As part of the launch of the Business as Unusual book (click on badge on left to get to the Amazon page) by Thomas Saueressig and Peter Maier that we helped conduct interviews and research for, we will share excerpts from each of the 10 chapters/300 pages, and also give you a “behind the scenes” view by sharing snippets of some of the over 100 SAP, customer and partner video interviews that ended up in the book.
Here are some excerpts from the sixth Megatrend – Sustainable Energy
Figure 7.1 shows that, over the past 800,000 years and many ice ages, the concentration of carbon dioxide in the atmosphere has oscillated between 200 and 300 parts per million (ppm). Just a blink of the eye ago (in 1950), the carbon dioxide concentration exceeded the former maximum and has continued to shoot up ever since.
Using oil and gas will deplete the planet’s reservoirs over time, even if we continue to discover new oil and gas deposits. We already need more sophisticated extraction technologies: In early rushes for oil, all you had to do was poke a hole in the ground and install a tap. Today, we need hydraulic fracturing and horizontal drilling and cathedral sized offshore rigs. Using oil and natural gas as fuels can be considered a barbaric use of hydrocarbons that have enabled the huge field of organic chemistry to make the paints, plastics, and performance materials that shape our world.
Benjamin Beberness, vice president and global head of the oil and gas industry business unit at SAP and a former chief information officer (CIO) in the utility industry, explains the different understandings of the word “energy”: “In the utility business, when you talk energy, you’re thinking of electricity and of the natural gas that we pipe to households. In the oil and gas industry, by contrast, when you talk energy, you’re talking mostly about energy from fossil hydrocarbons, about generating renewable energy with wind and solar, and about hydrogen to store and move renewable electricity over space and time.”
Stephan Klein, senior vice president of SAP Customer Success, commented on how the discussion and concerns about sustainable and renewable energy span across industry boundaries: Earlier this year, I was quite surprised when the organizers of the World Utilities Congress in Abu Dhabi asked me to speak about whether liquefied natural gas (LNG) is a transitional fuel or a long-term component of the energy mix. Previously, LNG would be a recurring topic in oil and gas conferences, and a utilities event would have me speak about renewable energy production or the digital prosumer. This time, they wanted to discuss the role of hydrogen and chasing zero emissions. Utilities or oil and gas conference—different attendees, but the same big topic: the sustainable energy transition.”
Discussions about sustainable energy are not limited to Europe. Darren Woods, CEO of ExxonMobil, spoke about climate change and ExxonMobil’s business in a 2022 interview with CNBC: Two years ago, [the conversation was all] wind and solar, period. Today, it’s wind and solar and carbon capture and hydrogen and biofuels and ammonia. So already, in the course of a very short period of time, there’s a much broader recognition that there are a number of solutions required to make this thing work.
Accenture has long been a strong SAP partner in the oil and gas and utility industries. Muqsit Ashraf, CEO of Accenture Strategy, has been helping clients plan for energy transitions. He added a historical perspective on such transitions: “The world has been in an energy transition for centuries. We moved from biomass to coal to oil to now a multi-fuel energy mix. The two distinctive attributes of the current transition are significant demand-side changes required alongside supply-side shifts, and the convergence of multiple sectors needed to enable the transformation of the energy system.”
We are moving from single dominant energy sources to an energy mix of multiple sources. In its publication The Changing Joule Dynamic, Accenture noted the transition from the predominant use of wood to coal in the early twentieth century, followed by oil taking over in the 1960s. Since then, coal and oil have been joined by gas, nuclear power, hydropower, and wind and solar power in the market (with biomass such as wood sources on the decline). The paper doesn’t identify a dominant energy source: “No single winning fuel in the medium-term future. Uncertain paths for all energy sources.” Definitely an interesting analysis. Keep in mind that Accenture’s publication focuses on the changing energy mix and shows a drop of coal and oil in the energy mix, but in absolute numbers, the total energy demand has still skyrocketed from 7,300 terawatt hours (TWh) in 1840 to 159,000 TWh in 2021—that’s a factor of 22.
