Transforming the North American Energy Ecosystem: Complexities, Cost, and Collaboration
By Richard Voorberg, President Siemens Energy for North America
June 8, 2022
In 2021, the impacts of climate change continued to proliferate across the country. The U.S. experienced 20 separate climate disasters, causing at least $1 billion in damage each, according to the National Oceanic and Atmospheric Administration1. At the same time, total U.S. CO2 emissions rose 5.8% year-on-year, with coal-fired generation rebounding for the first time since 2014 to provide 22% of power generation2.
Clearly, we need to accelerate the transformation of the North American energy ecosystem to a carbon net-zero model. At Siemens Energy, we want to serve as a catalyst in bringing the private and public sectors together to make the changes needed to sustainably meet continuing growth in world energy demands.
At the Bloomberg NEF (BNEF) Summit in New York City this past Spring, Siemens Energy hosted a roundtable discussion on related issues of complexities, cost, and collaboration in the U.S. energy transition. We spoke with stakeholders from the entire energy value chain — those sourcing fuel feedstocks and fuel production; utilities generating power, some using renewables; and utilities involved in transmission – on the core issues essential to the transformation. Participants also included commercial users, energy innovators, and representatives from government, finance, and academia.
Our honest conversation focused on what we call the “uncomfortable truths” of the energy transition. What follows elaborates on our discussion.
Balancing and bridging the complexities of moving to sustainable zero-carbon energy
Renewable energy is the fastest-growing energy source in the U.S., increasing 42% from 2010 to 2021 and up 90% from 2000 to 20203. However, there are still major hurdles that prevent us from relying solely on these power sources. For one, wind and solar energy are intermittent. The sun doesn’t always shine, and the wind doesn’t always blow. The reality is that expanding the use of renewables today is not possible without also expanding the use of bridge technologies such as natural gas. This led to a discussion around our first uncomfortable truth: Fossil fuels are an answer.
According to our roundtable participants, this truth is particularly true in the near-term, since the U.S. infrastructure isn’t yet ready for a net-zero energy transition and stranded assets — both capital and labor — are a big concern. Those assets include in-ground reserves and the vast infrastructure that turns those reserves into energy and distributes it as liquids, gas, or watts over wires. As one participant said, “I’ve got 30 years to depreciate all of that.”
“We can’t rip and replace everything on the hardware and infrastructure side. We must be careful about how we do a wind-down from fossil fuels to more renewables. We can’t just snap our fingers,” added another participant from the electric vehicles sector.
The U.S. infrastructure also has years of depreciation left, so new technologies must find a way to work with legacy technologies. Also stranded would be the know-how of the many millions of people whose jobs support the infrastructure and its operations along the entire value stream. We must provide retraining for these people to ensure their livelihoods.
There was considerable debate, however, about how quickly we need to get fossil fuels out of the mix. “We need more leadership on the policy side, and we need to consider a carbon tax,” was the response from a financial services participant. Several other participants echoed this sentiment, saying that without more policy and government incentives to drive accelerated renewables adoption, we will prolong the use of fossil fuels beyond what’s necessary.
Overcoming the cost barriers to no-carbon technologies
Of course, the two primary sources of renewable energy — solar and wind — are plentiful, even if variable, and by themselves cost-free. Still, turning them into practical energy sources at commercial scale underpinned the second uncomfortable truth we discussed: Renewables don’t come for free. It will require substantial capital investments with appropriate incentives and sufficient returns to make for a positive business case.
This also applies to the procurement of raw materials for sustainable energy systems, such as lithium for battery storage or iridium and platinum respectively used for the anodes and cathodes in hydrogen electrolysis. These and other needed materials aren’t just subject to market pricing but also to availability due to geopolitics.
Then there’s the overhaul of our transport infrastructure that’s needed. “Whether it’s hydrogen — gray, blue, or green — or CO2 sequestration or utilization, we’ll have to deploy many thousands of miles of new pipelines capable of transporting these safely from their sources to their points of use,” said a vice president from a major vertically integrated energy company.
Rolling blackouts in Texas and California are symptoms of the need to upgrade and expand the North American grid. “While the grid can accommodate adding 5% of renewables, a whole different set of physics comes into play when renewables rise to 80 or 90%,” advised the COO of an innovative firm specializing in grid-readiness.
Collaboration across public and private sectors is essential
To achieve a global energy transition in the shortest time possible, roundtable participants agreed that the most critical success factor isn’t technology, capital, or know-how. It’s a third uncomfortable truth: We can’t do this alone.
Unfortunately, the level of collaboration that’s needed is easier said than done. That’s because different stakeholders have different agendas and timelines.
While policy makers, especially politicians, are prone to shorter-term perspectives, another issue is rooted in politics tending to be local. “Climate change is a global issue that transcends borders,” said an executive from the new-energy arm of an international, publicly traded energy supplier. “That’s why government leaders at different levels and from different nations must come together and compromise when their goals may differ. They have to support the private sector in investing in and greenlighting the needed infrastructure.”
While the group agreed that gathering such a wide-scale consensus at the macro level is not easy to do, they concurred that international agreements to date have at least provided a framework for greater collaboration going forward.
At the micro level, one participant raised the issue of people’s innate resistance to change: “Asking someone to do something different with a mindset so ingrained in what’s worked for 100 years leaves no ability to compromise, no ability to try and bring a timeline forward because their mentality simply doesn't want to change.”
Of course, education and personal impacts from climate-induced, extreme weather events can make a difference in such perspectives. And with as many as 20 major climate disasters in the U.S. alone a year — a number likely to grow in coming years — there will be plenty of unfortunate opportunities for those resisting change to shift their thinking. But, given the urgency of our changing climate, the question always remains: Can people accept change fast enough?
No one was complacent about the magnitude, complexity, or urgency involved in making a global energy transition to a net-zero carbon future.
The BNEF roundtable was valuable in bringing different stakeholders together and drawing insights from their sometimes diverse yet often aligned perspectives. No one was complacent about the magnitude, complexity, or urgency involved in making a global energy transition to a net-zero carbon future. Also, no one felt a lack of technology, innovation, or human ingenuity to continue driving innovation was an obstacle to achieving this future.
Given that the impacts of climate change are rapidly manifesting worldwide in extreme weather events, rising sea levels, species extinctions, and other symptoms, the need to accelerate the cooperation of various stakeholders across sectors and borders was a closing point of agreement. In fact, every human living today and born tomorrow is a stakeholder, not to mention all the diverse species of flora and fauna upon which humans depend on for food and even for the air we breathe.
At Siemens Energy, we invite all interested parties to join us in becoming catalysts for driving the net-zero energy transition. To learn more about Siemens Energy’s climate change initiatives, technologies, and projects, we invite you to visit our website at siemens-energy.com/us.
1. NOAA National Centers for Environmental Information (NCEI) U.S. Billion-Dollar Weather and Climate Disasters (2022).
2. Bloomberg NEF Fact Sheet
3. Center for Climate and Energy Solutions