBAL WARMING to no more than a 2 C increase will require an exceptional and enduring effort, far beyond already pledged commitments, and with very high carbon prices. Cumulative Carbon Emissions 2015-2060 (GtCO2) Source: World Energy Council, Paul Scherrer Institute, Accenture Strategy

6b NORTH AMERICAN CO 2 EMISSIONS..peak between 2020 and 2030 CO 2 Emissions (annual) (Gt CO 2 ) 40 35 30 25 20 15 10 Global (Gt CO 2 ) 8.0 7.0 6.0 5.0 4.0 3.0 2.0 North America 5 2 C Target 1.0 0 2000 2014 2030 2060 0.0 2000 2014 2030 2060 Source: World Energy Council and PSI 30

7 TRILEMMA INDEX IN 2060 Page 31

Scenarios development: Business Model Innovation in Mexico World Energy Scenarios 2016 Grand Transition Three Scenarios Modern Jazz Mexico Case Study Alternative Pathways for Mexico 2030 Unfinished Symphony Hard Rock Launched at the 2016 Istanbul Congress Exploring Business Model Innovation 32

Best Fit Business Model Options EXAMPLES OF BEST FIT BUSINESS MODELS Energy Equity Energy Efficiency Energy Security Clean Energy Penetration Best fit business models by scenario Modern Jazz Unfinished Symphony Hard Rock Gas to wire in gas field areas with shortage of gas pipelines Smart house from brick to appliance Platform to connect O&G industry players to accelerate developments Best fit business models across all scenarios Platform to connect renewable energy players to accelerate development Energy intelligence provider 33

Thank you Ged Davis Executive Chair of Scenarios, World Energy Council www.worldenergy.org @WECouncil