As shown in Figure 7.2, Det Norske Veritas (DNV), anticipates that energy consumption will peak at 617 exajoules in 2030 and then slowly decline to 590 exajoules in 2050. In that window, it projects, the share of renewable energy such as wind and solar will increase; hydropower, bioenergy, geothermal, nuclear fuels, and natural gas will stay flat; and the consumption of oil and coal will decline. By 2050, DNV anticipates that renewable energy (wind, solar, biomass, hydropower) and fossil energy (oil, gas, coal) will be of similar orders of magnitude. We won’t be the judge of where nuclear energy falls in this mix.
Peter Koop, global lead for energy transition for the energy and natural resources sector at SAP, has watched the renewables sector mature since he worked on his thesis at the Fraunhofer Institute for Solar Energy in the mid-1990s. Koop explained his point of view that solar power disrupts other energy carriers: “One was a large-scale power solar plant in Chile. The winning bid came in at $0.011 per kilowatt-hour. That’s full production cost. Another was in South Africa. The tender was for a gigawatt, guaranteed to be available from 5 am to 9 pm. The bidders could bid nuclear, coal-fired, gas, renewable fuel, whatever— no constraints. The winner was a solar and battery combination, so a large solar farm and batteries to store the electricity for use in the morning and in the evening. That was the cheapest, most reliable combination. That says everything. For new projects, renewable energy plus batteries should be the solution to consider.”
Daniela Sellmann, global vice president and head of the utilities industry business unit at SAP, cites another nation’s use of primary energy sources: “Iceland already started its green journey in the 1970s due to skyrocketing oil prices and its respective reliance on this resource at that time. Thus, the country has been amongst the first to invest into geothermal energy, and is now acting as worldwide sparring partner for other utilities on their way to a greener future. Today Iceland’s main primary renewable energy comes from geothermal (66%), with hydro in second place. Iceland is a role model with 85% of the total primary energy supply being derived from domestically produced renewable energy sources. This is the highest share of renewables in any national total energy budget. The remainder 15% are mainly due to transportation and shipment.”
Beyond the new load placed on power grids, yet another concern is the range of relatively scarce minerals required for an energy system moving to renewables. For example, do we have enough lithium, nickel, cobalt, and other minerals for the batteries and motors needed for electric vehicles and for power storage? The CEO of automaker Stellantis, Carlos Tavares, has warned: “The speed at which we are trying to move all together for the right reason, which is fixing the global warming issue, is so high that the supply chain and the production capacities have no time to adjust.
Simon Michaux, research professor of geometallurgy from Geological Survey of Finland (GTK), gave an even more cautious perspective in a report: “The mass of lithium-ion batteries required to power the 1.39 billion EVs proposed in Scenario F would be 282.6 million tons. Preliminary calculations show that global reserves, let alone global production, may not be enough to resource the quantity of batteries required.”
For now, let’s go back to DNV’s research showing the projected energy mix in 2050 and to Accenture’s analysis: Both suggest the need for a system-wide transformation of the energy system. Simply replacing gas-guzzling cars one-to-one with electrical vehicles will overload the grid if the grid doesn’t adapt. Grid-level battery storage for 100% of intermittent wind and solar energy is certainly neither practical nor affordable. The energy system of the future will be diverse. As DNV predicts, hydropower, nuclear, and geothermal energy will continue to play small but varied roles on a global scale even in 2050. But preference for and access to these sources is often regional. For example, France and several other EU countries will continue to use nuclear energy as an important source of electricity. Growing yet cautious optimism surrounds small modular reactors (SMRs) that can be slotted into brownfield sites in place of decommissioned coal-fired plants, but we sit on the fence here, at least until the technology has proven itself. For Norway and Brazil, both blessed with plenty of deep valleys and rivers, hydroelectric power will continue to be the dominant energy source. For Iceland, Kenya, and the Philippines, geothermal energy is critical. All these energy sources go through their individual waves of innovation—like supercritical geothermal power and gravity powered energy storage.
Our estimates suggest that about 80% of all business transactions worldwide touch at least one SAP system, so we must enable the business processes and business analytics that help our customers and the world economy transform to a system of renewable energy. On the global, national, and industry levels, the overall framework for this transition must be defined. But actions making a difference happen at the corporate, community, and personal levels. Koop focused on SAP’s areas of action, as defined in the SAP Climate Strategy Framework.
SAP’s five pillars reflect mitigation and adaptation strategies. Mitigation must be considered at a global scale since greenhouse gas molecules stubbornly ignore borders, while adaptation is occurring at a local level. For example, many coastal cities are building defenses to protect against sea-level rise, and farming communities are moving to drought-resistant crops.
Accenture’s David Rabley said that, in the popular narrative, people love to jump to the last element—the frontier discussion—and to debate the role of synthetic fuels and green, blue, and pink hydrogen. He finds that this attitude jumps the gun, and he cautioned that no simple path exists to immediately decarbonizing the transportation, cement, or steel industries: “We first need to find solutions that work with today’s assets. There is a significant set of near-term opportunities around driving efficiencies, driving increased energy management solutions, impacting demand, impacting the feedstocks of today’s value chains.”
On Rabley’s point about understanding the energy system to decarbonize it, Beberness discussed the concept of “emissions intelligence” that SAP is piloting with Accenture: “If you look at what software companies are providing, including SAP, the focus is on outward-facing reporting, as with the SAP Sustainability Control Tower. But in addition, our CEO, Christian Klein, talks about a green ledger. For finance, companies have their credits and debits. They now require the ability to track their environmental, social, and governance credits and debits as well. SAP is the only company that can extend the financial ledger with a green ledger to integrate emission-related factors in daily operational decisions. Effective action to implement the net-zero strategy so many of our customers are committed to emission intelligence.”
According to the Illinois Petroleum Resource Board (IPRB), one barrel (roughly 119 liters) of crude oil can produce either 39 polyester shirts, 750 pocket combs, 540 toothbrushes, 65 plastic dustpans, or 23 hula hoops—just a few examples among thousands of other products. You may argue that we could make do without pocket combs and hula hoops, but the IPRB also lists N-95 masks, cell phones, computers, and car tires— hydrocarbon-dependent products we would sorely miss. Essentially, pharmaceuticals and everything made from plastic or other high-performance materials depend on the oil industry.
As Sellmann explained: “The early experience with renewable energy has motivated utilities companies to develop new solutions for their industrial customers. Now, the proliferation of storage batteries, electric vehicles, connected fridges and digitally controlled A/C systems creates new opportunities to engage with consumers and make them part of a decentralized ‘virtual’ power plant. If you allow your utility provider to remotely control storage batteries, your freezer, and when exactly your car gets charged, you probably won’t even notice the demand side management, but you’ll contribute to stabilizing the grid and maximizing renewable energy. But for this we require heavy investments from utilities in smart and intelligent technologies and infrastructure.”
Sellmann’s colleagues Markus Bechmann and Mateu Munar discussed new opportunities for utilities. Bechmann commented: “In the old energy world, a consumer was a point of delivery with a meter and an address for the bill. Now, utilities want to sell and deliver comprehensive energy services. The transition from consumer to prosumer is a big shift in the industry.”
Munar focused on an example from Australia: “We are starting to see ‘community batteries,’ where prosumers can store excess power from their solar panels. It is allowing utility companies to delay investments in substations. The good news for us: You need new digital capabilities to make these models work, and our SAP for Utilities solutions are the platform to develop, deploy, and operate these innovative services.”
Koop is particularly excited about green hydrogen from Australia. Fortescue Future Industries and its partners plan to produce 15 million tons of green hydrogen per year by 2030. For Koop: “Australia today exports coal. To replace that revenue stream or even massively increase that, it’s logical to invest in green hydrogen. In the future they could also become a big exporter of green steel because they have the iron ore. Green steel should be in high demand as cities grow with global population and increasing urbanization.” Koop anticipated similar investment in hydrogen production in Middle Eastern and African countries, which enjoy a lot of space and sunshine like Saudi Arabia, as they look to replace oil revenues or develop new industries.
In recent years, Galp Energia has been expanding its retail business and investing in renewable energy sources. Beberness described the radical transformation journey Galp Energia has been on, led by a CEO who envisions the company becoming “the Amazon of energy.” That CEO is Andy Brown, who arrived to Galp Energia in early 2021 after a 35-year career at Shell.
At CERAWeek in 2022, Brown outlined his goals for Galp Energia: to spend half its capital on zero-carbon dioxide sources of energy and to reduce its own emissions by 40% by 2030.
Brown even hoped that the oil and gas sector would become more ambitious and saw creating credibility in sustainable energy investments as a central issue for oil and gas producers: “How we build credibility around investing large amounts of capital in the new energy space is, I think, is a crucial thing for oil and gas companies to come to terms with. This middle ground is biofuels, hydrogen, and carbon capture and storage because it’s business we understand, we can demonstrate it, we can deliver in that space. But we have to place very big bets to create momentum for the energy transition. It will need a lot of commitment, dedication, investment, risk-taking on new technologies and new value streams that the companies have yet to demonstrate.”
Carlos Maurer, executive vice president for sectors and decarbonization, laid out Shell's strategy for decarbonizing global sectors, using aviation as an example: “It includes participating in the Clean Skies for Tomorrow initiative for aviation and our effort around Sustainable Aviation Fuel (SAF). It currently accounts for less than 0.1% of the world’s consumption of aviation fuel. We announced our ambition to have at least 10% of our global aviation fuel sales as SAF by 2030. We are working with Rolls-Royce to test 100% SAF in airplane engines for the first time.
As summarized in Figure 7.6, Shell’s Energy Transition Progress Report for 2021 listed the variety of energy pathways for some sectors, noting that a fifth supply—mitigation and offsets—focuses on CCS and on nature-based solutions and is applicable across all sectors.
Accenture’s Ashraf emphasized the need for flexibility during the energy transition, which extends to several industries and geographic regions at different paces. For example, Accenture is collaborating with Equinor, Shell, and Total on a carbon capture and utilization storage project called the Northern Lights. Meanwhile, most industry leaders are developing a broad portfolio to develop solutions during this energy transition.
Time will tell which initiatives and ideas will develop the biggest momentum and impact in the transition to a sustainable energy system that will preserve fossil hydrocarbons for more intelligent uses than burning them and create a system that doesn’t require our great-grandchildren to pedal for 10 hours to generate a single kWh of electrical energy.
A twin of this post will include video excerpts from conversations with many of these executives so you can put a face and voice to those in the book.
Other posts on the other chapters to follow.
Time for the tech sector to think about “Business as Unusual”
I have seen it repeatedly, 4 years in a row. In 2020, I saw it in the pandemic stress in many execs I captured in the New Normal video series. In 2021, the Moment of Service book I helped IFS with showed me the massive changes in the industrial world as it servitizes. In 2022, the book I helped SAP with showed me hundreds of new business applications that have emerged in auto, consumer industries financial services, healthcare and many other sectors. 2023 is still early but the month I have spent in India has exposed me a group of humans who are hustling like crazy to make up for 3 lost years.
And yet, I see too many technology vendors who are not evolving quick enough. The last couple of decades have been generous to most of us. So we hope the current slowdown is a temporary recession. We try to keep selling what we have in the bag. We hire for the same roles which brought us here.
It’s time to reinvent technology vendors. Obviously there are plenty of new addressable markets - but they call for new products, not spray painting old products or hyping up ChatGPT. There are many new networks to explore as we think of ecosystems. Economics to revisit as mature markets are getting commoditized. Analyst relations to be re-examined and organizationally re-positioned.
Let me just spend a minute on the last point. Some of you have heard me talk about using analysts for intelligence v influence. With most AR groups being organizationally part of marketing they mostly want praise from analysts. They spend way too much time striving for the top right in the Magic quadrant of a mature product. They would add much more value if they would help their company explore new markets and help with competitive analysis for that unfamiliar turf.
Cannot say I blame them. Many of them report to execs who clearly love the adulation. You can see the narcissism in these exec's social media postings. It’s delusion - if they looked at their own win-loss analysis they would see they are far from perfect. Very far.
Personally I would love to see AR groups with a dotted line to marketing and also report to R&D and to corporate strategy.
That’s just one thought around reinventing technology vendors. In the next few months you will hear more from me about other recommendations. Technology is a very wide industry so I will nuance my thoughts for software vendors v outsourcers v hyperscalers.
Let me repeat what I have said a few times recently. Business as usual - circa 2019 - is a recipe for mediocrity. The tech sector is especially vulnerable. Time to shake up every aspect of the business.
March 07, 2023 in Industry Commentary | Permalink | Comments (0)